Organising risky decisions on hydrogen transmission capacity

Abstract

Renewable hydrogen is seen as an important element of a future decarbonized European Union. To reach the European Union’s ambitious goals for renewable hydrogen, a framework for regulating its hydrogen transmission infrastructures has been proposed, shaping how hydrogen transmission capacity via pipelines should be made available throughout the continent. With the European Hydrogen Backbone Initiative, the desires of existing fossil gas TSOs for hydrogen transmission capacity seem unlimited. However, there is a practical regulatory need for prioritising investments in hydrogen transmission capacity to keep renewable hydrogen an affordable and competitive means for decarbonization. Furthermore, scarce transmission capacity needs to be allocated between different users and uses, so that most value is made from our scarce resources. But how should regulators prioritise and allocate, when the future requirements for hydrogen transmission capacity remain highly uncertain in such a nascent, developing sector?

This thesis argues for a tailored regulatory framework for making hydrogen transmission capacity available. Rather than transferring the EU’s regulatory framework for fossil gas directly, it is crucial to explore various approaches systematically. Using the insights from property rights theory, this research compares the liberalized and unbundled fossil gas transmission systems of the EU and the US empirically, to identify a suitable regulatory model for the specific context of a nascent, developing hydrogen sector.

The findings suggest that the current EU regulatory framework is inadequate for developing a competitive renewable hydrogen value chain. Instead, a hybrid approach is proposed: employing a top-down TSO/DSO-like structure towards making decisions on transmission capacity within hydrogen clusters, and a bottom-up market-based approach between clusters. This integrated strategy aligns with regulatory and industry needs, mitigates investment risks, and supports the role of vertical-integration and long-term contracts across the developing renewable hydrogen value chain.

This thesis makes valuable academic and practical contributions to the regulation of transmission infrastructures in emerging sectors, addressing a significant gap in the current perspective on regulation. Policymakers and regulators are urged to consider these recommendations to ensure the successful development of a competitive renewable hydrogen value chain. Something that is not guaranteed under the proposed market design in the EU.