The EU Gas and Hydrogen package

The gas and hydrogen market

The Gas Package is primarily concerned with the integration of renewable and low-carbon gases into the existing gas network and the establishment of dedicated cross-border hydrogen infrastructure and competitive hydrogen market. 

The Gas Package therefore sets out rules for the organization of the natural gas market and the upcoming hydrogen market. In doing so, it covers transport, supply and storage of natural gas and hydrogen by imposing specific and detailed obligations on transmission, storage and distribution operators on the basis of the principles of transparency and non-discrimination.

The Gas Package provides for two key sets of rules relating to market design, to guarantee a competitive and open hydrogen market: unbundling and third-party access (‘TPA’).

• As regards unbundling, the Directive sees ownership unbundling as the primary solution for production or supply and network infrastructure (unless a MS implements an option to adopt of the Independent System Operators (ISO) model). Legal unbundling is required between hydrogen transmission operators and hydrogen distribution operators. Importantly, the Gas Directive unbundling rules extend to also cover the case of hydrogen transmission network operators active in transmission or distribution of natural gas or electricity. In such circumstances, the Gas Directive provides for a “soft solution”, only requiring a legal separation. The rules on unbundling are further complemented by the hydrogen operators’ requirements to keep separate accounts for each of their activities (so-called ‘account unbundling’).
• The Gas Directive states that access to hydrogen networks and storage facilities is subject to a regulated TPA regime, while access to terminals is subject to negotiated TPA. There is an option for MSs to allow for a negotiated TPA to hydrogen networks until 31 December 2032. Nevertheless, access can be refused in case of lack of capacity or connection or in other limited circumstances, e.g., planned decommissioning of the relevant infrastructure or major infrastructures such as hydrogen terminals or hydrogen interconnectors.

Hydrogen transmission and distribution network operators will play a central role in the development of the hydrogen market through a ten-year network development plan. The transmission and distribution plans will have to identify key infrastructure that needs to be built or upgraded and, more generally, identify any investment need to enhance the network. The national plan will then offer the basis for the preparation of the Union-wide network development plan for hydrogen that should be drafted by the upcoming European Network of Network Operators for Hydrogen (ENNOH). With regards to the transmission network, the ten-year plan is to be considered relevant also in the context of Projects of Common Interest in view of the faster administrative procedure, as well as the funding which these projects benefit.

Renewable and low-carbon gas integration and offtake

The Gas Regulation contains specific rules for the offtake of renewable and low-carbon gases. It explicitly recognizes a central role for the EC in supporting and encouraging the development of renewable and low-carbon gases, in particular hydrogen and biomethane.

The Gas Package includes several measures relevant for renewable gases and their integration into the natural gas network, including

• An obligation on MSs to enable the access of renewable and low-carbon gases to the market and infrastructure.
• Obligations imposed on LNG and natural gas system operators to assess, at least every two years, the possibility of new investments to allow the use of renewable gas and low-carbon gas based on market demand. In this regard it should be noted that the Gas Regulation not only refers to hydrogen but also to ammonia and liquid organic hydrogen carriers (or LHOC).
• The Gas Regulation allows MSs to adopt network tariff discounts of 100% for renewable gas and up 75% for low-carbon gas, starting from one year after the entry into force of the Gas Regulation. In order to benefit from the discount, network users will have to certify their production pursuant to the applicable rules, i.e. the Renewable Energy Directive. Nevertheless, the certification of low-carbon gas will have to wait for the EC to adopt a specific delegated act setting the certification requirements. Tariff discounts rules also provide that transmission system operators (TSOs) must adopt an inter-transmission-system operator compensation mechanism aimed at compensating TSOs in the case that, as a result of applying the network tariff discounts, a TSO loses more than 10% of its revenue. Furthermore, the discount levels could be reviewed by the Commission with a delegated act depending on the evolution of the market.
• The Gas Regulation allows for the adoption of a joint purchasing mechanism for hydrogen under the European Hydrogen Bank supervision. The mechanism should be designed reflecting the existing one for natural gas. It should then be voluntary and in compliance with antitrust rules.
• The biomethane market should benefit from a dedicated regulatory framework whereby MSs shall provide an enabling regulatory framework for biomethane production facilities in relation to connection fees and costs resulting from their connection to the transmission or distribution networks.
• In order to facilitate the harmonization and integration between national gas markets, the Gas Regulation also provides the EC with power to adopt network code or implementing acts providing common specifications for renewable and low-carbon gas.
• To further support renewable gas, and consistent with the EU policy goal to reach climate neutrality by 2050, the Gas Directive provides for the prohibition of long-term contracts for the supply of unabated fossil gas concluded with a duration beyond 31 December 2049.

Consumer protection

The Gas Package, whilst focused on the decarbonisation of the gas market and the regulation of hydrogen networks, also includes important provisions with regards to safeguarding consumers.

While setting the fundamental principle that prices should be based on the market rules, the Gas Regulation allows MSs to intervene to “ensure reasonable prices for the final customers”. In particular, and subject to detailed conditions including a notification to the EC, MS intervention in the pricing of gas for vulnerable consumers or those suffering from energy poverty is permitted for, protecting those consumers from a surge in the price of natural gas. Among other consumer-related measures, it is also worth highlighting the provisions concerning supply contract clauses, including, for example, duration and conditions for renewal as well as billing information, and the right to switch to another supplier.

Takeaways

The Gas Package is the largest legislative development in the gas market in the EU since the so-called 2009 Third Gas Package, laying down the foundation for a new integrated hydrogen market and the ramp down of the natural gas system.  However, there is further work to be done.  Clear rules on the certification process for renewable and low-carbon gases are still needed, as is continued development of other EU legislation such as the EC Delegated Act defining renewable hydrogen (which drew criticism for its potential impact on imports in view of the additionality requirement).