Energiewirtschaftliches Institut an der Universität zu Köln gGmbH

Hydrogen networks: Regulation has advantages and disadvantages

Hydrogen networks: Regulation has advantages and disadvantages

Hydrogen is considered an important future part of the energy transition. However, it remains to be seen whether and if so, how the hydrogen network will be regulated in the future. Economic and legal aspects are analyzed in a joint policy letter from EWI and EWIR.

November 2, 2020 | The regulation of hydrogen networks could prevent abuse of market power in the future and ensure more planning reliability for companies. On the other hand, it could also inhibit the development of a hydrogen network through additional regulatory costs and inefficiencies. In the joint, interdisciplinary policy brief “The Regulatory Framework for Hydrogen Networks – An Economic and Legal Classification in the Context of the Pursued Market Ramp-up” a team of the Institute of Energy Economics (EWI) at the University of Cologne and the Institute for Energy Law (EWIR) at the University of Cologne discusses economic and legal aspects of a possible regulation of hydrogen networks in the context of the planned market ramp-up.

Currently, independent hydrogen networks exist in only two industrial clusters. Only a few actors interact in these networks, so that no regulation is necessary so far. How the network structure for hydrogen will develop under the planned market ramp-up is still unknown. Therefore, there is a controversial discussion about the appropriate regulatory framework for future hydrogen networks.

Uncertain future regulation inhibits investments

Companies investing in hydrogen pipelines in a non-regulated environment today risk that their entrepreneurial scope and revenue will be restricted by the introduction of regulation in the future. Gas transmission system operators who have already suggested concrete plans for the development of a hydrogen infrastructure are hindered in their implementation by legal barriers. “If politics wants to support the development of a hydrogen economy, it should commit itself to whether and if so, how the networks will be regulated”, says Dr. Simon Schulte, manager at the EWI, who authored the policy brief together with Dominic Lencz and David Schlund.

Essential advantages and disadvantages in the discussion on hydrogen network regulation

Although hydrogen is already covered by the Energy Industry Act (EnWG) under certain conditions, there is no regulatory framework for hydrogen networks. “Whether any changes would then be implemented in the EnWG, as a separate hydrogen infrastructure law or even in the course of a complete reorganization of energy law in a separate code of law is of secondary importance. In all cases, it is important to closely coordinate with the EU regulatory framework and – where necessary – to push for changes at EU level as well”, adds Dr. Max Baumgart, who authored the document together with Felix Berger and Felix Mansius on the EWIR side.

If politicians decide in favor of a more far-reaching regulation than the status quo, they will have to weigh up – irrespective of the admissibility under EU law – whether the current gas transmission system operators should take over the grid development. The authors point out that the construction of the network by gas transmission system operators could simplify the efficient integration of existing pipelines, but could cause duplication of structures, additional coordination efforts and might also not be EU-compliant at present. If the network is operated by gas transmission system operators, the question arises whether a common or separate revenue cap for natural gas and hydrogen networks could be applied under current law and would make economic sense. This question is also addressed and discussed in the policy brief.