Sweden, like other European countries, has a strategy for the future role and growth of hydrogen. The expected expansion in the production and use of hydrogen requires the build-out of new infrastructure and/or the conversion of existing natural gas infrastructure.
A regulatory framework will need to be put in place to cover these future hydrogen networks. The EU is currently developing the underlying legal framework for the regulation of hydrogen networks, including rules for the certification of hydrogen transmission networks.
We have analysed how this framework can be implemented in national law and what it means for the development and organisation of a hydrogen network on behalf of the Swedish Energy Markets Inspectorate (Ei).
In the report, we have developed a set of recommendations to help guide Ei’s approach to regulating future hydrogen networks. These recommendations are based on a thorough analysis of EU policy and of Sweden’s hydrogen strategy. We also explored the regulatory approaches being pursued in Finland, Denmark, Germany and the Netherlands, and assessed possible lessons for Sweden.
The European legislative framework
At the time of writing, a provisional agreement has been reached in Brussels on the Hydrogen and Gas Markets Decarbonisation Package. The Package sets the future regulatory framework for both natural gas and hydrogen and, perhaps unsurprisingly, the regulatory framework applied to hydrogen closely resembles the structures already in place for natural gas. In particular, it envisions the creation of hydrogen transmission and distribution networks and imposes requirements related to third-party access to network assets and the unbundling of network operations from competitive activities.
Although the legislation supports ownership unbundling, in which network assets and hydrogen production or supply activities must have distinct owners to prevent anticompetitive behaviour, it allows for numerous alternative setups through derogations. These derogations are typically available for existing networks and geographically confined or isolated networks.
The alternative regulatory models allowed for by the legislation, which are described further in the report, are intended to avoid the heavy regulation of smaller hydrogen valleys, as well as to permit existing gas TSOs to take on a major role in hydrogen network operations.
The main insight from the review of international experience is that there is considerable diversity in how hydrogen networks are expected to develop across countries. These differences reflect, in particular, the extent of the existing natural gas network and plans to retrofit these assets to support a future hydrogen network. However, countries also differ in terms of the existing regulatory model for natural gas networks, as well as the extent to which hydrogen is seen primarily as a means to export renewable electricity or a critical input to energy-intensive industries.
National regulatory approaches are heavily influenced by existing models for natural gas networks and, in countries with strong existing natural gas transmission system operators (TSOs), these organisations typically have a central role. Sweden has very limited natural gas network infrastructure, so pursuing a different approach may make more sense.
Recommendations for a Swedish regulatory model
One of the challenges in Sweden and elsewhere is matching the near-term needs of nascent hydrogen development with the expected future needs of a potential international hydrogen economy. It is important to make sure that any regulatory model adopted today can transition to meet the needs of a potentially much larger hydrogen network in the future.
As part of the work, we consider a variety of models for a future hydrogen transmission network which vary both in terms of the nature of ownership unbundling and the degree of integration with the natural gas or electricity network. We conclude that a traditional national TSO model, in which the network operator owns the entire transmission network, is likely to make for a simpler regulatory model while still supporting efficient network development. In the long-term, sector coupling with the power sector suggests that there might be coordination benefits to having a future hydrogen transmission network operator integrated with the electricity TSO.
The report is an input into the Swedish Energy Agency’s broader mandate to investigate how hydrogen and hydrogen infrastructure should be developed in Sweden. It is available via the link below.