Impact of the use of the

biomethane and hydrogen

potential on trans-European
infrastructure

Final report
April 2020
Authors:
Luc van Nuffel (Trinomics)
João Gorenstein Dedecca (Trinomics)
Jessica Yearwood (Trinomics)
Tycho Smit (Trinomics)
Ulrich Bünger (LBST)
Matthias Altmann (LBST)
Christian Fischer (LBST)
Jan Michalski (LBST)
Tetyana Raksha (LBST)
Jan Zerhusen (LBST)
Alessia De Vita (E3M)

EUROPEAN COMMISSION
Directorate-General for Energy
Directorate B — Internal Energy Market
Unit B1 – Networks and Regional Initiatives
Contact: Katrien Prins
E-mail: [email protected]
European Commission
B-1049 Brussels
 EUROPEAN COMMISSION

Impact of the use of the

biomethane and hydrogen
potential on trans-European
infrastructure

Directorate-General for Energy

Internal Energy Market
2020
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Luxembourg: Publications Office of the European Union, 2020

ISBN 978-92-76-17941-2
doi: 10.2833/492414

© European Union, 2020

Reproduction is authorised provided the source is acknowledged.
Table of Contents

1 Objective, methodology and structure of the study ......................... 1

1.1 Objective ............................................................................................. 1
1.2 Methodology ........................................................................................ 2
1.3 Structure of the report .......................................................................... 3
2 Potential availability of biomethane and hydrogen in the EU and
neighbouring countries ...................................................................... 3
2.1 Theoretical, technical, economic potential – Definition of terms .................. 3
2.2 Potential availability of renewable hydrogen ............................................. 4
2.2.1 Water electrolysis – state of the art and perspectives ................................ 5
2.2.2 Technical renewable electricity potentials in the EU ................................... 5
2.2.3 Technical Potential for hydrogen production ............................................. 7
2.3 Potential availability of biomethane ......................................................... 8
2.3.1 Current biogas / biomethane production in the EU .................................... 9
2.3.2 Biomethane production potential............................................................10
2.3.3 Biomethane production cost ..................................................................13
2.3.4 Eastern Europe – potential for biomethane import and costs .....................14
3 Technical and economic impact of increasing injection of biomethane
and hydrogen into gas infrastructure ................................................. 14
3.1 Today’s European gas infrastructure and its major components for transport
and distribution .................................................................................................14
3.2 Assessment of the technical and regulatory admixture limits for hydrogen and
biomethane.......................................................................................................15
3.2.1 Technical limitations for the admixture of hydrogen .................................15
3.2.2 Technical and regulatory admixture limits for biomethane .........................18
3.2.3 Possible way forward for hydrogen admixture ..........................................18
4 Assessment of the socio-economic and environmental costs and
benefits of increased use of biomethane and hydrogen ........................ 20
4.1 Description of the energy system interlinked model..................................20
4.2 Scenario description and general boundary conditions for energy system
modelling 22
4.3 Major assumptions for the energy system modelling ................................24
4.3.1 General boundary conditions .................................................................25
4.3.2 Other assumptions ...............................................................................26
4.4 Cost structure for the natural gas network and for the use of biomethane and
hydrogen 27
4.4.1 General understanding of possible developments of gas networks ..............27
4.4.2 Cost structure for methane and hydrogen networks .................................28
4.5 Use of electricity, methane and hydrogen in energy end-use sectors in the EU
in 2015, 2030 and 2050 .....................................................................................31
4.5.1 Transport ............................................................................................31
4.5.2 Residential sector and services ..............................................................32
4.5.3 Industry .............................................................................................33
 4.5.4 Overall gas demand .............................................................................33
4.5.1 Optimal design of the interlinked energy system ......................................34
4.6 Evaluation of the economic and environmental costs and benefits ..............47
4.6.1 Comparison of the energy system costs ..................................................47
4.6.2 Incremental gas infrastructure costs for national transport and distribution
networks........................................................................................................50
4.6.3 Economic valuation of hydrogen and biomethane in gas infrastructures ......52
4.6.1 Environmental valuation of hydrogen and biomethane ..............................53
4.6.2 Sensitivity analyses ..............................................................................54
5 Current status of the gas sector in selected Member States ........... 57
5.1 Gas network planning ...........................................................................58
5.2 Revenue regulation and network tariffication ...........................................59
5.2.1 Revenue regulation for gas network operators .........................................59
5.2.2 Gas network access and use tariffication .................................................61
6 Development of biomethane and hydrogen in selected Member States
63
6.1 Current state of biomethane and hydrogen in the selected EU Member States
63
6.2 Policy and regulatory framework for biomethane and hydrogen .................66
6.2.1 Targets and regulatory framework at the EU level ....................................66
6.2.2 Existing plans and targets for biomethane and hydrogen ..........................67
6.2.3 National legal framework for the injection of biomethane and hydrogen ......69
6.2.4 Support for biomethane and hydrogen....................................................71
6.2.5 Network connection and access tariffs ....................................................72
7 Impact of considered scenarios on selected TSOs and DSO ............ 73
7.1 Impact of biomethane and hydrogen in the networks of selected system
operators 74
7.1.1 Network investments ............................................................................76
7.2 Impact on the business case of selected system operators ........................78
7.3 Mapping of the system operators business cases .....................................83
8 Readiness of the regulatory regimes to support decarbonised gases &
proposed policy and regulatory measures .......................................... 86
8.1 Readiness of the TEN-E and CEF regulations............................................86
8.2 Performance of the selected national regulatory regimes under the three
scenarios 88
8.2.1 Planning of gas infrastructure ................................................................88
8.2.2 Revenue regulation ..............................................................................89
8.2.3 Network tariffication .............................................................................91
8.2.4 Role of system operators in the development of new technologies .............94
8.2.5 Network connection and access for renewable and/or decarbonised gases ...96
9 Conclusions and recommendations ............................................. 96
References
 Executive Summary
The aim of this study is to obtain a better understanding of the potential of biomethane
and hydrogen to contribute to the decarbonisation of the EU energy system, the impacts
this will have on the gas infrastructure and the extent to which gas network operators and
regulators are prepared to cope with these impacts. This study builds on the findings from
the previous gas infrastructure 2050 study,1 while significantly advancing the provision of
quantitative data to the analysis. The three explorative scenarios and assumptions
regarding the use of electricity, methane and hydrogen serve to analyse this impact on the
gas infrastructure, rather than aiming to forecast the most probable deployment pathway
of biomethane and hydrogen in the EU or any Member State.

Biomethane and hydrogen will play an important role in the transition to a

decarbonised energy system. In 2017, natural gas represented around 22% of the EU
final energy consumption,2 with natural gas infrastructure playing a correspondingly
significant role. However, this role is complex and heterogeneous across Member States:
the share of gas in the national energy mix is quite diverging, gas transmission networks
are managed by 44 system operators (TSOs) that use not fully harmonised gas
specifications and technical standards, and the type and extent of infrastructure vary
significantly across countries.

According to the different scenarios of the European Commission’s 2050 Long-Term

Strategic Vision, gas demand in the EU will decrease from the 2015 levels by 20 to 60% in
the long term, with the demand for natural gas at least halving.3 Regardless of the overall
gas demand evolution, the role of renewable and low-carbon gases will however in all its
scenarios increase in the coming decades. In this context, a number of studies have been
conducted on the potential development of low-carbon and carbon-neutral gases in Europe
and its impact on the energy infrastructure.4 Despite methodological differences and
diverging study outcomes, a consensus is emerging that low-carbon gases will play a major
role in decarbonizing the EU economy, with the support of the European gas infrastructure.

The analysis begins by assessing the technical potentials for renewable hydrogen and
biomethane, with a focus on the intra-EU potential. The EU potential for sustainable
biomethane is limited, while the technical potential for hydrogen and synthetic
methane production based on renewable electricity is large enough to substitute
the (remaining) natural gas demand.

The technical potential renewable electricity generation in the EU28 is estimated at 14

000 TWh/yr. The annual additional5 hydrogen production potential from electrolysis of
renewable electricity for the EU would amount to 6 500 TWh in 2030, increasing to
7 900 TWh in 2050 due to expected efficiency gains in electrolysis. To exploit this potential,
further development and commercialization of electrolysis will be needed, as well as the
expansion of renewable electricity production and intermediate hydrogen storage capacity.

For this study, a conservative technical biogas/biomethane EU28 production potential of

1 150 TWh/yr is estimated. Subtracting the current biogas production results in an
additional production potential of approx. 950 TWh/yr. The potential development of
renewable methane is limited by the availability of biomass resources, by the

1
Trinomics, LBST et al. (2018) The role of Trans-European gas infrastructure in the light of the 2050 decarbonisation targets.
2
European Commission (2017), Energy balance sheets 2017 Edition.
3
EC (2018). A Clean Planet for all A European strategic long-term vision for a prosperous, modern, competitive and climate neutral
economy. COM(2018)773. EC (2018). In-depth analysis accompanying the Communication COM(2018)773.
4
Trinomics, LBST et al. (2018) The role of Trans-European gas infrastructure in the light of the 2050 decarbonisation targets; Frontier
Economics (2019) The Value of Gas Infrastructure in a climate-neutral Europe; Navigant (2019). Gas for Climate - The optimal role gas in a
net-zero emissions energy system.; European Climate Foundation (2019). Towards fossil-free energy in 2050; ICCT (2018). The potential
for low-carbon renewable methane in heating, power, and transport in the European Union.
5
Correcting for the electricity that is needed to satisfy the electricity demand as of 2016.

i
implementation of more strict sustainability criteria, and by competing uses. 6 Major
additional potentials for renewable and low-carbon gases exist in neighbouring countries
such as Norway, Ukraine, Belarus and Russia; this potential is however not further
considered in this study.

Hence, the EU’s technical potential for renewable hydrogen by far exceeds the 2050 gas
demand considered in this study: in none of the scenarios for 2030 or 2050 the gas demand
exceeds 4 100 TWh/yr. In contrast, the EU biomethane technical potential is not sufficient
to meet the current nor future gas consumption. Nonetheless, results for both hydrogen
and biomethane vary significantly by Member State based on national determining factors
and restrictions.

Physical and trade exchanges of renewable gas (and electricity) between Member States
in an integrated market will hence be of great importance to decarbonise energy supply
and cover energy demand at least cost, and to ensure efficient energy system and market
functioning, given the unequal distribution of renewable energy resources across countries.

Based on the storylines of the gas infrastructure 2050 study7 the study develops three
explorative scenarios, each focused on strong end-use of one of three considered
energy carriers: electricity, methane or hydrogen. For example, in the “electricity”
scenario, electricity end use is dominant while methane and hydrogen play a much smaller
role. In all scenarios the overall gas supply until 2030 declines by 20%-30%, to approx. 3
000-3 500 TWh/a mainly due to a switch to other end-user applications using non-gas
energy carriers as well as improved end-use efficiencies (Figure 1). The structure of the
gas supply in 2030, however, is similar to the present. The gas infrastructure in 2030 is
based on natural gas, which is mainly imported from outside the EU, and the share of both
biomethane and hydrogen production is still rather limited.

In 2050, the energy system has changed drastically. Due to the strong GHG emission
reduction target, almost no fossil fuels can be used, and limited natural gas imports have
to be offset by negative emissions. The dominant primary energy sources are biomethane
and renewable power, with the latter reaching 5 000-6 800 TWh/a in 2050, thereby
becoming the dominant power source for end-use consumption as well as hydrogen and
synthetic methane production.

Figure 1 Gas supply in EU28

In the electricity-focused scenario, the system utilises in 2050 the full potential of
biomethane of 1 150 TWh/yr. Approx. 230 TWh/a of synthetic methane is produced and
used for re-electrification, but it is still cheaper to source fossil gas up to a predetermined

6
The sustainability criteria of the recast Renewable Energy Directive were taken into account, but may constitute further limitations to the
biomethane potentials estimated. The technical potential presented here assumes that all bioenergy not used today is available for biogas /
biomethane production; other energetic uses are excluded.
7
Trinomics, LBST et al. (2018) The role of Trans-European gas infrastructure in the light of the 2050 decarbonisation targets.
ii
GHG cap rather than to further develop methanation. Hydrogen supply amounts to approx.
860 TWh/a, mostly for direct consumption and as feedstock for methanation.

The methane-focused scenario also utilises in 2050 the full biomethane potential. In
addition, almost the same amount of synthetic methane is produced via methanation for
end-use and re-electrification. Hydrogen production reaches over 2,200 TWh/a, but only
limited amounts are employed directly in end-use sectors, as most serves as feedstock for
methanation. Hence, the overall gas demand and supply in this scenario is much higher
than in the other two scenarios, due to methanation losses.

In the hydrogen-focused scenario, hydrogen is the major gas type with more than 2,100
TWh/a in 2050, due especially to direct end-use. By 2050 electricity is used only for those
applications where it is technologically and economically more suitable and more efficient
than hydrogen, while methane demand decreases substantially. To avoid parallel gas
infrastructures, mainly hydrogen is transported and distributed at all network levels.

The implications for the existing networks vary between scenarios. None or little technical
or regulatory barriers exist for the admixture of biomethane. In contrast, current gas
networks can only be used to transport admixed hydrogen up to a certain limit, which
differs depending on the type and characteristics of the network and end-user appliances.
For higher concentration admixtures, technical modifications and/or new infrastructure or
equipment are required. While hydrogen admixture is today possible up to different limits
depending on national regulations, there is no consistent policy nor regulatory framework
in place in Europe to allow small or large-scale injection of hydrogen to the gas network.
The pathways for increasing hydrogen admixture are further detailed in this report.

A scenario focused on electricity and gas sector coupling where hydrogen plays
a central role would offer the least-cost outcome, while also allowing to value
existing gas assets. Until 2030 the three scenarios present similar system cost structures
and magnitudes, with major contributions from fossil energy imports. In the long-term to
2050, the overall system costs decrease due to cheap renewable power, increasing sector
integration and substitution of energy imports. The lowest system costs are achieved with
a hydrogen-focused scenario, followed by the electricity and methane scenarios, and reflect
the trade-off between renewable energy production, system flexibility and gas supply. The
methane-focused scenario is less attractive due to its lower overall efficiency (related to
additional investments, energy losses in the methanation process and lower end-use
efficiency for transport). It is important to highlight that the scenario modelling is of
explorative character with regard to the demand for the major energy carriers within the
end-user sectors, i.e. the three scenarios differ in certain assumptions related to end user
choices of applications using either electricity, methane or hydrogen.

Figure 2 Annual energy system costs (excluding national energy transport costs) in EU28

Each scenario leverages and impacts both cross-border and national gas
networks differently according to the dominant energy carrier. Countries with large
iii
 renewable energy potentials in comparison to limited domestic demand become gas
exporters, whereas Member States characterised by high gas demand but low domestic
production from renewables are net gas importers. Particularly in the electricity and
methane-based scenarios, the Scandinavian and Baltic counties supply large amounts of
biomethane, while in the hydrogen scenario Scandinavia, the Baltic countries and Southern
Europe are important gas exporters (Figure 3).

Figure 3 EU28 cross-border annual gas flows in 2050 for the three scenarios

Electricity Methane Hydrogen

Member State profile Annual gas flows

Importer None <20 TWh/a 20-50 TWh/a

Exporter 50-100 TWh/a 100-200 TWh/a >200 TWh/a

The decarbonization of gas supply and consequent reconfiguration of gas flows

will substantially affect the business case of gas network operators. In the mid-
and long-term the risks faced by gas network operators mainly result from changes in
underlying technical and regulatory factors affecting the cost of service and the transported
gas volumes in the medium and long term. While some grid operators are already acting
(in various extents) to address these risks, the confidence of stakeholders that the risks to
the business case of grid operators are limited in the mid-term, is related to the belief that
these underlying factors such as the need for gas transport services will remain stable until
2030, or at least that measures to contain the cost of service and extreme tariff increases
are available.

Based on a simulation of transport tariffs, the most significant long-term risks to TSOs in
case of a large change in the cost of service or transported volumes (and thus tariffs) would
come from a significant reconfiguration of gas flows in the EU to 2050. Specifically,
important cross-border transmission investments could lead to an increase in transmission
tariffs, especially in the case that dedicated hydrogen networks would be developed.
Related to this, there is still significant uncertainty regarding both the OPEX levels and the
necessary regulatory framework for hydrogen networks. Also, if gas transmission
investments are made before 2030 while not considering the uncertainty to 2050, this
could lead to stranded assets and consequently to substantial re-evaluations of the
regulatory asset base. Moreover, the reconfiguration of the network will require the
corresponding adaptation of cross-border and national network cost allocation, as different
transit and intra-system flows will become the main gas network cost drivers.

DSOs will also have a major role in the gas infrastructure transition, facing some of the
same drivers impacting the business case of TSOs. However, the impact magnitude will be
different and vary much more across regions. DSOs have a more important asset base and
higher cost of service than TSOs. Local developments are expected to be more divergent
than at the transmission level, and while the transmission volumes would in general
decrease, certain DSOs will see an increase in their transported volumes and a more
frequent occurrence of reverse flows from the distribution to the transmission level.

iv
The importance of stable long-term policies is pivotal for the business case of system
operators, and impacts many of the other risks discussed, as the period from 2030 to 2050
is where the most important transitions will occur. Clarity on the target decarbonization
levels will provide the overarching framework from which the planning scenarios and
necessary regulation should be developed, also given the differences in policies aiming at
near-complete or full net decarbonization.

Current national policy and regulatory frameworks for renewable gas are largely
heterogeneous. There is a variety of incentives in place to stimulate renewable gases,
but these vary widely across Member States and few concern grid connection and access.
In contrast, the planning and revenue regulatory frameworks for gas networks have many
common aspects across Member States. Some countries (especially the few ones with more
short-term deployment of renewable gases) are experimenting with measures such as
regulatory sandboxes, but still hydrogen and biomethane are addressed sporadically.

Regarding the TEN-E and CEF regulations, they have helped develop well-integrated and
secure gas markets. Now a number of changes could be considered to better support the
deployment of hydrogen and biomethane in gas networks. Options include the potential
update of the TEN-E priority corridors, areas and the eligibility criteria for PCIs and CEF,
broadening the scope to distribution projects and those facilitating sector coupling
(hydrogen networks, power-to-gas and deblending) and including innovation and
robustness to uncertainty in the selection criteria. The cost-benefit analysis methodology
and underlying scenarios could also better account for renewable and decarbonised gases,
and prioritise making best use of existing infrastructure, including through conversion.
Furthermore, there is a lack of coherence across national frameworks for the hydrogen
blending which may hinder the development of a consistent European approach and
therefore the cross-border transport of hydrogen.

The main high-level recommendations of the study focused on gas infrastructure are:
 Appropriate technical standards and specifications should be elaborated to
facilitate biomethane and hydrogen deployment. A supportive regulatory
framework for hydrogen blending as a tool for decarbonising the gas supply
should be developed. For higher hydrogen volume concentrations, dedicated
transmission and distribution infrastructure would be more appropriate than
admixture to methane;
 Further analysis of the role of hydrogen and of strategies for a stepwise
development of 100% hydrogen network “islands” that subsequently grow into
one large hydrogen network is worth exploring;
 Planning of new energy infrastructure should be more integrated and be based on
the overall future energy system while optimising the use of existing
infrastructure, with clear guidance from policymakers on gas decarbonization
pathways;
 TEN-E and CEF regulations should support projects facilitating the integration of
renewable gas, shifting the gas sector focus to projects that are future-proof and
efficiently contribute to the energy transition;
 An adequate regulatory framework for power-to-gas should be developed,
addressing barriers to investment and further considering the role of TSOs;
 An appropriate regulatory framework for dedicated hydrogen networks should be
defined in a timely manner, considering the role of the current natural gas
network operators in a fully or partially regulated approach;
 Streamlining efforts for incentives to renewable gases are required to improve
effectiveness, avoid competition distortion between energy vectors, and value
economic benefits of local renewable gas production;
 Measures could be considered to mitigate potential negative impacts on system
operators and network users from decreasing gas demand and changes in gas
flows. While regulatory principles such as cost-reflectivity should be respected,
alternatives to e.g. current unbundling requirements could be considered in order
to reduce the system cost.

v
1 OBJECTIVE, METHODOLOGY AND STRUCTURE OF THE STUDY
1.1 OBJECTIVE

The EU has increased its ambitions to decarbonise its energy system and economy, and
has substantially reformed its energy and climate policy framework accordingly. However,
these regulatory changes have not specifically addressed the gas market design, for which
the European Commission is preparing a regulatory package. In addition, the European
Commission will evaluate the Trans-European Energy Network guidelines (TEN-E) while
the Connecting Europe Facility (CEF) regulation is being reviewed.

The EU gas infrastructure consists of more than 200,000 km of transmission pipelines,

more than 2 million km of distribution networks and over 20,000 compressor and pressure
reduction stations.8 More than 115 million domestic, commercial and industrial end-users
are connected to the gas network.9 Natural gas represented in 2017 around 35% of the
households’ final energy consumption and 22% of the total final EU energy consumption.10
The European gas network is highly inhomogeneous and complex. The transmission assets
are currently operated by 44 TSOs and gas specifications and technical standards are not
harmonised; the type and extent of infrastructure also varies significantly across countries.

In 2017, the EU28 imported about 3,550 TWh and consumed 4,800 TWh of natural gas,
which resulted in a dependency level of 74%11. As the EU demand for gas is expected to
grow by 1% per annum to 2035, which constitutes a total rise of 19.6%, while domestic
natural gas production would further decline, the EU would have to increase its imports of
pipeline gas and LNG from existing or alternative suppliers. The EU can however reduce
its natural gas import dependency by developing and promoting the use of domestic
alternatives, in particular renewable gas. In the long term, gas demand would decrease
from the 2015 levels by 20 up to 60% according to the different scenarios of the European
Commission’s Long-Term Strategic Vision, with the demand for natural gas at least
halving.12 The supply of low-carbon gases would rise significantly in all scenarios, and
would hence play an increasing role for transforming and decarbonizing the energy system
to 2050.

The future gas demand will be heavily influenced by gas prices, economic growth and
(geo-)political interests, as well as by climate targets. Therefore, independently of the
overall gas demand evolution, the role of biomethane and hydrogen in the European gas
system is inevitably going to increase in the coming decades. This is reflected in the
scenarios of the 2018 Ten-Year Network Development Plan, which already forecasted a
share of biomethane in energy demand by 2040 of up to 13%, and of 3% for power-to-
gas. These shares are expected to increase in the scenarios for the 2020 Plan.

In this context, a number of studies have been conducted on the potential development
of low-carbon gases in Europe and on sector coupling.13 There are indeed still many open
issues regarding the level of future gas demand, the potential for biomethane and
hydrogen, the most appropriate technologies and deployment pathways, the highest value
end-uses for low-carbon gas, the impact of these developments on gas infrastructures,
the business rationale for gas network operators and the regulatory readiness at the EU

8
CEER (2018). CEER Benchmarking Report 6.1 on the Continuity of Electricity and Gas Supply, Brussels
9
Marcogaz (2014). Technical statistics 01-01-2013, Brussels.
10
European Commission (2017), Energy balance sheets 2017 Edition.
11
Eurostat (2019) Simplified energy balances
12
EC (2018). A Clean Planet for all A European strategic long-term vision for a prosperous, modern, competitive and climate neutral
economy. COM(2018)773.
EC (2018). In-depth analysis accompanying the Communication COM(2018)773.
13
Trinomics, LBST et al. (2018) The role of Trans-European gas infrastructure in the light of the 2050 decarbonisation targets; Frontier
Economics (2019) The Value of Gas Infrastructure in a climate-neutral Europe; Navigant (2019). Gas for Climate - The optimal role gas in a
net-zero emissions energy system.; European Climate Foundation (2019). Towards fossil-free energy in 2050; ICCT (2018). The potential
for low-carbon renewable methane in heating, power, and transport in the European Union.

1
and Member State level. Recent studies regarding the potential role of the different low-
carbon gases (biomethane, hydrogen and synthetic methane) to achieve the
decarbonization of the energy system at least cost, present diverging outcomes. For
example, the ICCT study arrives at significantly different potentials for biomethane
compared to the Gas for Climate study, while the ECF study reserves a limited role for
renewable gases in its least-cost scenario. The assumptions and modelling approaches
constrain the comparability of the studies. Nonetheless, despite the remaining
uncertainties, a consensus is emerging that low-carbon gases will play a major role in
decarbonizing the EU economy and that European gas infrastructure may support this.

The aim of this study is to obtain a better understanding of the potential of biomethane
and hydrogen to contribute to the decarbonisation of the EU energy system, the impacts
this will have on the gas infrastructure and the extent to which gas network operators and
regulators are prepared to cope with these impacts. This study builds on the findings from
the previous Gas Infrastructure 2050 study, but it significantly advances in the provision
of quantitative data to the analysis.
1.2 METHODOLOGY

The methodology used for this study comprised first of all an in-depth review of relevant
studies and reports complemented with ad hoc contacts, in view of assessing the potential
availability and use of biomethane and hydrogen in the EU28. The potential supply
estimates are mainly based on domestic resources, but for biomethane, imports from non-
EU countries are also considered. For hydrogen specifically, the potential domestic
availability of renewable electricity to operate electrolysis at large scale is screened.

The feasibility and impact from a regulatory and technical perspective, of injecting
increasing volumes of biomethane and/or hydrogen into the gas network have been
assessed on the basis of an extensive literature overview, including EU and national
technical documents, standards and specifications as well as specific studies and projects
regarding the suitability of existing gas infrastructure for hydrogen and biomethane.

The economic and environmental costs and benefits of the deployment of the full potential
of biomethane and hydrogen have been assessed for three different hypothetical scenarios
(environmental costs are calculated as CO2 emissions avoidance cost). As a first step, the
scenarios and general boundary conditions have been defined and agreed upon setting the
scene for all data and information compilation feeding the energy model. Following, the
major energy framework for the three scenarios was derived from existing studies and
policy documents, addressing the energy demand side, the technology evolution,
availability and cost, concluding in the quantities of biomethane and hydrogen that
potentially could be used in the different end-use sectors. The energy model has been
applied in four distinct steps: 1) definition of the energy system and its interlinkages, 2)
collection of input data not provided by the preceding steps, 3) model runs, and 4)
evaluation of the data from an economic and environmental perspective.

Based on the modelling results for the EU28, the impact of the three scenarios on gas
networks and network tariffs has in more detail been evaluated for five selected Member
States (Germany, Hungary, the Netherlands, Spain and Sweden), while the readiness of
their regulatory regime to facilitate the deployment of renewable gas has also been
evaluated. The methodology consisted of an in-depth literature review, using both EU level
and Member State specific data sources, complemented by interviews with representatives
from the National Regulatory Authorities (NRAs) and network operators from the selected
Member States. The regulatory framework for gas infrastructure is presented and
analysed, with a focus on the development and operation of the gas network, network
operators’ revenue regulation and network tariffication. The current state of the
development of biomethane and hydrogen in the selected countries is also analysed,
covering the entire value chain, from production to transport, storage and finally

2
consumption. Finally, the specific policy and regulatory framework for renewable gas is
evaluated for the selected Member States, covering aspects such as targets, economic
support and certification. Based on the information gathered and analysed, and on the
modelling results, key issues in the regulatory framework hindering the development of
hydrogen and biomethane are identified and measures and recommendations are
proposed to enhance the regulatory and policy framework.
1.3 STRUCTURE OF THE REPORT

The report is divided into three main parts:

 The first part (Chapters 2-4) analyses the potential supply and use of
biomethane and hydrogen, evaluates the feasibility and impact of injecting these
gases into the natural gas network and assesses the costs and benefits of the
deployment of their full potential under three defined scenarios;
 The second part (Chapters 5-8) assesses the implications of the three scenarios
on gas network operators and network tariffs and evaluates the regulatory
readiness of selected Member States;
 The last part (Chapter 9) presents recommendations, including on the TEN-E
and CEF regulations, to facilitate the deployment of renewable gas.

2 POTENTIAL AVAILABILITY OF BIOMETHANE AND HYDROGEN IN THE

EU AND NEIGHBOURING COUNTRIES
In this chapter, the technical potentials of hydrogen and biomethane production in the
European Union are assessed; they serve as volume caps for the economic optimization
algorithm used in the modelling that is presented in chapter 4.

Based on a definition of the different types of energy resource potentials, the technical
potential is assessed for the production of hydrogen from renewable electricity as major
source to operate electrolysers. Furthermore, the technical potential for the production of
biomethane and the related costs are assessed based on recent studies.
2.1 THEORETICAL, TECHNICAL, ECONOMIC POTENTIAL – DEFINITION OF
TERMS

When availability potentials are assessed, a differentiation is made between the

theoretical, technical and economic potential. The theoretical potential represents the
quantity of energy that can be produced in a given geographical region while only taking
into account physical boundary conditions.

The technical potential is derived from the theoretical potential by taking also into account
technical, ecological and administrative/legal restrictions including transformation losses,
geographical and temporal discrepancies between energy production and energy demand,
non-availability of areas, etc. As an example, for onshore wind energy, urban and built-up
areas including setback distances as well as protected areas, are excluded, while for solar
photovoltaics (PV) urban and built-up areas are perfectly suited and hence taken into
account. Competition for land use is also taken into account; for solar PV, roofs and
facades are included while in a conservative approach taken here other surface areas are
only included along motorways and railway lines.

The economic potential is the part of the technical potential that can be exploited under
the prevailing economic circumstances. The definition of the three potential types is
illustrated in Figure 2-1.

3
Figure 2-1 Definitions of energy resource “potentials”

This study mainly focuses on the technical hydrogen and biomethane potentials within the
EU. Major additional technical potentials exist in neighbouring countries such as Norway,
Ukraine, Belarus and Russia, but it should be further assessed to what extent these
sources would comply with the strict sustainability criteria agreed upon in the EU.
2.2 POTENTIAL AVAILABILITY OF RENEWABLE HYDROGEN

Hydrogen (H2) – the first and lightest element of the periodic table – is not freely available
in nature, but is bound to other chemicals. A number of technologies is available to produce
hydrogen from different feedstocks and input energies.

In this study, only hydrogen production through electrolysis from renewable electricity is
considered, as this production technology has a large potential that could be sufficient to
substitute the current natural gas consumption, and as other production technologies, e.g.
based on fossil fuels or on bioenergy, would either lead to residual GHG emissions and
would hence not allow to reach full decarbonisation or would conflict with other more
efficient uses of bioenergy.
The hydrogen production technology considered in this study is hence water electrolysis14
using renewable electricity. Electrolytic hydrogen can be directly used or synthesized with
CO2 to synthetic methane. However, this latter pathway is not further considered in this
study.

The technical potential for renewable hydrogen production is thus based on the renewable
electricity generation potential minus the current electricity consumption (‘base’ electricity
consumption), transformed into hydrogen applying the efficiency of electrolysis. For this
study, we assume the levels of ‘base’ electricity consumption to be constant over time.

In order to exploit this technical renewable hydrogen potential commercially, it is

necessary to:
a) further improve, develop and commercialise electrolysis technology,
b) strongly expand the production of renewable energy based electricity, and
c) envisage using intermediate hydrogen storage in order to be able to cope
with the fluctuating demand of end-users and to supply baseload hydrogen
to the industry.

14
Furthermore, technologies producing hydrogen as a by-product rather than as the main product have been excluded here as the former are
typically optimizedoptimised for the main product. Furthermore, supercritical water gasification of biomass, plasma-based carbon black
processes using natural gas as feedstock, fermentation and photo-fermentation, photo-catalysis, electro-hydrogenesis and photo-biological
water splitting have been excluded. LBST & Hinicio (2015), Study on Hydrogen from Renewable Resources in the EU.

4
 2.2.1 WATER ELECTROLYSIS – STATE OF THE ART AND PERSPECTIVES

Three major electrolysis technologies are considered for large scale industry use today:
alkaline electrolysis (AEL), proton exchange membrane-based electrolysis (PEM
electrolyser – PEMEL), and electrolysers using an ion-conducting solid oxide (SOEC). AEL
and PEM electrolysers are commercially available. Today, the efficiency of larger
electrolysis plants (in the order of 5 MW el) is about 68% and 69% based on the higher
heating value (HHV) for AEL and PEM electrolysers, respectively.15 Based on the lower
heating value (LHV), the efficiency would be about 57.5% (AEL) and 58.4% (PEM). The
efficiency including the use of auxiliary energy does in general not change with the capacity
if the same pressure level and hydrogen purity are to be achieved.

In the future, a decrease of electricity consumption can be expected, i.e. an increase in

efficiency. According to two detailed studies16 an efficiency of 67% (based on LHV) can be
expected for 2030 in case of alkaline electrolysers, and of 71% (LHV) in case of PEM
electrolysers. For the hydrogen production potential, we have not distinguished between
alkaline and PEM electrolysis, but have used current values for the short-term (57%LHV,
PEMEL and AEL) increasing in the long-term to 71%LHV (PEMEL) until 2040/2050.
2.2.2 TECHNICAL RENEWABLE ELECTRICITY POTENTIALS IN THE EU

The technical potentials for the production of renewable electricity in the EU are significant.
In light of the already low costs and further significant cost reductions to be expected in
solar and wind power generation, the realistic level of exploitation of these potentials
(economic potential) may not be limited by costs, but possibly rather factors such as public
acceptance.17

Taking the basic approach for assessing renewable power potentials in EU28 described in
DLR (2015)18 and LBST (2016)19, recently published studies have been assessed and
combined with earlier analyses. The following renewable electricity sources are included:
wind power (onshore and offshore), solar PV, hydro power, geothermal power, ocean
energy, and solar thermal power. Biomass-based technologies are excluded as we assume
all biomass to be available to other uses, including biomethane production. Furthermore,
this allows for a clearer picture and avoids potential double counting. The technical
electricity production potential from renewable energy sources in EU28 is shown in Figure
2-2. Additional potentials may become available based on societal choices (solar PV on
additional surface areas) or technology developments (offshore wind on floating platforms
in deeper water).

15
Deutsches Zentrum für Luft- und Raumfahrt e.V. – DLR (2015), Erneuerbare Energien im Verkehr Potenziale und
Entwicklungsperspektiven verschiedener erneuerbarer Energieträger und Energieverbrauch der Verkehrsträger.
16
E4tech Sàrl with Element Energy Ltd (2014). Study on development of water electrolysis in the EU, 2014. & Deutsches Zentrum für Luft-
und Raumfahrt e.V. – DLR (2015), Erneuerbare Energien im Verkehr Potenziale und Entwicklungsperspektiven verschiedener erneuerbarer
Energieträger und Energieverbrauch der Verkehrsträger.
17
LBST (2016). Renewables in Transport 2050, Frankfurt am Main.
18
Deutsches Zentrum für Luft- und Raumfahrt e.V. – DLR (2015), Erneuerbare Energien im Verkehr Potenziale und
Entwicklungsperspektiven verschiedener erneuerbarer Energieträger und Energieverbrauch der Verkehrsträger.
19
LBST (2016). Renewables in Transport 2050, Frankfurt am Main.

5
Figure 2-2 Technical renewable electricity generation potential in EU28

Source: Diagram from LBST 2016 with data from i.a. JRC 2018, IWES 2012, DLR 1992, DLR 2005, TAB 2003, Stefansson 2005,
* Eurostat 201720

Figure 2-3 shows the EU renewable electricity potentials by Member State. For comparison,
in 2017 the net electricity consumption in EU28 was 3 100 TWh21. The renewable electricity
potentials thus largely exceed the current electricity consumption. The technical potential
may be further reduced by factors such as competing land use. In order to take these
impacts into account, the ranges of potentials found are averaged to give the final
potential, resulting in a long-term technical potential for sustainable renewable power
production of some 14 000 TWh per year. More conservative estimates would not be
critical to the modelling results presented below as the technical potentials estimated here
are by far larger than the demand in the scenarios calculated.

20
LBST (2016). Renewables in Transport 2050; JRC (2018). Wind potentials for EU and neighbouring countries: Input datasets for the
JRC-EU-TIMES Model; IWES (2012). Windenergie Report Deutschland 2011; DLR (1992). Solarthermische Kraftwerke im
Mittelmeerraum, Deutsche Forschungsanstalt für Luftund Raumfahrt/Zentrum für Sonnenenergie und Wasserstoffforschung; DLR (2005).
Concentrating solar power for the Mediterranean region, Stuttgart, 2005; Büro für Technikfolgen-Abschätzung beim Bundestag (2003),
Möglichkeiten geothermischer Stromerzeugung in Deutschland; Stefansson, V. (2005). World Geothermal Assessment. Proceedings World
Geothermal Conference 2005, Reykjavik; European Commission (2017), Energy balance sheets - 2017 Edition, Luxemburg
21
Eurostat (2018). Energy statistics - an overview.

6
Figure 2-3 EU renewable electricity generation potentials, by Member State (average of ranges per
Member State)

Source: JRC 2018, LBST 2016, GL et al. 1995, IWES 2012, DLR 1992, DLR 2005, TAB 2003, Stefansson 200522

2.2.3 TECHNICAL POTENTIAL FOR HYDROGEN PRODUCTION

Based on the potential renewable electricity generation in EU28 (14 000 TWh/yr), the
efficiency of the water electrolysis technology (increasing from 57% to 71% in the long
term), and taking today’s electricity consumption of 2016 as constant (‘base’ electricity
consumption), the annual hydrogen production potential for EU28 is estimated at 6 500
TWh in 2020, increasing to 7 900 TWh in 2040/2050 due to efficiency gains in electrolysis.

The technical potential for hydrogen largely exceeds the calculated gas demand: none of
the scenarios for 2030 or 2050 estimates a gas demand higher than 4 100 TWh/a. Any
additional restrictions not taken into account in this analysis would only represent a
limitation to European gas production, or more generally energy supply, if they reduce the
technical potential significantly.

22
JRC (2018). Wind potentials for EU and neighbouring countries: Input datasets for the JRC-EU-TIMES Model; LBST (2016).
Renewables in Transport 2050; Germanischer Lloyd, Garrad Hassan and Partners, Windtest KWK (1995). Study of Offshore Wind Energy
in the EC; IWES (2012). Windenergie Report Deutschland 2011; DLR (1992). Solarthermische Kraftwerke im Mittelmeerraum, Deutsche
Forschungsanstalt für Luftund Raumfahrt/Zentrum für Sonnenenergie und Wasserstoffforschung; DLR (2005). Concentrating solar power
for the Mediterranean region, Stuttgart, 2005; Büro für Technikfolgen-Abschätzung beim Bundestag (2003), Möglichkeiten geothermischer
Stromerzeugung in Deutschland; Stefansson, V. (2005). World Geothermal Assessment. Proceedings World Geothermal Conference 2005,
Reykjavik.

7
Figure 2-4 Hydrogen production potential EU 28

2.3 POTENTIAL AVAILABILITY OF BIOMETHANE

The assessment of the biomethane production potential is focusing on the EU28, but the
potential in Eastern Europe is also discussed briefly in view of possible imports to the EU.
EU natural gas regulations cover biomethane network access, and European standards
cover biomethane injection into the gas network (EN 16723-1:2016) and its use in the
transport sector (EN 16723-2), both under responsibility of CEN Working group TC408. 23
These regulations and standards form an important basis for the development of the
biomethane market in Europe. The potential development of renewable methane is limited
by the availability of biomass resources, by the implementation of more strict sustainability
criteria under the Renewable Energy Directive (RED II), and by competing uses for food,
feed and feedstock production.

Feedstocks for bioenergy production include agricultural and forestry substrates and
residues as well as by-products such as straw or manure. Energy crops for bioenergy
production can be grown on agricultural land including both farmland and grassland. The
availability of the latter for conversion into biomethane is limited due to competitive uses
such as for food and feed production, material use of feedstocks, different types of energy
production, nature protection, etc.

Competition for surface areas and biomass feedstocks exists on different levels including
the selection of crops (e.g. maize for biogas production, grain for bioethanol production,
short-rotation forestry for heat production, etc.), competition for electricity, heat or fuel
production, competition for food and feed crop production, competition for material use
(e.g. in the wood industry or for bio-based insulation materials), temporal or permanent
reservation for nature protection purposes, etc.

The recast of the Renewable Energy Directive (RED II)24 emphasizes the need to ensure
that the waste hierarchy25 and a set of sustainability criteria26 are taken into account, that
indirect land use change is avoided or minimized while promoting the use of wastes and
residues, and that no significant distortive effects on markets for (by-)products, wastes or
residues are created. RED II defines that only energy from biomass fuels (including
gaseous fuels) fulfilling the sustainability criteria is eligible for (a) counting towards the
overall Union renewable energy target for 2030 and the renewable energy shares of
Member States, (b) measuring compliance with renewable energy obligations to be set on

23
European Commission (2017). Optimal use of biogas from waste streams.
24
Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy
from renewable sources (recast); OJ L 328/82, 21.12.2018
25
See Directive 2008/98/EC: a) prevention; (b) preparing for re-use; (c) recycling; (d) other recovery, e.g. energy recovery; and (e) disposal.
26
As defined in art. 29 of RED II

8
fuel suppliers by the Member States through national transposition of RED II, and (c)
financial support.

Compared to the Renewable Energy Directive of 200927 some of the sustainability criteria
in RED II are new and have thus not been taken into account by any of the studies used
as the basis for the potential estimates.

Greenhouse gas savings are required to be at least 65% for biogas in transport relative to
the fossil fuel comparator defined in RED II Annex VI from 2021, and at least 80% for
electricity, heating and cooling production from 2026. Standard values included in Annex
VI show that these values can be achieved with standard technologies (close digestate,
off-gas combustion).

A detailed assessment of all sustainability criteria with respect to the technical biogas
potential in the EU is beyond the scope of this study, but would be instrumental in
understanding further limitations to the biomethane potentials estimated in the following
sections. Although these limitations have been taken into account, the technical potentials
may still be more limited than estimated in this study as the understanding of these
limitations will improve over time, and the limitations may evolve over time through
additional sustainability criteria defined by Member States through the national
transposition and potential harmonisation thereof by the end of 2026 (art. 29(14)), as well
as through implementing acts to be adopted by the Commission by the end of 2021
establishing the operational guidance on the evidence for demonstrating compliance with
the criteria related to forest biomass derived from unsustainable production and LULUCF.
2.3.1 CURRENT BIOGAS / BIOMETHANE PRODUCTION IN THE EU

In 2016, some 193 TWh of biogas were produced in the EU. 28 It was mainly used for
electricity generation, followed by heat production and use as a transportation fuel.

Biomethane production for direct use in transport or for injection into the gas network for
use in heating or transport represents 11% of biogas production in Europe. Sweden and
the Netherlands upgrade significant shares of their biogas to biomethane (status: 2015):
Sweden (66%; 61 plants), the Netherlands (19%; 21 plants); Germany upgrades 10% of
its biogas to biomethane (185 plants). In 2015, biomethane was produced in 414 plants
in the EU (plus 45 in Iceland, Norway and Switzerland) producing an estimated
1.2 billion m3. Of these, at least 305 plants in the EU (plus 35 in Iceland, Norway and
Switzerland) feed into the gas network, with a capacity of at least 1.5 million m3. About
697 biomethane filling stations provided some 160 million m3 of biomethane to transport
in 2015.

Figure 2-5 shows the biogas production in the EU28 in 2016 by Member State and by
feedstock.

Biomethane production for direct use in transport or for injection into the gas network for
use in heating or transport represents 11% of biogas production in Europe. Sweden and
the Netherlands upgrade significant shares of their biogas to biomethane (status: 2015):
Sweden (66%; 61 plants), the Netherlands (19%; 21 plants); Germany upgrades 10% of
its biogas to biomethane (185 plants). In 2015, biomethane was produced in 414 plants
in the EU (plus 45 in Iceland, Norway and Switzerland) producing an estimated
1.2 billion m3. Of these, at least 305 plants in the EU (plus 35 in Iceland, Norway and

27
Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from
renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC; OJ L 140/16, 5.6.2009
28
Eurobserv (2019). Online Data-Base.

9
Switzerland) feed into the gas network, with a capacity of at least 1.5 million m3.29 About
697 biomethane filling stations provided some 160 million m3 of biomethane to transport
in 2015. 30

Figure 2-5 Current biogas production in the EU

Source: Eurobserv (2019). Online Data-Base; Scarlat, N. et al (2018). European Biogas Association (2017) 31

2.3.2 BIOMETHANE PRODUCTION POTENTIAL

The biomethane potentials considered in this study focus on the technical and so-called
mid-term potentials in EU28. Data considered here are notably taken from Kovacs 2015 32,
GreenGasGrids 2012, 2013,33 DBFZ 2016,34 Deutsche Energie-Agentur GmbH 2017 35,
DVGW 2018,36 and Navigant 2019.37

The technical potential, which does not include round wood and limits using energy crops
to values compatible with sequential cropping, does not take into account competing uses
of the biomass for energy production beyond the current use38 as biomethane production
and consumption is considered as the most efficient bio-energy use.39 In other words, the
technical potential assumes that all bioenergy not used today is available for biogas /
biomethane production; other energetic uses are excluded. This assumption of using the
full potential of bioenergy for biomethane production does not leave room for applying bio-
energy with carbon capture and storage (BECCS) to biomass-fired power plants. The latter
is relied upon rather heavily by many climate neutral scenarios compensating unavoidable
greenhouse gas emissions through negative emissions from BECCS. However, upgrading

29
For a number of major biomethane producers including Germany and the UK, the quantities injected into the network are not listed in
Scarlat, N.; Dallemand, J.-F.; Fahl, F. (2018), Biogas. In: Renewable Energy; therefore, the quantity of biomethane injected into the
network is probably much higher.
30
Scarlat, N., Dallemand, J.-F., Fahl, F., Monforti, F., & Motola, V. (2018). A spatial analysis of biogas potential from manure in Europe.
Renewable and Sustainable Energy Reviews 94(2018): 915-930.
31
Scarlat, N.; Dallemand, J.-F.; Fahl, F. (2018). Biogas: Developments and perspectives in Europe. Renewable energy 129(2018): 457-472.
DOI: https://doi.org/10.1016/j.renene.2018.03.006; European Biogas Association (2017), Statistical Report of the European Biogas
Association 2017, Brussels
32
Kovacs (2015). Biomethan – Beitrag zur zukünftigen Energieversorgung in Europa, European Biogas Association, Berlin, 4/27/2015.
33
GreenGasGrids (2012). GGG Workshop Biomethane Trade, Brussels & GreenGasGrids (2013). Biomethane Guide for Decision Makers,
Oberhausen.
34
Deutsches Biomasseforschungszentrum - DBFZ (2016). Bewertung technischer und wirtschaftlicher Entwicklungspotenziale künftiger
und bestehender Biomasse-zu- Methan-Konversionsprozesse.
35
Dena (2017), Rolle und Beitrag von Biomethan im Klimaschutz heute und in 2050
36
DVGW (2018), Die Rolle von Gas im zukünftigen Energiesystem
37
Navigant (2019). Gas for Climate. The optimal role gas in a net-zero emissions energy system, Utrecht.
38
Ibid.
39
Kovacs (2015), Biomethan – Beitrag zur zukünftigen Energieversorgung in Europa, European Biogas Association, Berlin, 4/27/2015.

10
biogas to biomethane includes capturing the CO2 contained in the biogas. These carbon
streams could be transported and geologically stored resulting in negative emissions. The
costs of CO2 transport and storage, however, are not included in the cost estimates of this
study.

The mid-term potential is based on projections for annual biomethane and biogas
production by 2020/30 taking into account various assumptions including policies,
economic conditions, etc. Data considered here are notably taken from Ecofys 2018, 40
Plank 2009,41 CE Delft et al. 2017,42 Bundesministerium für Wirtschaft und Energie 2014.43
Both the technical potential and the mid-term potential include the current production; in
other words, for arriving at the additionally available potential, the current production
needs to be deducted from the potential.

The EU has significant technical biogas/biomethane production potentials. Conservative

assumptions result in a potential of ~1 000 to 1 500 TWh per year44 while assuming more
progressive parameters results in potentials of up to 2 500 TWh per year 45. For
comparison, in 2016 the biogas production in EU28 was 193 TWh (of which 12 TWh
biomethane), thus the biogas/biomethane potentials exceed the current production by a
factor of 7 to 12.

Figure 2-6 Potential biomethane production EU28 in 2050

Sources: LBST based on data from EurObserv 2019, Online Data-Base. DBFZ 2016, Ecofys 2018, Navigant 2019, Scarlat et al.
2018, Kovac 2015, DENA 2017, CE Delft et al. 2017, GreenGasGrid 2013, Biosurf 2015.46

40
Ecofys (2018). Gas for Climate - The optimal role gas in a net-zero emissions energy system, Utrecht.
41
Plank (2009). Biogas Road Map for Europe, Austrian Biomass Association, 9/22/2009.
42
CE Delft, Eclarion & Wageningen Research (2017). Optimal use of biogas from waste streams.
43
Bundesministerium für Wirtschaft und Energie (2014), Potenziale der Biogasgewinnung und Nutzung
44
Navigant (2019), Gas for Climate. The optimal role gas in a net-zero emissions energy system, Utrecht & Ecofys (2018), Gas for Climate
45
Kovacs (2015), Biomethan – Beitrag zur zukünftigen Energieversorgung in Europa, European Biogas Association, Berlin, 4/27/2015 &
Deutsches Biomasseforschungszentrum - DBFZ (2016). Bewertung technischer und wirtschaftlicher Entwicklungspotenziale künftiger und
bestehender Biomasse-zu- Methan-Konversionsprozesse
46
Deutsches Biomasseforschungszentrum - DBFZ (2016), Bewertung technischer und wirtschaftlicher Entwicklungspotenziale künftiger
und bestehender Biomasse-zu- Methan-Konversionsprozesse; Ecofys (2018). Gas for Climate - The optimal role gas in a net-zero emissions
energy system, Utrech; Navigant (2019). Gas for Climate - The optimal role gas in a net-zero emissions energy system, Utrecht; Scarlat, N.,
Fahl, F., Dallemand, J-F., Monforti, F., & Motola, V. (2018). A spatial analysis of biogas potential from manure in Europe. Renewable and
Sustainable Energy Reviews 94(2018): 915-930; Kovacs (2015). Biomethan – Beitrag zur zukünftigen Energieversorgung in Europa,
European Biogas Association, Berlin, 4/27/2015; DENA, LBST (2017). "E-Fuels” Study, The Potential of electricity-based fuels for low-
emission transport in the EU, Berlin; CE Delft, Eclarion & Wageningen Research (2017). Optimal use of biogas from waste streams;
GreenGasGrids (2013), Biomethane Guide for Decision Makers, Oberhausen; Biosurf (2015). Report on current and future sustainable
biomass supply for biomethane production

11
For this study, a conservative technical biogas/biomethane production potential of 1 150
TWh/yr has been assumed for EU28 (see Figure 2-6). Competing uses of areas have been
taken into account by giving priority to food and feed production as well as to material
use, by excluding round wood for bioenergy beyond current use, and by limiting energy
crops to a value compatible with sequential cropping47; all other feedstocks are residues
and wastes. Subtracting the current biogas production, results in an additionally available
potential of 957 TWh/yr. This additional potential may grow until 2050 if the current use
of bioenergy, e.g. for electricity or heat production, would decrease as a consequence of
energy efficiency measures and thus would make bioenergy resources available for
biomethane production. This impact would not directly change the overall technical
potential, but it may affect the scenario calculations.

Detailed, bottom-up technical potential data by Member State and by feedstock are
lacking; most studies analyse EU28 as a whole. CE Delft et al. have carried out an analysis
by Member State48, however, this has to be considered as a mid-term potential rather
than a technical potential. The GreenGasGrids and the BIOSURF projects have published
detailed assessments of selected, but not all, Member States. 49 A detailed country analysis
has been carried out by Scarlat, N. et al. 2018 for manure, which provides for a limited
contribution to the technical potential.50

The total technical biomethane production potential of 1 150 TWh/yr assumed for this
study is broken down by feedstock as shown in Table 2-1. In order to estimate the
biomethane potential for each Member State, the total potentials were broken down by
country for each feedstock separately in a simplified approach. Figure 2-7 shows the
resulting overall biogas/biomethane production potential by country and by feedstock.

Table 2-1 Estimates of biomethane production potential EU 28 by feedstock

Substrate Gas production potential in TWh/yr

Agricultural biomass 639
of which manure 160
of which energy crops 479
Biological waste 100
of which household waste 80
of which municipal waste 20
Straw 90
Forestry residues 298
Sewage sludge 24
Total 1,150

47
Navigant (2019). Gas for Climate. The optimal role gas in a net-zero emissions energy system, Utrecht.
48
CE Delft, Eclarion & Wageningen Research (2017). Optimal use of biogas from waste streams.
49
GreenGasGrids (2012). GGG Workshop Biomethane Trade, Brussels. & Biosurf (2015). Report on current and future sustainable biomass
supply for biomethane production.
50
Scarlat, N., Fahl, F., Dallemand, J.-F., Monforti, F., & Motola, V. (2018). A spatial analysis of biogas potential from manure in Europe.
Renewable and Sustainable Energy Reviews 94(2018): 915-930.

12
Figure 2-7 Technical biomethane potential EU28 by Member State and by feedstock

Sources: LBST based on data from DBFZ 2016, Ecofys 2018, Scarlat et al. 2018, DBFZ 2007, Kovac 2015, DENA 2017, CE Delft
et al. 2017, GreenGasGrid 2013, Biosurf 2015.51

2.3.3 BIOMETHANE PRODUCTION COST

Biomethane production costs have been assessed based on a literature review including
the following sources: European Biogas Association 2016,52 IEA Bioenergy 2014, 53
University of Oxford 2017,54 Kovacs 2015,55 Navigant 2019.56

Biomethane costs include biogas production costs, costs of upgrading to biomethane, and
injection costs into the gas network. Biogas production costs vary significantly by
substrate, and also by plant size, by technology applied and further parameters. For each
Member State, biomethane production costs by substrate were combined with the country
potential for production from these substrates to give a weighted average production cost
per country (see Table 2-2).

51
Deutsches Biomasseforschungszentrum - DBFZ (2016), Bewertung technischer und wirtschaftlicher Entwicklungspotenziale künftiger
und bestehender Biomasse-zu- Methan-Konversionsprozesse; Ecofys (2018). Gas for Climate - The optimal role gas in a net-zero emissions
energy system, Utrecht; Scarlat, N., Fahl, F., Dallemand, J-F., Monforti, F., & Motola, V. (2018). A spatial analysis of biogas potential from
manure in Europe. Renewable and Sustainable Energy Reviews 94(2018): 915-930; Kovacs (2015). Biomethan – Beitrag zur zukünftigen
Energieversorgung in Europa, European Biogas Association, Berlin, 4/27/2015; DENA, LBST (2017). "E-Fuels” Study, The Potential of
electricity-based fuels for low-emission transport in the EU, Berlin; CE Delft, Eclarion & Wageningen Research (2017). Optimal use of
biogas from waste streams; GreenGasGrids (2013), Biomethane Guide for Decision Makers, Oberhausen; Biosurf (2015). Report on current
and future sustainable biomass supply for biomethane production
52
European Biogas Association (2016) Biomethane in Transport.
53
IEA Bionergy (2014). Biomethane - Status and Factors Affecting Market Development and Trade. A Joint Study by IEA Bioenergy Task
40 and Task 37.
54
University of Oxford (2017) Biogas: A significant contribution to decarbonising gas markets?, Oxford.
55
Kovacs (2015). Biomethan – Beitrag zur zukünftigen Energieversorgung in Europa, European Biogas Association, Berlin, 4/27/2015.
56
Navigant (2019). Gas for Climate. The optimal role gas in a net-zero emissions energy system, Utrecht.

13
Table 2-2 Weighted average biomethane production costs by Member State; production costs by
feedstock

Biological Sewage
Biomethane production, upgrade and injection Crops Manure Forestry Straw
waste sludge
in: ct/kWh ct/kWh ct/kWh ct/kWh ct/kWh ct/kWh ct/kWh ct/kWh
Austria 6.56 Italy 6.78
Belgium 6.81 Latvia 6.51
Bulgaria 7.59 Lithuania 7.34
Croatia 7.52 Luxembourg 6.82
Cyprus 7.17 Malta 6.76
Czech
7.26 Netherlands 6.77
Republic
Denmark 7.57 Poland 7.36 8.5 6.3 6.5 4.5 4.9 8.5
Estonia 6.38 Portugal 6.56
Finland 5.64 Romania 7.67
France 7.25 Slovakia 7.02
Germany 7.14 Slovenia 5.87
Greece 7.03 Spain 7.03
Hungary 7.78 Sweden 5.74
Ireland 6.52 UK 7.10

2.3.4 EASTERN EUROPE – POTENTIAL FOR BIOMETHANE IMPORT AND

COSTS

Russia, Ukraine and Belarus have an interesting technical potential for biogas production
(see Table 2-3).57 However, the domestic energy demand and the need to decarbonise the
national energy supply in the future may only leave limited room for exports of biomethane
to the Europe Union. Future energy policies, production practices and the regulatory
environment in these countries together with the policy and market development in the
European Union, will decide on whether importing biomethane will become a realistic
option. So far, the biogas sector in the three countries is in very early stages; biomethane
upgrading is not applied yet.

Table 2-3 Estimates of biomethane production potential in Eastern Europe58

Biomethane production potential Production costs

Country TWh/yr Ct/kWh

Russia 732 7.5
Ukraine 212 7.5
Belarus 41 7.5

3 TECHNICAL AND ECONOMIC IMPACT OF INCREASING INJECTION OF

BIOMETHANE AND HYDROGEN INTO GAS INFRASTRUCTURE

3.1 TODAY’S EUROPEAN GAS INFRASTRUCTURE AND ITS MAJOR COMPONENTS

FOR TRANSPORT AND DISTRIBUTION

The European natural gas network across the EU Member States constitutes more than
200,000 km of transmission pipelines, over 2 million km of distribution network and over
20,000 compressor and pressure reduction stations59; in 2017 natural gas represented
22% of the EU’s total final energy consumption.60 The share of biomethane and hydrogen

57
Deutsches Biomasseforschungszentrum - DBFZ (2012)
58
Deutsches Biomasseforschungszentrum - DBFZ (2012)
59
Council of European Energy Regulators (2018). CEER Benchmarking Report 6.1 on the Continuity of Electricity and Gas Supply
60
European Commission (2017). Energy balance sheets2017 Edition, Luxemburg.

14
in the European gas network is still rather low, but it is expected to substantially increase,
mainly as a result of decarbonisation targets and policies.

While the current gas infrastructure (including end-use appliances) can in general be used
for a mixture of natural gas and biomethane, or for 100% biomethane, without major
technical adaptations as long as the gas quality specifications are met, strict technical
limitations apply for the admixture of hydrogen. Since hydrogen differs significantly from
natural gas in its chemical properties, any admixture will have a direct effect on the gas-
mixtures’ chemical and physical behaviours, including density, reactive properties, calorific
value, ignition energy, flammability limits and burning velocity. Thus, existing networks
that are designed to transport and distribute natural gas can only be used to transport
blends of natural gas and hydrogen up to a certain limit, which can be different depending
on the type and characteristics of the network one the one hand and the end-user
appliances on the other hand. For higher percentages of admixtures, and a fortiori for
100% hydrogen, technical modifications and/or new infrastructure or equipment are
required.
3.2 ASSESSMENT OF THE TECHNICAL AND REGULATORY ADMIXTURE LIMITS
FOR HYDROGEN AND BIOMETHANE

3.2.1 TECHNICAL LIMITATIONS FOR THE ADMIXTURE OF HYDROGEN

The hydrogen admixture implications are widespread: transport or distribution

infrastructure can either be highly sensitive concerning gas quality fluctuations or be
specifically suitable to accept large hydrogen admixture rates due to the point to point
supply/demand connections being simpler to control. Today, there is no consistent policy
and regulatory framework in place to allow small or large-scale injection of hydrogen to
the gas network, neither at national nor at European level.

The major concern of Gas System Operators is the potential impact of hydrogen
admixture on cross-border gas transmission and underground gas storage (UGS) But even
though smaller in number, hydrogen sensitive large volume industry end-users are today
also directly served from the transport network, necessitating the TSOs to control the
hydrogen admixture rates in their gas network. Moreover, as networks of Distribution
System Operator (DSO) are fed by TSO pipelines, end-users’ restrictions concerning the
hydrogen content valid for the DSO-level directly also affect the gas transporting TSOs.

Consequently, both DSOs and TSOs have to deal with the direct impact on end-use
applications, resulting from higher or fluctuating hydrogen concentrations in the gas flow.
In addition, the household sector is typically characterised by a seasonally fluctuating gas
demand, making constant admixture rates a challenging control task and therefore
requiring sufficiently large sized hydrogen storage facilities to level out any hydrogen
admixture versus hydrogen demand imbalances. These storage facilities to be located at
the interface from TSO and DSO could principally be operated by both TSO and DSO, with
TSOs being in charge of large-scale gas storage facilities while both TSOs and DSOs have
experience in line-pack, which is used to balance out fluctuations.

According to HyLaw61, a key concern for both gas network operators (TSOs and DSOs)
and appliances’ producers is the threshold agreed for which overall appliance design and
individual component changes will need to be made in the short- or medium-term. As a
first step in tackling the challenge of setting an acceptable hydrogen limit value for end-
user equipment, HyLaw recommends an EU wide assessment, covering both the
acceptable safety and operational threshold of current generation end-user appliances by
main category (domestic, commercial, industrial) for higher levels of hydrogen in the gas
stream in conjunction with a status quo supply chain assessment of the economic impact,

61
HyLAW (2019) Deliverable 4.2- List of Legal Barriers. Available at https://www.hylaw.eu/sites/default/files/2019-01/D4.2%20-
%20List%20of%20legal%20barriers.pdf

15
if modifications are needed in certain categories of end-user equipment. This should be
coordinated with the ongoing national initiatives to validate gas network operation with
significantly higher hydrogen concentrations that are being trialled (such as in DE, FR, NL
& UK) and where the impact on gas appliances is also assessed.

As a consequence, there is a need to take inventory of the various activities at EU level

targeting a harmonization and overcoming legal and regulatory barriers with respect to
injecting hydrogen into the gas network (which is for instance also the objective of the
HyLaw project); in order to avoid addressing this topic in silos, it is further recommended
to organize a European round table with all relevant stakeholder groups and industry
associations, West and East, for which the drafting of the EU Gas Market Regulation
planned for 2019/2020 seems an appropriate opportunity.

Nevertheless, it has to be assumed that the negotiation of an EU wide standard for

admixture of hydrogen may take a long time, especially given the regulatory complexity
and diversity of stakeholders. For example, negotiating the standard CEN/TC 408 “Natural
gas and biomethane for use in transport and biomethane for injection in the natural gas
grid”,62 with the aim to harmonise the quality of biomethane across the EU, took six years
from 2011 to 2017. With over 470 million gas appliances in the EU that would be affected
by a change in gas composition, and given that the sectors Industry and Power generation,
which have some of the most sensitive end-users and account for over 50% of total gas
use in the EU, finding a common denominator will be a daunting task.63

As a consequence, the current practice is that permitting hydrogen admixture to the gas
network is considered on a case by case basis, with the outcome that Power-to-Gas (PtG)
facilities are run on a demonstration basis or ‘by exception’. This provides according to
Hylaw (2018) no sound framework to create a business case for the widespread rollout of
PtG operations.64

Furthermore, adding hydrogen to the gas stream changes the calorific value and the
Wobbe-Index65 of the gas mix and thereby the basis for metering and billing gas supplies
under contract to major and multiple users or into distribution networks. Therefore,
significant investments will be required in qualified flow monitoring/measurement
equipment and/or revisions to regulated national gas metering and billing terms – and
may also constrain international gas flow arrangements.

Managing volatility in the gas composition and in particular variations of the calorific
valorific of the gas mix will be a crucial success factor to enable higher hydrogen
concentrations, beyond technical adjustments to end-user equipment. One way out are
constant admixture rates through sufficiently sized hydrogen storages at the TSO/DSO
interface, to allow the gas network to offer its dampening service for fluctuations in the
electricity network typically understood as a key task of Power-to-Gas concepts. Without
sufficiently large scaled storage capacities, the necessity of constant admixture rates
seems to be in strong contradiction to the promise of PtG facilities to serve as a flexibility
mechanism to support the electricity network in balancing its own fluctuations resulting
from an increasing share of intermittent renewables.66

Imbalances are expected to be likely among Member States’ interests and ‘urgency to act’
when it comes to adjusting or drafting EU wide regulations to enable higher hydrogen
concentrations in the gas network. To illustrate this point:

62
CEN (2018). New CEN Standards - Biomethane standards to mitigate climate change.
63
DG ENER (2018). The Role of Trans-European Gas Infrastructure in the Light of the 2050 Decarbonisation Targets, 2018.
64
HyLAW (2018). Cross-country comparison.
65 Wobbe index or Wobbe number: The WI is an indication of the interchangeability of different energy or fuel gases (e.g. natural gas,
liquefied petroleum gas (LPG) as well as town gas containing a hydrogen share). It mainly considers the gases’ higher heating (or calorific)
value and specific gravity.
66
Yet, this is only one objective of PtG concepts; others being to provide a CO2-lean or eventually CO2-free fuel to industry and mobility.

16
  Only five countries (Germany, UK, Italy, the Netherlands and France) account for
around two-thirds of gas use in Europe.67
 More than 50% of all Power-to-Gas demonstration plants in the EU are located in
Germany.68
 The UK is currently leading efforts in trialling hydrogen to fully replace natural gas
by 100% hydrogen in local/residential gas networks (see for example the Leeds
CityGate project69 or HyHouse70, HyDeploy71, HyNet72 and Hy4Heat73).
 The Netherlands has very ambitious plans for the introduction of hydrogen, as
fossil gas is supposed to be widely phased out by 2030. 74

As an alternative approach to an EU wide harmonization, it may therefore be easier and

quicker to explore options for creating “favourable” regulation at DSO level in individual
Member States that allow the creation of locally “ringfenced” sections of the network that
run on higher hydrogen concentrations, favourably at 100% hydrogen, as is being
suggested for trial in the UK. Promoting such “islands” will provide very valuable learnings
and operational experience and enable a scale-up by connecting adjacent “islands” over
time. On the other hand, also selected TSOs are keen to initiate hydrogen admixture rates.
These approaches have a high risk of failure unless
 an EU wide regulated agreement with one single admixture rate (e.g. 10 or 20
vol%) can be put into place in EU28 as soon as possible75, or
 technologies to extract the hydrogen from mixed flows can be installed in
networks, which are hydrogen sensitive (e.g. CNG fuelling stations). These
additional investments could however challenge the economics of these network
sections or appliances.

Even if a (constant) 10-20 vol% admixture rate may be technically feasible (both at TSO
and DSO level), the cost-benefit of the necessary adjustments seems more questionable
and cannot be conclusively answered today; all the more as the volumetric energy content
of hydrogen is around one third only of natural gas, unless flow velocities are significantly
increased (e.g. doubled to about 20 m/sec).

From this perspective, a direct shift to a dedicated hydrogen (pipeline) infrastructure

probably also on TSO level may be a more preferable and cost-effective approach to supply
e.g. those industry branches seeking to de-carbonise their operations, such as the steel,
chemical or cement industry. Dedicated hydrogen pipelines would avoid the necessary and
potentially incremental adjustments of the existing gas infrastructure and end-use
applications (this could be the subject of a separate study, which would investigate the
(CO2) cost-effectiveness of incremental adjustments of the existing gas network to higher
hydrogen concentrations vs. directly building a dedicated hydrogen pipeline
infrastructure). This approach would furthermore be the key to provide fuel cell grade
hydrogen for the mobility sector, and hence allow to taking profit from doubling the
efficiency of internal combustion by fuel cell electric engines for mobility. Building such a
dedicated hydrogen gas infrastructure could be started by converting segments of the
existing natural gas network to 100% hydrogen, where early local business cases could
emerge, e.g. with an industrial end-user. Over time, these building blocks could be merged
to establish a wider pure hydrogen pipeline network in a robust fashion (as illustrated in
Figure 2-5). The underlying assumption of this possible full conversion to hydrogen

67
University of Oxford (2017). Biogas: A significant contribution to decarbonising gas markets? Oxford
68
LBST, Internal Data, Munich.
69
https://www.northerngasnetworks.co.uk/2017/04/27/northern-gas-networks-hydrogen-project-takes-step-forward-as-25-million-fund-
announced-for-hydrogen-in-homes/
70
http://www.igem.org.uk/media/361886/final%20report_v13%20for%20publication.pdf
71
https://hydeploy.co.uk/
72
https://hynet.co.uk/
73
https://www.hy4heat.info/
74
van't Hof (2018). Energy transition in the Netherlands – phasing out of gas, Ministry of Economic Affairs and Climate Policy.
75
In chapter 3.2.3 detailed considerations are provided on gas grid implications from significant hydrogen admixture rates.

17
anticipates that the need for natural gas will and has already begun in some Member
States to decrease freeing transport and distribution capacity for hydrogen.

3.2.2 TECHNICAL AND REGULATORY ADMIXTURE LIMITS FOR BIOMETHANE

In comparison to an admixture of hydrogen to the gas network, no technical or regulatory

barriers exist, which might principally question biomethane admixture rates up to 100
vol% as long as the technical specifications and standards, yet to be transferred to
European Regulations or Directives, are fulfilled. Even though limited in occurrence, an
issue of practical concern could be that in decentralised biomethane schemes (biomethane
plants injecting into the distribution network), reverse flows with decentralised
compression from distribution to transport network need to guarantee sufficient feed-in
rates allowing for relevant business cases in (seasonal) periods of low gas demand
(typically in summer).

Also, and for the latter reason, biomethane admixed to the natural gas network should not
be foreseen in distribution networks with hydrogen admixture, as hydrogen could then
escape into transport network sections locked for hydrogen admixture, unless:
 A fixed hydrogen admixture rate is enforced for the gas transport network
Europe-wide, or
 Hydrogen can be extracted from the bottom-up gas flow once it leaves the
distribution network.
3.2.3 POSSIBLE WAY FORWARD FOR HYDROGEN ADMIXTURE

When considering the future admixture of hydrogen and/or biomethane to the gas
network, the analysis has shown that transport and distribution networks (TSO/DSO level)
have to be distinguished. Figure 3-1 illustrates and summarises the major constraints with
respect to the injection of hydrogen and biomethane into the gas network, taking into
account the TSO and DSO perspectives.

Admixture of hydrogen to central parts of the gas transmission network, i.e. border-
crossing main pipes in one Member State, may carry hydrogen to any location in the EU
downstream of the injection point at an uncontrollable admixture level. Unless (locally)
removed from the gas mixture – which is neither to be considered cost-effective nor
practical today,76 as there may be no nearby end-user for the hydrogen extracted – this
hydrogen could potentially affect any gas consumer across Europe and conflict with the
current regulations on gas quality which are different for all Members States. As outlined
above, a specific challenge will furthermore be caused by the volatility of admixture over
time and by region. Therefore, unless and until a harmonized regulation for Europe is in
place (enforcing one harmonised and constant admixture rate of e.g. 10 vol%), hydrogen
injection into cross-border transmission pipelines cannot be considered a viable option. A
low agreed admixture rate could also result in a lock-in at low energy level (10 vol% is
equivalent to only about 3.5 energy%), and continuous rate increases would result in
constant refurbishment investments of all end-use applications. In other words, if the
introduction of hydrogen into the transport network, i.e. also to import hydrogen from
outside of Europe and admixed to the natural gas, then all possible efforts have to be
undertaken to adapt the current regulations Europe-wide, East and West.

When it comes to the admixture of hydrogen to the distribution network, both a merit
order from an economic perspective and the stepwise evolution of gas network sections
being converted to a specific (and fixed) hydrogen admixture or 100% refurbishment from
a technical and regulatory perspective will need to be considered. Sections of the
distribution network which can be ring-fenced from the surrounding gas network could be

76
Ongoing research activities by the DVGW in Germany currently have been kicked-off to assess whether concepts for hydrogen separation
may become economically viable to safeguarding hydrogen sensitive applications.

18
operated with gas mixtures at any hydrogen share up to 100% (if permitted by national
regulation) and theoretically different from sector to sector. Being technically possible, this
would however not be in the interest of a common EU future gas infrastructure or
equipment and appliances manufacturers. In practice, however, admixture levels will be
similar, as gas network components will hardly be developed for a large variety of
admixture rates. The full conversion from 0 to 100 vol% hydrogen, probably only with a
small investment increment over one single conversion to other admixture rates would
have the additional benefit zero GHG emission reductions. However, this would imply a
unidirectional flow of gas only from the transport to the distribution network and for that
reason exclude decentral biomethane added to the same network segment, which may
have to leave the distribution in the direction of the transport network in periods of low
gas demand. In principle, the need for re-injection to the TSO network level could also
become the case once hydrogen is injected into the distribution network at large scale to
provide sufficient capacity for high utilization operation even in periods of low local gas
demand.

Also, similar to the transport network, a constant hydrogen admixture rate would need to
be guaranteed at all times and in all locations, which in turn would require sufficiently
large-scale hydrogen storage for controlled admixture at the point of gas entry from the
transport level or decentral injection point. Industry or households could then be adjusted
to the hydrogen admixture level, which may theoretically gradually grow over time at
incremental steps. However, for the reasons explained above, this seems to be rather
unrealistic.

Figure 3-1 Boundary conditions for injection of hydrogen and biomethane into the gas network

19
4 ASSESSMENT OF THE SOCIO-ECONOMIC AND ENVIRONMENTAL
COSTS AND BENEFITS OF INCREASED USE OF BIOMETHANE AND
HYDROGEN

4.1 DESCRIPTION OF THE ENERGY SYSTEM INTERLINKED MODEL

The analysis of the trans-European power and gas infrastructure employs a dedicated
modelling tool specifically designed by LBST to simulate and assess integrated electricity
and gas energy systems.

As depicted in the figure below, the model simulates the transport of the three major
energy carriers electricity, (bio)methane and hydrogen which are needed to satisfy the
corresponding end-user demand in the industry (conventional power demand, process
heat and H2 or CH4 as feedstock), buildings (conventional power, e.g. for appliances as
well as energy for heating) and mobility sectors (fuel demand for vehicles in the different
sub-sectors). In this study, the scenarios have an explorative character regarding the
demand for the three energy carriers. The power sector is intrinsically considered in the
model as the end-user demand includes electricity being one of the three energy carries
within the simulation, whereas the supply of other energy carries such as coal or oil are
out of the modelling scope.

In this context, the energy supply in the model takes into account different power plant
types (dispatchable and intermittent power plants) as well as import and production of
biomethane and fossil CH4. The interlinkages between the electricity and both gas
infrastructures are represented by electrolysis, methanation facilities, steam reforming
producing hydrogen from CH4 with Carbon Capture and Storage, stationary fuel cells as
well as H2 and CH4 turbines which allow converting one energy carrier into another.
Additional flexibility in the system is provided by energy storage technologies (e.g.
pumped hydro, stationary batteries, possibly (bio)methane and hydrogen storage) as well
as further measures such as demand-side management and curtailment of renewable
power supply.

Figure 4-1 Energy system boundaries included within the quantitative analyses

20
The fundamental energy system model is formulated as a linear program with production,
investment and transportation decision making assuming perfect foresight for hourly
renewable generation and fuel demand profiles within a prototypical year. Due to the
perfect competition assumption the underlying optimization algorithm corresponds to a
minimization of total system costs. For the sake of simplicity, the spatial and the temporal
dimension of the optimization algorithm are decoupled into separate model runs. This
means that the hourly energy system and the limiting network topology are modelled in
two consecutive modelling steps.

In the first modelling step, the short-term unit operation and the long-term investment
decisions are optimized simultaneously for a European energy market and addressing all
28 Member States. The target is to match the electricity and gas supply with the pre-
defined electricity and demand from all relevant energy consuming sectors for each hour
of a prototypical year given the technical constraints of the concerned technologies. An
additional important constraint is represented by a GHG cap for energy generation limiting
the operation of fossil power plants. Investments in end-user technologies such as vehicles
are out of the modelling scope. In this modelling step we also neglect the network
constraints and potential investments in network capacities, which are taken up
subsequently.

In the second step the model minimizes the transport costs for electricity, hydrogen and
(bio)methane between the network nodes based on the results from the first and on the
energy demand distributed across the nodes according to a predefined ratio. One major
constraint is represented by balancing out the energy input (i.e. energy supply, storage
output, energy imports from other nodes) and energy output (demand, storage input,
export to other nodes) for each energy carrier, node and hour of the year. Due to a strict
separation of the temporal and spatial dimensions all time-depended decision variables
from the first step (e.g. storage operation or investments in new capacities) are optimised
in the first modelling step and are used as input parameters in the second modelling step.
In order to ensure an economic operation of the infrastructure the results from the network
simulation are improved in an iterative approach to achieve a minimal utilisation of single
lines between the network nodes.

The major limitation of the selected modelling approach is the separation of the temporal
and the spatial dimensions into step 1 and 2. In this way, the model tends to
underestimate the role of potential bottlenecks of the existing infrastructure when
optimizing the investments in and operations of power and gas generation and conversion
units. For example, using excess power generation from fluctuating renewable sources in
remote areas for hydrogen production via electrolysis might result in large investments
either in gas infrastructure capacities to transport renewable hydrogen from the remote
areas to demand centres or in power infrastructure to supply renewable power to
electrolysis located close to places with substantial hydrogen demand. Hence on the one
hand, the model does not provide optimal results on the exact geographical distribution of
the abovementioned units in order to minimize the infrastructure needs. A number of
iterations between the two steps and sensitivity analyses might improve the reliability of
the final outcome in this context. On the other hand, this approach allows for an optimal
utilisation of fluctuating power feed-in and required storage capacities in the seasonal
context. In this way the model follows an approach associated with a European internal
energy market without any discriminatory barriers for all market participants in all Member
States.

A further limitation of the model relates to the fact that power and gas generation and
conversion are summarized per technology type (e.g. power generation from nuclear fuel,
coal, gas, etc.) rather than being modelled as individual units per each technology type.
Therefore, the techno-economic assumptions for the technologies such as efficiencies or
specific costs represent average values and the corresponding results should also be
interpreted as an average. In addition, the gird simulation is typically reduced to a limited

21
number of grid nodes. In this way, the need for network capacities might be
underestimated as some bottlenecks are neglected. Also modelling of different prototypical
years might be necessary to better understand the role of flexibility measures in system
with large amount of renewable energy in particular taking into account the perfect
foresight assumptions which allows for a more optimistic operation of the energy system
in comparison to real conditions of limited foresight.

In addition, the selected model is a fundamental and deterministic model taking a top-
down approach for the representation of the energy system. In fact, it does not take into
account the perspective of individual market participants, but rather minimizes the total
costs from the perspective of the entire system. This implicitly assumes the existence of
a perfect energy market without any information asymmetries and without strategic
behaviour of single market participants. In this context, the model provides optimal results
from the societal and macroeconomic perspective rather than from the business
perspective of individual players. However, in reality potential imperfections in the market
might lead to different outcomes in reality. The selected approach is a compromise
between mathematical complexity, the required computational resources and the expected
development of the future energy market taking into account transport infrastructures
within one inter-linked model.
4.2 SCENARIO DESCRIPTION AND GENERAL BOUNDARY CONDITIONS FOR
ENERGY SYSTEM MODELLING

The scenarios for further analyses are based on the three storylines “Strong
electrification”, “Strong development of carbon-neutral methane” and “Strong
development of hydrogen” from the gas infrastructure study.77 The major drivers for the
scenario definition are the GHG emission reduction targets, end user decisions regarding
the final applications78 as well as the strategy for the gas infrastructure to follow these
decisions. In general, however, the scenarios in this study have an explorative character
regarding the demand for the major energy carriers.

The three considered scenarios assume ambitious reduction targets for GHG net emissions
of 49% by 2030 and 100% by 2050 in comparison to the 1990 levels for the entire energy
system. These targets are based on the “1.5TECH” scenario from the European
Commission’s long term strategic vision (LTS)79 aiming to achieve the 1.5°C target in 2050
by taking into account all technical options for GHG reduction. According to the LTS this
means full decarbonisation and even the use of Carbon Capture and Storage (CCS) and
Carbon Capture and Use (CCU) technologies80 within the energy system as a certain
amount of GHG emissions such as from some industrial processes or agriculture can be
considered as “unavoidable”.

The end user decisions regarding their choice of final applications in the different demand
sectors are the major driver for electricity and gas demand in the scenarios of this study.
These decisions are based on the expected behaviour and economic considerations from
the end user perspective being supported by different regulatory frameworks in particular
in regard to the GHG emission reduction targets. 81 These qualitative aspects are in line
with the storylines from the previous gas infrastructure study and are used for a bottom-
up quantification of the final demand for electricity, (bio)methane and hydrogen within the
transport, residential & services as well as industry sectors.

77
DG ENER (2018). The Role of Trans-European Gas Infrastructure in the Light of the 2050 Decarbonisation Targets.
78
In the context of this study end user decisions are assumed to take into account different influencing factors such as personal preferences,
regulatory aspects, taxation, market decisions, etc.
79
EC (2018). A Clean Planet for all A European strategic long-term vision for a prosperous, modern, competitive and climate neutral
economy.
80
Detailed modelling of the GHG emission in the context of CCS and CCU is out of scope of this study.
81
In contrast to the LTS this study assumes for the three scenarios different shares of power, methane and hydrogen for end-use applications
under the same set of boundary conditions which come only partially from the LTS. The assumed penetration of different end-user
applications in the respective end-use sectors corresponds to different end-user choices based on the outcomes of the gas infrastructure study
(DG ENER 2018. The Role of Trans-European Gas Infrastructure in the Light of the 2050 Decarbonisation Targets).

22
Another driver for the underlying scenarios is represented by the expected strategy to
switch from natural gas to biomethane or hydrogen which has to be in line with the
abovementioned demand trends and predefined GHG emission reduction targets. In this
context, the three scenarios have been defined with corresponding boundary conditions
for both time horizons 2030 and 2050 (see also Table 4-1):

 Scenario 1 – “Strong electricity end-use” corresponds to the storyline “Strong

electrification” with stronger focus on electricity-based applications and thus power
as a major energy carrier for renewable energy supply. Hence, lower overall gas
demand in comparison to other scenarios is expected although methane and also a
small amount of hydrogen can be used for applications which do not lend
themselves for direct electrification. The gas infrastructure at TSO level (national
and cross-border) is expected to transport mainly natural gas until 2030 which is
gradually substituted by biomethane and potentially synthetic methane from
Power-to-Methane (PtCH4) in case biomethane is insufficient to satisfy the demand
for a given GHG reduction target. The supply of natural gas is expected to follow
the established import routes in Europe whereas the biomethane is injected into
the gas network according to its potential per Member State giving preference to
the most economic biomethane sources. The supply of synthetic methane follows
the availability of renewable power generation. In general, dedicated hydrogen
infrastructure at TSO level is not foreseen in this scenario except to single and
separate national H2 pipelines in case they are needed to provide larger amounts of
hydrogen for big demand hubs in the long-term. The infrastructure at DSO level
allows for limited admixture of hydrogen up to a predefined rate until 2030 which
then can be converted to limited and separated hydrogen networks until 2050. In
addition, the limited hydrogen production is expected in close proximity to the
demand and the energy storage in the context of seasonality is provided solely by
large-scale CH4 storage. In this way, parallel gas infrastructures for methane and
hydrogen can be avoided.

 Scenario 2 - “Strong green methane end-use” corresponds to the storyline

“Strong development of carbon-neutral methane” where (bio)methane plays a
major role as an energy carrier according to end user decisions and the overall gas
demand is higher than in the other scenarios. Electricity-based applications are
used where technologically and economically suitable. The development of gas
infrastructure follows similar trends as in Scenario 1 in order to avoid parallel
pipelines for methane and hydrogen.

 Scenario 3 - “Strong hydrogen end-use”: corresponds to the storyline “Strong

development of hydrogen” with hydrogen as a major energy carrier. Nevertheless,
the hydrogen demand is expected to remain rather limited in the mid-term until
2030 due to availability of the hydrogen-based applications. Hence, until 2030
methane is still transported at TSO level and CH4 storage is used as a seasonal
storage. At DSO level hydrogen can be injected into few separate pure H2
networks. The use of the gas infrastructure is expected to change significantly in
the long-term. By then electricity is used only for those applications which are
technologically and economically suitable and more efficient than hydrogen
applications. Methane demand is expected to decrease substantially according to
the end user decisions. In order to avoid parallel gas infrastructures mainly
hydrogen is transported and distributed at all levels of the network. Seasonal gas
storage is provided by large-scale underground salt caverns. For the remaining
methane demand the systems foresees local CH4 supply within small and isolated
distribution networks.

23
 Table 4-1 Scenarios based on the three storylines from the gas infrastructure study 82 for a more
detailed quantitative assessment

Scenario 1 Scenario 2 Scenario 3

Storyline from the gas “Strong electricity “Strong green methane “Strong hydrogen
infrastructure study end-use” end-use” end-use”
Time horizon 2030 2050 2030 2050 2030 2050
GHG emission reduction target
Total GHG emission
reduction incl. -49% -100% -49% -100% -49% -100%
LULUCF* vs. 1990
End user decisions
End-user decisions
regarding the Focus on electricity-based Focus on methane-based Focus on hydrogen-based
applications in end user applications end user applications end user applications
demand sectors
Major energy carrier Electricity Biomethane
Hydrogen
for renewable energy (followed by methane and (followed by electricity
(followed by electricity where
supply hydrogen for application where technologically and
technologically and economically
which cannot be electrified) economically suitable; in
suitable; in addition small portion
addition small portion of
of biomethane demand)
hydrogen demand)
Strategy for the gas infrastructure to follow end user decisions
Gas type expected Biomethane Biomethane
Natural gas Natural gas Natural gas
within international followed by followed by
followed by followed by followed by Hydrogen
cross-border gas synthetic synthetic
biomethane biomethane biomethane
infrastructure methane methane
Utilisation of Yes,
Mainly Limited and Mainly Limited and Limited and
dedicated hydrogen limited and
hydrogen separated hydrogen separated separated
infrastructure by separated
admixture at hydrogen admixture at hydrogen hydrogen
national TSO and DSO methane
distribution networks distribution networks networks (only
networks
level possible level possible DSO)
possible
Regional distribution For natural gas according to import routs and production sites Close to
of methane supply For biomethane according to availability and supply costs methane
For PtCH4 according to renewable power supply demand
Regional distribution Close to
of hydrogen supply In close proximity to hydrogen demand renewable
power supply
Gas storage in the Underground H2
context of seasonality Conventional large-scale CH4 storage storage in salt
caverns
* LULUCF : Land use, Land-Use Change and Forestry

4.3 MAJOR ASSUMPTIONS FOR THE ENERGY SYSTEM MODELLING

The focus of this study is on domestic hydrogen production from renewable power via
water electrolysis (referred to as Power-to-Hydrogen – PtH2) and technologies for
biomethane production including 1st and 2nd generation technologies.83 Therefore, other
sources for hydrogen supply such as imports, by-product, or its production from biomass
are excluded from further analysis. The only exception is conventional hydrogen

82
DG ENER (2018). The Role of Trans-European Gas Infrastructure in the Light of the 2050 Decarbonisation Targets.
831st generation biogas: anaerobic decomposition of organic waste or in other words by the natural breakdown of organic matter of different
type. 2nd generation biogas is usually produced by gasification of e.g. ligno-cellulosic biomass (wood and straw), dubbed as
“thermochemical conversion”.

24
production from steam methane reforming (SMR) with carbon capture and storage (CCS)
within a transition phase until 2030. Regarding the production of synthetic methane via
Power-to-Methane (PtCH4) CO2 supply for the methanation process is based on biogenic
sources and direct air capture excluding fossil sources. However, the CO2 supply and CO2
sources for Power-to-Methane conversion are not considered in this study. For the sake of
transparency, the study also excludes imports of synthetic fuels produced via Power-to-
Liquids (PtL),84 liquefied natural gas (LNG) technologies, such as liquefaction plants or
trailers, as well as dedicated LNG infrastructure in terms of direct LNG use (e.g. by LNG
trucks).
4.3.1 GENERAL BOUNDARY CONDITIONS

The energy prices for further calculations presented in Figure 4-2 are in line with ENTSOG 85
values being mainly based on the “New Policies Scenario” from the IEA.86 In this context,
the major energy price increase is expected for oil (three-fold increase) and natural gas
(by more than 60%). All other energy prices remain rather stable. 87 The carbon prices in
2030 correspond to the figure of 84 €/tCO2 used by ENTSOG88 for its “Sustainable
Transition” scenario. In 2050 the carbon price is expected to increase substantially up to
350 €/tCO2 as predicted by the LTS.89 The discount rate for valuation of investment outlays
is 3% being in line with the average rate for conservative GDP growth of 1% in Europe as
presented by Steinbach and Staniaszek (2015).90 It is considered as a social discount rate
without any margins for individual market participants as the modelling of the energy
system is conducted from the macroeconomic perspective taking into account societal time
preferences.

In order to achieve a good balance between modelling resolution and flexibility each EU28
Member State91 is represented by one power and gas network node. We assume no further
network constraints within the member states/sub-regions. In this way the computational
time can be limited while the model still provides a sufficient level of detail for the most
important aspects of the power and gas network. For the sake of consistency, a joint
network mapping is conducted from the different country-specific nodes representations
provided by ENTSOG and ENTSO-E.

In line with the European Commission’s long term strategic vision (LTS)92 the renewable
feed-in accounts in 2030 for almost 60% of the total power demand including the
anticipated losses from electrolysis, methanation and storage, and for more than 90% in
2050. The split between the feed-in of fluctuating renewable sources is based on the
“1.5TECH” scenario of the LTS indicating a comparable share between wind onshore (35%)
and offshore (35%) as well as PV (30%) for both time horizons. For hydro power plants
we assume constant energy production of ca. 300 TWh/a for both time horizons. Moreover,
there are no specific limitations for curtailment of renewable energy within the model. The
geographical split of renewable power generation is based on the potential.

84
Additional demand for Power-to-Liquids (PtL) fuels from aviation and shipping in the EU from domestic production is addressed in a
sensitivity analysis in Chapter 6.3.4.
85
ENTSOG (2018), TYNDP, Brussels.
86
IEA (2016). World Energy Outlook.
87
The actual use of fossil fuels in the energy system is however a model output resulting from the price signals and GHG constraints.
88
ENTSOG (2018). TYNDP, Brussels.
89
EC (2018). A Clean Planet for all A European strategic long-term vision for a prosperous, modern, competitive and climate neutral
economy.
90
Steinbach, Jan, and D. Staniaszek. (2015). Discount rates in energy system analysis Discussion Paper." BPIE: Berlin, Germany (2015).
91
The UK is considered in the EU for this study.
92
European Commission (2018). A Clean Planet for all A European strategic long-term vision for a prosperous, modern, competitive and
climate neutral economy

25
Figure 4-2 Assumed energy (left) and CO2 (right) prices for the analysis

4.3.2 OTHER ASSUMPTIONS

The existing capacities of dispatchable power plants and pumped-hydro storage in 2030
are taken from ENTSO-E TYNDP 2018 93 and are used for the geographical split of
investments in new capacities. In 2050, the model assumes a refurbishment of existing
nuclear and biomass capacities being available for comparatively cheap and GHG-free
power generation. For all power plants, we assume an availability factor of maximum 80%
to take into account planned revisions and outages.

Stationary batteries are generally placed in close proximity to renewable power supply, H 2
pipe storage close to hydrogen demand and H2 salt caverns are located, according to the
HyUnder Project94 in Member States with suitable geological formations (Germany, France,
UK, Poland, the Netherlands and Denmark). Distribution of methane storage is derived
from the data provided by GIE.95 Electrolysers are placed according to hydrogen demand
in Scenario 1 and 2 as well as in 2030 in Scenario 3 as these scenarios exclude dedicated
hydrogen cross-border transport infrastructure. In 2050 in Scenario 3, the electrolysis
capacity is distributed according to renewable power supply. For methanation and
biomethane supply, the opposite is true as in Scenario 1 and 2 and in 2030 in Scenario 3
methane sources are distributed according to renewable power supply and biomethane
potentials (taking the potential costs into account), respectively. Only in 2050 Scenario 3,
methane supply follows the demand as in this case no methane-based cross-border
pipelines are expected.

The corresponding existing capacities for power transmission network are derived from
ENTSO-E TYNDP 2018.96 For the sake of simplicity, power imports from outside the EU are
excluded from further analysis except for the utilisation of pumped-hydro storage in
Norway and Switzerland.

The existing capacities for the gas transmission network are derived from ENTSOG TYNDP
201897 and take into account expected network enhancements with final investment
decision (i.e. category “low”) until 2030. The natural gas supply is based on the import
routes via pipelines (from Russia, Norway and North Africa) and LNG terminals in 10
Member States maintaining the historical split between different import routes, while the
declining domestic production of natural gas in Europe until 2030 is derived from
ENTSOG.98 In 2030-2050 the limited natural gas demand is supplied by imports to Member

93
European Network of Transmission System Operators for Electricity – ENTSO-E (2018), TYNDP, Brussels
94
HyUnder Project (2014). Assessment of the Potential, the Actors and Relevant Business Cases for Large Scale and Long Term Storage of
Renewable Electricity by Hydrogen Underground Storage in Europe
95
Gas Infrastructure Europe (2018), Aggregated Gas Storage Inventory, Online: https://agsi.gie.eu/#/
96
ENTSO-E (2018). TYNDP, Brussels.
97
ENTSOG (2018), TYNDP, Brussels.
98
ENTSOG (2018). TYNDP, Brussels.

26
States with large gas demand and already existing pipelines (from north, east and south)
and LNG terminal infrastructure (the Netherlands, Italy, Spain and UK). Individual
agreements on contracted gas infrastructure capacities between single operators are not
included in the analysis as the gas flows are a result of the top-down modelling exercise
from the EU-wide system perspective. The distances between the single network nodes
for the power and gas network are calculated between the geographical centre of each
country based on the data provided by the e-Highways 2050 project.99

Time-dependent profiles include the hourly profiles for demand for power, hydrogen and
methane in each end-user sector and sub-sector as well as country-specific profiles for
renewable feed-in. The demand profiles for electricity as well as renewable feed-in are
taken from the ENTSO-E Transparency Platform.100 In the transport sector the hourly
power demand profile for BEVs is derived from Malling et al. (2015) 101 based on the
charging behaviour of a typical end-user. For FCEVs and methane-fuelled cars a typical
demand profile of a conventional refuelling station is assumed as proposed by LBST
(2018a)102 and LBST (2018b).103 For the gas demand in industry we assume a constant
profile. Heat demand profiles are based on historical temperature data from IEM (2019) 104
and translated into actual power and gas demand by taking the (temperature dependent)
efficiencies of the corresponding end user heating technologies into account. In particular,
the electricity demand profile by heat pumps takes into account variable coefficients of
performance based on the outdoor temperature (i.e. lower COPs in the winter and higher
in the summer).
4.4 COST STRUCTURE FOR THE NATURAL GAS NETWORK AND FOR THE USE OF
BIOMETHANE AND HYDROGEN

4.4.1 GENERAL UNDERSTANDING OF POSSIBLE DEVELOPMENTS OF GAS

NETWORKS

If hydrogen is supposed to be part of the European energy landscape, ultimately, a

dedicated network separate from the methane network is required to serve specific end
user applications. At the beginning, a certain share stems solely from separate networks
specifically designed for transporting hydrogen. This is what some Member States have
already suggested and it is what we see in places such as the Orkney Islands or in the
Hoogeveen HYDROGREENN105 City Heating project.106 At this point, however, these are of
limited importance in terms of investments and transported gas volumes. Once a sufficient
density of such local hydrogen distribution networks will be reached, these can be
connected to a larger hydrogen transmission network.

It is widely assumed that the existing pipeline system can safely accommodate either
biomethane of up to 100% or (bio)methane with a hydrogen admixture of up to 20 vol%;
some gas experts/TSOs consider however that the latter percentage is not feasible without
(major) refurbishment. Given the limitations discussed in preceding chapters, we assume
that there is zero hydrogen admixture to the transmission network, and 10% in dedicated
and closed off parts of the distribution network by 2030. For 2050, the model assumes
that a hydrogen admixture into the gas network does not make sense under any scenario,
because:

99
E-Highways 2050 (2015). A modular Development Plan for Pan-European Transmission System 2015
100
ENTSO-E (2018), Transparency Platform, Online: https://transparency.entsoe.eu/
101
Mallig, N, Heilig, M, Weiss, C., Chlond, B. & Vortisch, P. (2015). Modelling the Weekly Electricity Demand Caused by Electric Cars.
In: Procedia Computer Science (52) 444-451, DOI: 10.1016/j.procs.2015.05.012.
102
LBST (2018b). Analysis Of The Macro-Economic And Environmental Benefits Of Power-To-Gas, Ottobrunn, 2018.
103 LBST (2018b). Wasserstoffstudie Nordrhein-Westfalen, Düsseldorf, 2018.
104
Iowa Environmental Mesonet, http://mesonet.agron.iastate.edu/request/download.phtml?network=ES__ASOS, datasets downloaded 2019
105
HYDROGen Regional Energy Economy Network Northern Netherlands
106
Willem Hazenberg 2018: HYDROGREENN “Hoogeveen HYDROGEN City Heating project". Groningen & Community Energy
Scotland 2019: Surf 'n' Turf. Online: http://www.surfnturf.org.uk/page/introduction.

27
  there will be the necessity to sustain a dedicated methane gas network to collect
biomethane and to serve distinguished end-users,
 a low admixture rate of 10 or 20 vol% does not contribute significantly to the
required CO2 emission reduction targets, nor does it reduce the costs associated
with novel construction or retrofitting significantly,
 of its miniscule share of the total hydrogen quantities which will need to be
distributed, and
 of the fact that the dedicated hydrogen network will have grown to an extent
which renders the efforts connected to hydrogen admixture to methane gas
unprofitable.

1. For any excess hydrogen that cannot be admixed in 2030, new dedicated networks
will have to be constructed or – where capacity permits – old ones have to be
retrofitted and closed off.
2. If the share of methane, or more generally, the cumulative gas demand, exceeds
the 2015 network capacities, additional infrastructure will have to be built.

4.4.2 COST STRUCTURE FOR METHANE AND HYDROGEN NETWORKS

The cost structure for a hydrogen pipeline network is shown in Figure 5-4.107 The highest
share lies with constructing the distribution network, followed by the transmission network
and the compressor stations. Material costs themselves (mainly steel) are of minor nature.

Figure 4-3 Average share of investment costs of a pipeline network based on Krieg (2012)

Compressor Material
Stations; 13%; Transmission; Construction
3% Transmission;
27%;

Material
Distribution;
1%;
Construction
Distribution;
56%;

Investment Costs - Pipeline Infrastructure

The pipeline infrastructure of any gas network represents the highest share of costs.
Admixing hydrogen to existing NG-networks impacts the pipelines’ “material strength,
fracture toughness, enhanced fatigue crack growth rates, low cycle fatigue, subcritical and
sustained load cracking, susceptibility to stress corrosion cracking, and hydrogen-induced
cracking in welds and joints”.108

Since about 50% of the European distribution infrastructure is made up of polyethylene

pipes,109 switching local distribution networks for entire cities or neighbourhoods to
hydrogen might be generally very feasible. Yet, technical approaches may be applied to
adapt the existing steel pipelines to hydrogen operation such as coating with liners or
pulling in “inflatable” pipes, further detailed analysis ongoing 110. The network conditions
vary significantly from Member State to Member State. For example, while Ireland relies
on polyethylene pipes to almost 100% for its distribution network, only 52% of the
distribution network in Romania has polyethylene pipes.

107
Krieg, D. (2012), Konzept und Kosten eines Pipelinesystems zur Versorgung des deutschen Straßenverkehrs mit Wasserstoff, 2012,
Forschungszentrum Jülich; Institut für Energie- und Klimaforschung,
108
Argonne National Lab (2008), Argonne National Lab, Overview of interstate hydrogen pipeline systems
109
Marcogaz (2014). Technical statistics 01-01-2013.
110
See e.g. http://www.hypos-eastgermany.de/blog/single/forschungsvorhaben-h2-pims.

28
Reduced to the necessary minimum, the pipeline costs are a function of the pressure,
diameter and the wall thickness of a pipe, as these three factors determine the material
intensity. In alignment with general literature, this report assumes an average pressure
level of 100 bar for the transmission network and 30 bar for the distribution network. It
relies on synthesizing the findings from existing studies for assessing the costs of pipelines
qualifying to transport hydrogen. Figure 4-4 and Figure 4-5 summarize the available data
from the available literature and display the costs per meter of building new transmission
and distribution pipelines; the dotted line represents an average of the literature sources
displayed.

Compressor and Pressure Reduction Stations

Due to pressure losses during transport, compressor stations are indispensable in a
pipeline network’s transmission system. Radial compressors are the most suitable choice,
as their technical specifications (compression ratio, transfer rate) provide optimum
efficiency and performance.111,112 Similar to pipeline costs, data on the costs of compressor
stations varies significantly across the available literature. In accordance with industry and
synthesizing the data available, a large compressor station’s costs are estimated to be
about M€ 11.25 (not only including investment but also installation costs).

When transporting gas to the end user in the distribution network, the most common
approach is to decompress the gas via pressure reduction stations. High gas pressures
typically are of little value for the average household and most industrial end-users,
instead they rather pose a risk. A distinct difference can be observed for gas refuelling
stations, methane or hydrogen, which require high pressure.

Figure 4-4 Literature values for transmission network pipeline costs (inflation adjusted)

Transmission network pipeline costs

2.400 €
2.200 €
2.000 €
1.800 €
1.600 €
1.400 €
1.200 €
1.000 €
800 €
600 €
400 €
200 €
0€
0 100 200 300 400 500 600 700
Diameter in mm
Krieg (2012) min Krieg (2012) med Krieg (2012) max
Wietschel (2010) Ball (2006) Yang/Ogden (2007)
Mintz(2002) Parker (2004) Johnson (2012)

111
Note that this does not apply to high pressure compressors at gas stations.
112
Krieg, D. (2012). Konzept und Kosten eines Pipelinesystems zur Versorgung des deutschen Straßenverkehrs mit Wasserstoff,
Forschungszentrum Jülich; Institut für Energie- und Klimaforschung.

29
Figure 4-5 Literature values for distribution network pipeline costs (inflation adjusted)

1.600 €
Distribution network pipeline costs
1.400 €

1.200 €

1.000 €

800 €

600 €

400 €

200 €

0€
0 100 200 300 400 500 600
Diameter in mm
Krieg (2012) min Krieg (2012) med Krieg (2012) max
Wietschel (2010) Ball (2006) Yang/Ogden (2007)
Mintz(2002) Parker (2004) Johnson (2012)

Sources for both figures: Fraunhofer ISI 2010; Yang & Ogden (2007); Mitz et al. (2002); Ball (2006); Parker (2004); Johnson,
N.; Ogden, J. (2012).113

Operation and Maintenance Costs

Operation & maintenance costs (OPEX) are added as an annual percentage of the
investment costs. Krieg (2012) gives an overview of existing literature on hydrogen
pipelines, providing for a range of 1-5% per year of the initial investment costs. In general,
OPEX are assumed to be at the lower end of the range, higher values are barely
substantiated, but are rather assumed to provide for a conservative estimate taking into
account technical uncertainties related to the limited experience with hydrogen pipelines.
Newly built hydrogen pipelines require higher investment costs than methane pipelines,
and the refurbishment of methane pipelines to hydrogen requires investments. Similarly,
operation and maintenance costs of hydrogen pipelines are higher in absolute terms than
those of methane pipelines.114 We assume here the same percentage for both methane
and hydrogen pipeline OPEX, which leads to higher absolute OPEX for hydrogen pipelines.
According to Krieg (2012) this may represent an acceptable level of OPEX for hydrogen
pipelines, but more research would be needed to confirm this.

As an example for methane pipeline systems, absolute annual operation and maintenance
costs in Germany are published by the Bundesnetzagentur for DSOs and for TSOs
separately.115 These values for the year 2015 are consistent with our cost estimates based
on an OPEX percentage of 1% per year for DSOs, which has also been confirmed by the
gas industry during stakeholder consultations for this study. It has to be acknowledged,
however, that there are national variations. On this basis, an OPEX percentage of 1%/a
for DSO networks is used here both for methane and for hydrogen.

113
Fraunhofer ISI (2010). Vergleich von Strom und Wasserstoff als CO2-freie Endenergieträger, Karlsruhe; Yang, C.; Ogden, J. (2007).
Determining the lowest-cost hydrogen delivery mode. International Journal of Hydrogen Energy 32(2): 268-286; Mitz et al. (2002). Cost of
Some Hydrogen Fuel Infrastructure Options, 1/16/2002; Ball, M. (2006), Integration einer Wasserstoffwirtschaft in ein nationales
Energiesystem am Beispiel Deutschlands. Optionen der Bereitstellung von Wasserstoff als Kraftstoff im Straßenverkehr bis zum Jahr 2030,
Deutsch-Französisches Institut für Umweltforschung - Teilinstitut Karlsruhe; Parker, N. (2004). Using Natural Gas Transmission Pipeline
Costs to Estimate Hydrogen Pipeline Costs & Johnson, N.; Ogden, J. (2012). A spatially-explicit optimization model for long-term hydrogen
pipeline planning. In: International Journal of Hydrogen Energy.
114
Costs for hydrogen pipeline repairs are higher because the pipes may be coated and welding seams would need special treatment.
Furthermore, seals, meters and other components have to be checked and serviced more frequently.
115
BNetzA (2019) Monitoringbericht 2018.

30
For TSOs, our calculations are consistent with the BNetzA (2019) absolute values at an
OPEX percentage of 2.4%/a for 2015. It has to be noted that the operation and
maintenance costs vary from one year to the other providing for an OPEX percentage
range of 1.7%/a to 2.4%/a with an average over the years 2013 to 2018 of 2.0%/a.
Acknowledging national variations also at TSO level, we assume an OPEX percentage of
2%/a for TSO pipelines, both for methane and for hydrogen.

International gas transport

For international gas transport, pipelines with different transport capacities have been
used depending on the required transport capacity. Typically, a compressor station is
installed every 100-200 km.116 The selection of various parameters (diameter for a given
throughput, pressure, pipe roughness) of a pipeline system significantly influences the
pressure drop and as a result the energy consumption for gas transport. There is a trade-
off between investment and low energy consumption.

For hydrogen transport coated steel pipelines are required, leading to higher costs. 117
Compressor investment costs are 22 € per kW of hydrogen, based on the lower heating
value.118 The volumetric gas transport capacity of a hydrogen pipeline is higher than that
of a similar methane pipeline as the friction is lower and the gas velocity of hydrogen is
higher compared. However, the energy content per volume is much lower for hydrogen
(3.00 kWh per Nm³ versus 9.95 kWh per Nm³ based on the lower heating value). Overall,
the energy-related transport capacity of hydrogen is somewhat lower than for methane.

4.5 USE OF ELECTRICITY, METHANE AND HYDROGEN IN ENERGY END-USE

SECTORS IN THE EU IN 2015, 2030 AND 2050

The energy demand from each energy use is developed based on selected literature and
to respect the scenario definitions from the previous chapter. The resulting energy demand
is derived from assumptions e.g. regarding the share of hydrogen fuel cell vehicles, it is
not the result of economic or similar modelling. The main aim is to develop energy demand
values for three explorative scenarios with rather ambitious assumptions regarding the
use of electricity, methane and hydrogen. To develop the input to the energy system
model, the total energy end-use in EU member states is split into the energy use sectors
transport, residential and services, and industry comprising multiple subsectors. The
power generation sector is not included in this chapter as this sector is inherent calculated
by the energy system model.
4.5.1 TRANSPORT

The development of the transport activity in Europe is based on the 1.5 °C scenarios in
the LTS119 and on the country specific developments presented in the EU Reference
Scenario.120, 121 Between 2015 and 2050, a EU28 wide sector growth of about 21% for
passenger cars and of about 40% for the road freight is assumed. The growth of the rail
sector is assumed to be 85%. National and international aviation as well as inland and
international shipping is not considered in this study. The future development of specific
fuel consumption for various propulsion systems and vehicle types) is based on VDA’s E-
fuel study.122 The specific fuel consumption values are used to convert absolute fuel

116
Cerbe, G.; Lendt, B. (2017). Grundlagen der Gastechnik; 8. vollständig überarbeitete Auflage, Carl Hanser Verlag München, ISBN 978-
3-446-44965-7 & Angloher; J.; Dreier, Th. (1999). Techniken und Systeme zur Wasserstoffbereitstellung; Koordinationsstelle der
Wasserstoff-Initiative Bayern (WIBA).
117
Parker, N. (2004). Using Natural Gas Transmission Pipeline Costs to Estimate Hydrogen Pipeline Costs.
118
Parker, N. (2004). Using Natural Gas Transmission Pipeline Costs to Estimate Hydrogen Pipeline Costs.
119
EC (2018). A Clean Planet for all A European strategic long-term vision for a prosperous, modern, competitive and climate neutral
economy.
120
EC (2016). EU Reference Scenario 2016 - Energy, transport and GHG emissions Trends to 2050, Brussels.
121
The EU LTS 2018 data was applied to determine the overall change in transport activity, while the EU Reference scenario data was
additionally considered to determine member state specific developments.
122
VDA (2017). E-FUELS STUDY The potential of electricity-based fuels for low-emission transport in the EU.

31
demand of the transport sector between technologies and years based on national
developments of transport activity.

The share of GHG neutral propulsion systems for each member state was mainly
determined based on national GHG reduction targets and the technology focus of each
scenario. In 2030, BEVs are virtually the only new vehicle technology in the electric and
hydrogen scenario. Hydrogen and ICE gas vehicles only play a minor role. In the methane
scenario, ICE gas vehicles clearly outnumber battery vehicles. However, battery vehicles
still play a relevant role. The fuel demand declines from about 3 500 TWh in 2015 to just
above 3 000 TWh. The main reason for this decline is the improved efficiency of
conventional ICE vehicles as well as a shift to efficient BEVs. Decline of fuel demand is less
pronounced in the methane scenario due to a smaller share of BEVs in the vehicle stock.

In 2050, battery vehicles account for about 75% of all road vehicles in the electric scenario.
In the methane and hydrogen scenario, BEVs still account for about 50% of the vehicles.
ICE gas and fuel cell vehicles account for about the other half of all vehicles in their
respective scenarios. The share of BEVs is higher for passenger cars as for trucks due to
weight and range limitations. For 2050, it is assumed that a small share of road freight
uses other fuels e.g. bio-based or electricity based liquid fuels (BtL, PtL) in niche
applications. Total fuel demand strongly depends on the scenario due to varying
efficiencies of the vehicle propulsion technology and their respective relevance in each. In
the electric scenario, fuel demand amounts to about 2,000 TWh while in the methane
scenario the total is at about 2,500 TWh. Fuel demand in the hydrogen scenario is at about
1,700 TWh. There are no relevant GHG emissions remaining from land transport activity.123
Emissions from further transport subsectors such as national and international navigation
and aviation might exist. However, those subsectors are not considered in this study. From
virtually zero today, gas demand the transport sector significantly increases to about 850
TWh in the electric scenario, by 2050. In the methane and hydrogen scenario, demand
increases to almost 1,800 and 900 TWh, respectively.
4.5.2 RESIDENTIAL SECTOR AND SERVICES

According to the EU long term strategy (LTS) 124, the demand for space heating in the
residential and service sector is expected to decline by about 60% and 50% respectively
in average, by 2050. By 2030, the reduction is expected to be already at about 25%
compared to 2015 levels. This reduction is assumed to be similar for all Member States.
The energy demand for the production of warm water is expected to remain constant at
today’s level. The future development of electricity consumption for appliances and space
cooling is based on the LTS and the EU Heat Roadmap 4. 125 By 2050, electricity
consumption for appliances is assumed to increase by 20% compared to 2015 (EU28
average). During that period, demand for space cooling nearly triples, however, starting
at a low level. Efficiency data for various heating and CHP technologies are mainly taken
from the Asset Technology pathways in decarbonization126 and the German integrated
energy concept 2050.127

The technology and fuel split in the heating sector in the three scenarios is based on inputs
taken from the LTS,128 the hydrogen roadmap and the gas network infrastructure study. 129

123
There are minor GHG emissions from using natural gas allocated to the residential and service sector. Those emissions could (partly) be
allocated to the transport sector instead.
124
EC (2018). A Clean Planet for all A European strategic long-term vision for a prosperous, modern, competitive and climate neutral
economy.
125
Aalborg Universitet (2017). Heat Roadmap Europe 4: Quantifying the Impact of Low-Carbon Heating and Cooling Roadmaps.
126
Asset (2018). Technology pathways in decarbonisation scenarios.
127
Bundesministerium für Verkehr und digitale Infrastruktur (2018). Rechtliche Rahmenbedingungen für ein integriertes Energiekonzept
2050 und die Einbindung von EE-Kraftstoffen, Berlin.
128
EC (2018), A Clean Planet for all A European strategic long-term vision for a prosperous, modern, competitive and climate neutral
economy.
129
DG ENER (2018), The Role of Trans-European Gas Infrastructure in the Light of the 2050 Decarbonisation Targets.

32
In addition, the available infrastructure today (e.g. availability of gas or district heating
networks) and the prevailing heating fuels and technologies (incl. district heating, heat
plants and CHP) are considered to derive country specific developments.130

By 2030, the final energy demand is reduced from today’s level of about 4 800 TWh, to 3
900 and 4 000 TWh for the electric and the methane and hydrogen scenario, respectively.
The use of fossil energies is significantly reduced. A less pronounced reduction results for
district heating, biomass and other renewables due to a strong decline of overall energy
consumption in buildings (increased insulation). Depending on the scenario, GHG-neutral
gases such as hydrogen and biomethane significantly increase their relevance from almost
zero today. Despite an increasing share of heat being produced from electricity, total
electricity consumption for heat production stays about at today’s level. This is achieved
by partly switching from resistance heaters to electric heat pumps with superior efficiency.
By 2050, final energy consumption drops further to around 3,000 TWh in all three
scenarios. The use of fossil energy carriers is reduced about 6% resulting in about 23
MtCO2/a emissions. In each scenario, the gas demand significantly declines from above
1,600 TWh in 2015 to 400 TWh in the electric, to about 800 TWh in the methane and to
about 900 TWh in the hydrogen scenario, by 2050. This demand also includes gas used
for CHP cogeneration in small decentralized units.
4.5.3 INDUSTRY

The development of fuel and energy consumption in the industry sector is heavily based
on the “1.5 TECH” scenario in the EU’s LTS.131 The development is assumed to be the
same in all three scenarios. After 2030, fossil fuels are substituted by biomass, electricity,
hydrogen, or methane produced from biomass or electricity. By 2050, the use of fossil
energies is close to zero (Figure 3-10). Total use of gaseous energy carriers is reduced
from just above 1 000 TWh/a today to about 620 TWh/a by 2050 (Figure 3-11).
4.5.4 OVERALL GAS DEMAND

The overall gas demand in the considered sectors (transport, residential, services,
industry) declines from about 2 800 TWh/a in 2015 to between 2 000 and 2 500 TWh/a,
in 2030. Due to the developments in the transport sector (replacement of liquid fuels
partially by gas consuming technology) gas demand increases between 2030 and 2050 in
the Methane (almost 3 500 TWh/a) and Hydrogen (about 2 500 TWh/a) scenario. In the
electric scenario, gas demand remains at a low level of just below 2 000 TWh/a (Figure
3-12). The figures do not include gas consumption in the power sector, potential gas
demand from aviation or navigation, transport and distribution losses, and energy industry
own consumption. The relevance of non-electric and non-gaseous energy carriers is less
pronounced in all three scenarios as compared to some other studies. This is an intentional
assumption in the scenarios’ definition to explore the impact of more gas (H2, CH4) loaded
scenarios on gas infrastructure.

130
Aalborg Universitet (2017), Heat Roadmap Europe 4: Quantifying the Impact of Low-Carbon Heating and Cooling Roadmaps & IEA
(2017). World Energy Balances, Paris.
131
European Commission (2018). A Clean Planet for all A European strategic long-term vision for a prosperous, modern, competitive and
climate neutral economy.

33
Figure 4-6 Development of gas demand (H2 & CH4) in the transport, residential, services and industry
sector (gas demand in none-end use sectors indicated for 2015)

4.5.1 OPTIMAL DESIGN OF THE INTERLINKED ENERGY SYSTEM

According to the GHG emission reduction targets, the structure of entire energy system
undergoes substantial changes between the two time-horizons 2030 and 2050 due to the
shift from fossil to renewable energy supply.

As presented in Figure 4-7, the overall gas supply in the mid-term until 2030 declines
substantially in all scenarios by 20%-30% to approx. 3,000-3,500 TWh/a mainly due to
energy savings, switch to other non-gas end-user applications as well as improved
efficiencies in the end-user sectors. The structure of gas supply in 2030, however, is
comparable to 2018. The gas infrastructure in 2030 is based on natural gas mainly
imported from outside the EU corresponding to ca. 70% of total gas supply. The domestic
production of natural gas within the EU drops to almost 700 TWh/a, but it still accounts
for approx. 20% of total gas supply. Both biomethane and hydrogen production are rather
limited with approx. 150 and 400 TWh/a in the electricity-focused Scenario 1 and the
methane-focused Scenario 2, respectively. In fact, the biomethane production in Scenarios
1 and 3 is even lower than in 2018 as the average biomethane price of 65-73 €/MWh is
still higher than natural gas including the corresponding carbon price. Therefore,
biomethane use in the power sector is rather limited as other power plants can provide
electricity more cost-effectively. Hydrogen is produced exclusively by comparatively cheap
water electrolysis. Steam methane reforming combined with CCS is not applied due to
high specific costs for rather small units which, lacking dedicated hydrogen distribution
infrastructure, have to be located in close proximity to hydrogen demand.

34
Figure 4-7 Expected gas supply in EU28

The decreasing gas demand in 2030 is partially compensated for by methane use in the
power sector going up by 5%-15% from ca. 960 TWh/a in 2018 to well above 1,000 TWh/a
in 2030. The increasing electricity generation of gas-fired power plants (from ca. 450
TWh/a in 2018 to 600-730 TWh/a in 2030) is mainly due to favourable development of
carbon prices making power generation by coal-fired power plants less competitive in
comparison to natural gas (see Figure 4-8). Hence, the carbon price of € 84/tCO2
substantially impacts on the merit order of electricity generation. In addition, the phase-
out of some nuclear power plants requires additional dispatchable generation capacities,
which are provided by comparatively cheap gas power plants. In fact, the combined
amount of electricity provided by nuclear and coal power plants drops from 1,300 TWh/a
in 2018 to approx. 650 TWh/a in 2030. Moreover, the fluctuating renewable power
production from wind and solar PV increases to approx. 1,500 TWh/a accounting for almost
half of the overall power generation with a dominant share of wind power among
fluctuating power plants. In this context, the flexible gas power plants are used to balance
the intermittency of renewable power supply.

Figure 4-8 Expected power supply in EU28

In fact, the installed capacity of gas power plants goes up from some 170 GW initially to
more than 190-220 GW in 2030. In this context, the optimal system design requires

35
additional capacities for combined cycle gas turbines (CCGT), which are capable of
comparatively efficient power production. The largest CCGT investments occur in the
hydrogen-focused Scenario 3 with the highest overall electricity demand due to the
additional power needed for hydrogen production via electrolysis. The total power demand
in 2030 in all scenarios is slightly higher than the corresponding figure in 2018 due to
sector coupling and advancing electrification of the end-user sectors.

In 2050, the energy system changes drastically. Due to the strong GHG emission reduction
target almost no fossil fuels can be used in the system. The limited natural gas imports of
approx. 90-180 TWh/a in 2050 are within the predefined GHG emission cap for the energy
and end-user sectors, and have to be offset by negative emissions from LULUCF and
bioenergy-based CCS. Either biomethane or renewable power are the dominant primary
energy source. In the electricity-focused Scenario 1, the system utilises the full potential
of biomethane of almost 1,200 TWh/a. This figure takes into account not only the
bioenergy potential which is not used today, but also additional bioenergy which is
expected to become available from the residential sector due to energy savings in this
sector. Moreover, almost 300 TWh/a of bioenergy is directly used by biomass power plants
providing more than 100 TWh/a of electricity to the power system. Therefore, the overall
biomethane supply in this scenario is slightly lower than in Scenario 2. In addition, approx.
230 TWh/a of synthetic methane are produced and used for re-electrification by gas power
plants to balance out the power system. The slightly higher natural gas supply in
comparison to the other two scenarios is also consumed by the gas power plants. In this
context, it is cheaper to source expensive fossil gas up to a predetermined GHG emission
limit rather than to further increase the capacity of the methanation facilities to produce
fossil-free gas for re-electrification with a low efficiency. Hydrogen supply in Scenario 1
amounts to approx. 860 TWh/a, out of which 570 TWh/a are foreseen for direct
consumption in the end user sectors, 280 TWh/a are feedstock for methanation and 13
TWh/a are used for re-electrification by hydrogen-fuelled CCGT units with a total capacity
of 13 GW.

Figure 4-9 Development of dispatchable power generation capacities in EU28

The methane-based Scenario 2 also utilises the full biomethane potential of more than
1,400 TWh/a (including the bioenergy becoming available from the residential sector). In
addition, almost the same amount of synthetic methane is produced via the methanation
process, and consumed in the end-user sectors as well as for re-electrification in gas power
plants. The overall hydrogen production in this scenario accounts for more than 2,200
TWh/a. However, only limited amounts of hydrogen (approx. 500 TWh/a) are used directly
by the end user sectors. Most of the hydrogen (some 1,700 TWh/a) is used as feedstock

36
for methanation. Hence, the overall gas demand and supply in this scenario is much higher
than in the other two scenarios, but it is at a similar level as in 2030 if the hydrogen for
methanation is not taken into account. The hydrogen-based Scenario 3 has a different gas
supply structure in comparison to the aforementioned scenarios. Due to demand from the
end-user sectors, hydrogen is the major gas type in the system with almost 2,200 TWh/a.
Limited amounts of hydrogen (54 TWh/a) are utilised by hydrogen fuelled gas turbines
(almost 280 GW installed capacity) and CCGT units (42 GW). Biomethane and natural gas
supply of 410 and 90 TWh/a, respectively, are consumed locally in industry as well as in
the residential and services sectors. In this way, the overall gas demand in this scenario
is at a comparable level as in Scenario 1, but much lower than the corresponding values
in 2030.

Until 2050, the overall renewable power supply grows, compared to 2030, by a factor of
3-4 to 5,000-6,800 TWh/a becoming the dominant power source. Nuclear power
generation as a cheap low-GHG technology provides some 460 TWh/a in all scenarios and
remains at a level comparable to 2030. As in 2030, nuclear power plants are used
predominately as base-load technology achieving almost 7,000 annual full load hours. The
capacity of gas power plants based both on methane and hydrogen grow substantially to
250-380 GW. The lower value corresponds to Scenario 2 with comparatively low power
demand from the end user sectors and large electrolysis capacities as a flexible load,
whereas the upper value corresponds to Scenario 1 with the highest direct power demand
and thus larger need for flexibility measures in the power sector. In all scenarios, the gas
power plants are used to balance out the fluctuating power feed-in and are characterised
by low utilisation. Therefore, the comparatively costly generation capacities with CCS are
not installed in any scenario.

Figure 4-10 displays optimal electrolysis and methanation capacities together with the
corresponding utilisation rates. In 2030 only limited electrolysis of 15-67 GW is needed to
satisfy the limited hydrogen demand. The utilisation is between 3,000 and 4,000 annual
full load hours indicating that it is used as flexible load in the power system. Until 2050,
the required capacities grow substantially to 400-900 GW. The largest electrolysis capacity
is installed in Scenario 3 with the greatest direct hydrogen demand from different end user
sectors. In scenario 2, most of the installed electrolysis capacity (585 GW or ca. 80%) is
needed for methanation. At this point it is important to mention that the electrolysis unit
within a PtCH4 facility is directly connected to the methanation process and cannot be used
for hydrogen production for consumption by end user sectors. This is mainly due to a
different geographical distribution of PtH2 and PtCH4 units in this scenario (PtH2 close to
hydrogen demand and PtCH4 according to renewable power generation) as otherwise the
system would require parallel infrastructures for hydrogen and methane. In this way, the
overall electrolysis capacity and the corresponding costs in this scenario tend to be
overestimated and could be further optimised through a more synergetic operation of both
technologies. The utilisation rates for electrolysis of 2,000-3,000 full load hours are lower
than the corresponding values in 2030 mainly due to larger feed-in of renewable power
and the increased use of electrolysis as a flexible load. As mentioned above, methanation
facilities are built up only in 2050 in Scenarios 1 and 2. The optimal capacity ranges
between 100 GW and 400 GW, and the utilisation is between 2,000-3,500 annual full load
hours.

37
Figure 4-10 Electrolysis and methanation capacities and corresponding utilisation in EU28

In all scenarios, seasonal storage of energy is provided by the gas infrastructure. In 2030
approx. 520-590 TWh of CH4 storage are required to balance out the seasonal fluctuations
between power and gas demand and supply (see Figure 4-11). Local hydrogen pipe
storage is very limited due to low hydrogen demand and comparatively high specific costs
of this technology. In the power system, only existing pumped-hydro storage units are
operated in an optimised power system.

Although renewable power supply grows substantially until 2050, the required gas storage
capacities decrease to 240-360 TWh. This is mainly due to falling overall gas and power
demand on the one hand and enhanced use of other flexibility options such as electrolysis
as a flexible load or stationary batteries on the other hand. In this context highest battery
capacity occurs in the electricity-based Scenario 1 (180 GW) and the lowest in Scenario 3
(21 GW). Moreover, nuclear power and biomass plants provide back-up power in times
when renewable power feed-in is insufficient to meet demand. In Scenarios 1 and 2, some
additional hydrogen pipe storage capacities between 2-10 TWh are needed based on local
hydrogen demand. In Scenario 3, hydrogen is stored in large-scale underground salt
caverns with a total capacity of 280 TWh.

Figure 4-11 Required gas storage capacities in EU28

Figure 4-12 displays cross-border energy transport between the different Member States
as an indicator of the required gas and power infrastructures. Similar to the previous
results, in 2030 the differences between the scenarios are very limited. In all three

38
scenarios total gas transport accounts for approx. 1,500 TWh/a whereas power transport
amounts to some 1,000 TWh/a. The difference between the two energy carries is due to
varying overall demand for each carrier. This is partially compensated by the wider spatial
distribution of power generation and higher hourly fluctuations of electricity demand and
supply in contrast to a more centralized distribution of gas along the established import
routes and a flatter gas residual load in each node. Until 2050, this relationship is
enhanced. Increasing renewable power supply leads to more fluctuations in power
generation which is not necessarily in close proximity to power demand. For the gas
infrastructure, the cross-border gas transport activities change, too, but not in the same
manner. In Scenario 1 the amount of transported gas decreases to 1,100 TWh/a mainly
due to lower gas demand. For Scenarios 2 and 3, gas transport increases to 2,000 TWh/a
as both the production of synthetic methane and hydrogen are related to the renewable
feed-in being differently distributed compared to demand.

Figure 4-13 to Figure 4-15show the corresponding gas flows in EU28 in each scenario and
time step whereas Figure 4-16 to Figure 4-18 indicate the required pipeline capacities
together with investment needs. Again, for 2030 the gas flows as well as the required
pipeline capacities are very similar for all scenarios. Since natural gas imports dominate
the gas supply, the infrastructure design follows the established import routes mainly from
East to West (from Russia through Poland and Slovakia to Western Europe) and from North
to South (from Norway to Germany, France and Italy). Limited changes in comparison to
the existing infrastructure are due to decreasing gas demand on the one hand and falling
domestic gas production on the other hand. Moreover, since the model assumes an internal
energy market without any barriers for all Member States in the first step, the peripheries
of the gas infrastructure (e.g. Baltic countries, Iberian Peninsula, Scandinavia, Cyprus and
Malta) need some enhancements for a better connection with central Europe.

Figure 4-12 Cross-border energy transport within EU28

Again, in 2050 the switch from natural gas to GHG-free gases has a major impact on the
design and requirements of the future gas infrastructure. In fact, countries with large
renewable potentials in comparison to limited domestic demand become gas exporters
whereas Member States characterised by high gas demand but low domestic production
from renewables need additional imports from within the EU. Particularly in Scenarios 1
and 2, the Scandinavian and Baltic counties supply large amounts of biomethane which
have to be transported to Central Europe and mainly to Germany. For this reason, the
interconnectors between Sweden, Denmark and Germany on the one hand as well as
between Lithuania, Poland and Germany on the other hand become important and need
corresponding network enhancements, except for the link between Poland and Germany

39
which already has a large capacity. Moreover, the gas supply from Balkan countries
(Romania, Bulgaria and Greece) is transported from Greece to Italy with large gas
demand. In this way, the gas flows between Germany and Italy as well as from Eastern
Europe through Austria to Italy disappear, and the related gas infrastructure is not needed
anymore. In contrast, countries with high gas demand but low production such as the
Netherlands and the UK import biomethane. These imports, however, can be covered by
the existing infrastructure and further investments are not needed. Similar relationships
can be observed for biomethane exports from France to the Benelux countries and Italy
(however the interconnector between France and Italy is not sufficient for the required gas
transport in Scenario 3 and hence needs to be upgraded).

In Scenario 3 in 2050, the required gas infrastructure changes substantially in comparison

to today’s design and operation. Since hydrogen is produced according to the renewable
power potential it has to be transported over long distances from the peripheries to Central
Europe. This is true in particular for the Baltic countries including again the route through
Lithuania and Poland to Germany as well as for Scandinavia affecting the interconnectors
between Sweden, Denmark and Germany. For both routes, substantial investments in new
capacities are required. In addition, hydrogen is transported from the solar-rich South
(Spain, Greece, Italy) northward (France and Germany) and from the wind-rich West
(Ireland, UK, France) eastward (Germany, Benelux, Austria and Czech Republic). Except
for individual relations with large existing capacities (e.g. between the UK and Belgium, or
Germany and the Czech Republic) new pipeline capacities are needed. In general,
hydrogen supply under the assumptions of this study reverses the direction of gas flows
having a strong impact on the pipeline capacities.

40
Figure 4-13 Gas flows under the 2030 and 2050 electricity scenarios

Scenario 1: Electricity 2030

Scenario 1: Electricity 2050

41
Figure 4-14 Gas flows under the 2030 and 2050 methane scenarios

Scenario 2: Methane 2030

Scenario 2: Methane 2050

42
Figure 4-15 Gas flows under the 2030 and 2050 hydrogen scenarios

Scenario 3: Hydrogen 2030

Scenario 3: Hydrogen 2050

43
Figure 4-16 Required capacity and related investment under the 2030 and 2050 electricity scenario

Scenario 1: Electricity 2030

Scenario 1: Electricity 2050

44
Figure 4-17 Required capacity and related investment under the 2030 and 2050 methane scenario

Scenario 2: Methane 2030

Scenario 2: Methane 2050

45
Figure 4-18 Required capacity and related investment under the 2030 and 2050 hydrogen scenario

Scenario 3: Hydrogen 2030

Scenario 3: Hydrogen 2050

46
 4.6 EVALUATION OF THE ECONOMIC AND ENVIRONMENTAL COSTS AND
BENEFITS

4.6.1 COMPARISON OF THE ENERGY SYSTEM COSTS

This chapter provides an economic valuation of the energy system in different scenarios
based on the optimal design and operation of the system as described in the previous
chapter. The presented figures include the investment costs (expressed as annuity) and
fuel costs of the dispatchable power plants, full renewable power generation costs, costs
related to power and gas storage (hydrogen and methane), costs due to investments and
operation of Power-to-Gas (PtH2 and PtCH4), DSM costs, investment and operational costs
of power and gas infrastructure at international level (i.e. for interconnectors between the
Member States) as well as supply costs for biomethane, natural gas and other fossil energy
carriers including the direct demand from the end-user sectors. Not included are power
and gas infrastructure costs at the national level, in particular for the distribution network
(see next chapter for the corresponding cost estimation) as well as end-user appliances.

As indicated in Figure 4-19, in 2030 the cost structure is similar in all scenarios. The major
cost contribution of € 240-250bn /a (approx. 50% of total system costs) is represented
by coal and oil imports for direct consumption in the end user sectors. Methane supply,
i.e. mainly imports and domestic production of natural gas as well as supply of
biomethane, account for another €100-120 bn/a or 20%-25% of total costs. Renewable
power supply is lower (€ 75-80 bn/a), but still in a similar order of magnitude. Minor costs
of approx. €23 bn/a are caused by dispatchable power plants132 as well as energy transport
(more than €10 bn/a) and other system flexibility measures such as electrolysis and
electricity storage. In Scenario 3, the higher costs for flexibility are mainly due to larger
investments in electrolysis capacities (see Figure 4-20). In general, however, the overall
system costs of almost 500 € bn/a are very similar for all scenarios in 2030 with a small
advantage for a more electricity-focused system in Scenario 1. Hence in 2030, both
methane-focused systems in Scenario 2 and hydrogen-focused system in Scenario 3 have
no economic benefit (calculated as the difference in system costs compared to Scenario
1), however, these differences are not significant.

Figure 4-19 Annual energy system costs (excluding national energy transport costs) in EU28

Increasing system coupling and decarbonisation of the energy system until 2050 have a
positive effect on the overall system costs in all scenarios. The total system costs decrease
by € 40-140 bn/a, leading to total system costs of € 340 bn/a in the hydrogen-focused

Note that the fuel costs of gas power plants are not included in the category “Dispatchables” but are rather summarized in the category
132

“methane supply” as the model jointly optimizes the gas supply for both energy and end user sectors.

47
Scenario 3, and € 430 bn/a in the methane-focused Scenario 2. In all scenarios, major
costs are caused by very substantial investments in new renewable capacities contributing
€150-200 bn/a, or 40%-55%, to total costs. However, these investments are more than
compensated by the decrease of payments for fossil fuels related to the end user sectors
(€5 bna) and lower methane supply costs (€26-100 bn/a). The difference between the
scenarios for the latter cost driver is based on the varying demand for biomethane (low in
Scenario 3 and high in Scenario 2) and corresponding average biomethane prices which
typically rise with increasing demand (€56 /MWh in Scenario 3 and 65 €/MWh in Scenario
2). Due to investments in new dispatchable capacities needed to balance out the
fluctuating power feed-in, the corresponding costs increase slightly to €22-44 bn/a.
Moreover, renewable electricity supply also causes additional costs for flexibility measures
(€36-58 bn/a) and energy transport (€43-53 bn/a). In Scenario 1, the costs for flexibility
measures are equally distributed (€ 7-10 bn/a) between electrolysis, local H2 pipe storage,
methanation133 and power storage (pumped hydro and stationary batteries). In Scenario
2, major cost driver are the methanation facilities with € 45 bn/a or almost 80% of the
costs for flexibility. Electrolysis needed to satisfy direct demand from the end user sectors
and electricity storage have minor influences. In contrast in Scenario 3, electrolysis and
the large underground salt caverns are major cost components with € 32 bn and €17 bn/a,
respectively. The costs for demand-side management and CH4 storage are negligible in
both time steps and all scenarios.

Figure 4-20 Annual costs for flexibility measures in EU28

The major cost contribution related to energy transport is made by electricity transport.
The operation of existing power infrastructure and investments in new power lines in a
system mainly based on renewable power supply cause annual costs of €10-12 bn/a (or
90% of total energy transport costs) in 2030 and €33-52 bn/a (or 75%-95% of total
energy transport costs) in 2050. The highest costs for power transport occur in the
electricity-focused Scenario 1 with the largest direct power demand form end user sectors.

In contrast, the costs of the gas infrastructure in all scenarios are much lower (see
Figure 4-22). In 2030 they account for approx. €1.3 bn/a as the existing infrastructure is
mainly capable of balancing out methane supply and demand across the Member States.
Although the gas demand decreases in comparison to 2018, some pipeline investments
with annualized costs of €0.4 bn/a are required as the geographical distribution of gas
supply changes due to decreasing domestic natural gas production compensated by the
increase of biomethane supply. The remaining costs of €0.9 bn/a are operational costs of
the gas infrastructure. In 2050, the corresponding costs in Scenarios 1 and 2 are only
slightly higher with €1.5-2.4 bn/a, respectively. The cost structure is also comparable to

133
Note that the costs for methanation also include the electrolysis costs within the PtCH4 facility.

48
2030. The additional cost related to the gas infrastructure such as specific metering and
refurbishment/replacement of end-user appliances is addressed qualitatively in the
previous chapters but is not included in the above-mentioned estimates.

For the hydrogen-focused Scenario 3, however, the overall costs are much higher and the
cost structure differs substantially. The overall costs account for approx. €7 bn/a almost
equally distributed between costs for new pipelines or conversion of existing CH4 pipelines
(together almost €5 bn/a), and operational costs (€2.7 bn/a). For the former cost
component, the major driver are the comparatively costly investments in new compressor
capacities due to different physical flow characteristics of hydrogen. Nevertheless, the
overall transport costs in Scenario 3 are lower than in the other two scenarios as power
transport in this scenario requires lower investments in new power lines. The costs for
decommission of unneeded infrastructure are negligible in all scenarios.

Figure 4-21 Annual costs for power and gas infrastructure for international energy transport in EU28

In general, the lowest system costs in 2050 are achieved in the hydrogen-focused Scenario
2, and the highest in the methane-based Scenario 3. This result shows that the overall
system costs can be summarized as trade-off between system efficiency (high for Scenario
1 and low for Scenario 3) and system flexibility (low in Scenario 1 due to the direct power
demand with limited possibilities for direct power storage and higher in Scenarios 2 and
3). The system design with a strong focus on hydrogen technology appears to be a robust
compromise for both factors. Hence, in comparison to the electricity-based system and
under the assumptions of this study, a hydrogen-focused system has a positive economic
benefit of €30 bn/a in 2050 whereas a methane-focused system is characterised by an
economic disadvantage of €53 bn/a. In 2030, the differences are negligible. In this context
in Scenario 1 in the long-term the advantages of the higher energy efficiency are offset by
the disadvantages of lower system flexibility (due to direct electricity use and low roundtrip
efficiency of re-electrification of synthetic methane) in comparison to Scenario 3.

49
Figure 4-22 Annual costs for gas infrastructure for international gas transport in EU28

4.6.2 INCREMENTAL GAS INFRASTRUCTURE COSTS FOR NATIONAL

TRANSPORT AND DISTRIBUTION NETWORKS

As blending hydrogen into the existing NG network is a frequently discussed topic, it is

worth exploring its feasibility and reviewing the assumptions made regarding admixture.
Assuming a safe admixture rate of 10 vol% hydrogen to methane for 2030 and 20 vol%
for 2050, the energy contents required and the resulting hydrogen demand to be supplied
under a given scenario have been calculated and presented in Table 4-2. Note that the
model does assume 0% admixture by 2050 and that this serves to illustrate that the
potential to admix hydrogen is insignificant under any scenario. As we can observe from
Table 4-2, the potential to admix hydrogen ranks in the lower one-digit percentage range
when comparing its contribution to the entire gas market. It may indeed make sense to
admix hydrogen in the early years of hydrogen market introduction, as dedicated
infrastructure will not have been retrofitted or constructed to accommodate 100%
hydrogen for some time, but once this has occurred there is no case to be made for
admixing large quantities of hydrogen.

The model therefore assumes that there will be no admixture in 2050, neither in the TSO
nor in the DSO network. However, in 2050 there will be a minor share of dedicated
hydrogen networks in the electricity and methane scenarios and some dedicated methane
networks under the hydrogen scenario. For the electricity and methane scenario in 2030,
up to 10% of hydrogen are admixed in the DSO network. Should there be more hydrogen
gas left to be distributed, additional dedicated H2 networks would have to be converted
from freed-up NG-networks, or newly constructed.

Table 4-2 Energy equivalent hydrogen quantity in TWh/a to be safely admixed to the NG-network
and its percentage of total hydrogen and of the entire gas market under the respective scenario
(maximum admixture share of 20 vol%)

Electric Methane H2 Electric Methane H2

2030 2050
Potential H2 admixture in TWh/a 103 115 105 112 195 33
Potential H2 admixture as share of
151% 263% 46% 20% 40% 2%
total H2
Potential H2 admixture as share of
3% 3% 3% 5% 6% 1%
entire gas market
Total H2 as share of entire gas
2% 1% 7% 24% 14% 71%
market

Under the 2030 hydrogen scenario, the available hydrogen is distributed through dedicated
hydrogen networks. After initially establishing a decentralized system of hydrogen

50
distribution networks – both retrofitted and newly constructed - these should gradually be
linked through a dedicated separate hydrogen transmission network. 134 While certain areas
will have transitioned to be served through dedicated hydrogen distribution networks until
2030, dedicated hydrogen transmission pipelines will only be built on a large scale once
sufficient density of local distribution has been achieved. Retrofitting and conversion are
most easily done with existing polymer pipes that are least prone to material exhaustion
and degradation from hydrogen.135

Figure 4-23 and Figure 4-24 display the annual costs for the national transmission and
distribution gas networks under the three different scenarios for 2030 and 2050. Figure
4-23 shows the general depreciation costs and OPEX for the transmission and distribution
network. These costs add to the cross-border infrastructure costs as presented in the
previous chapter. One can observe that until 2030 the bulk of investment and operational
costs lies with the operation of the distribution network followed by the operation of the
transmission network. In 2050, the scenarios differ strongly, with increasing importance
of investment depreciation, notably in the distribution network. Figure 4-24 further splits
the costs into OPEX of existing pipelines, refurbishment, decommissioning, conversion as
well as costs for new CH4 and H2 pipelines.136

Compared to the 2015 baseline, depreciation and OPEX show constant or slightly
decreasing costs until 2030 under all scenarios, with the methane scenario showing
constant costs, the hydrogen scenario slight cost reductions and the electricity scenario
stronger cost reductions. This is sensible as the gas capacity is also highest under the
methane scenario for 2030. Similarly, for 2050, the electricity scenario comes out as the
cheapest option from a gas infrastructure perspective as it involves the lowest quantity of
gas. This may come at higher costs for the electric network, which is not estimated here.

Depending on the scenario and the quantities of different kinds of gases, significant
investments will be required under certain scenarios. The most expensive one, both in
terms of depreciation and OPEX, is the 2050 methane-scenario, with the highest gas
capacity and the need for significant additional construction of DSO pipelines. Instead,
overall costs under the 2050 hydrogen-scenario are lower than under the 2050 methane-
scenario due to substantial free and readily available NG network capacity that can be
converted to 100% hydrogen operation. Initial investment into a dedicated hydrogen
network is moderately low. Instead, a significant share can be covered through retrofitting
parts of the existing NG system to transport hydrogen. Costs for the conversion of existing
NG pipelines make up about half of the total annual costs under this scenario (compare
Figure 4-24).

134
In the NaturalHy project it has e.g. been concluded that for high concentrations of hydrogen (≥ 50 vol%) in natural gas pipelines, small
effects on the inspection and repair frequency and therefore incremental total costs (inspection & repair for corrosion and cracks) were
assumed in the order of ≤10%.
135
International Gas Union (2017). Using the natural gas network for transporting hydrogen – ten years of experience.
136
At this point, the cost estimate assumes that (i) costs for refurbishment for admixture are negligible (compare town gas), (ii)
decommissioning does not take place and (iii) converting existing NG-pipelines to 100% hydrogen makes up 10% of the costs of new H2
pipelines.

51
Figure 4-23 Annual costs of national gas networks (EU28) by scenario, split into depreciation and
OPEX for TSO and DSO

Figure 4-24 Costs for pipeline infrastructure by scenario, split into different aspects of depreciation
and OPEX

4.6.3 ECONOMIC VALUATION OF HYDROGEN AND BIOMETHANE IN GAS

INFRASTRUCTURES

Based on the results of the previous analysis, this chapter provides an additional valuation
of the three scenarios based on average methane, power and hydrogen prices. Figure 4-25
shows the corresponding prices under the assumption that synthetic methane is produced
from renewable power as a starting point. The corresponding CH 4 prices together with
other cost components are then used to calculate the power price which in turn is a starting
point for the estimation of the hydrogen price by taking into account also the costs of the
entire hydrogen-related infrastructure.

52
Figure 4-25 Average methane, power and hydrogen prices in EU28

In 2030, the average methane price is comparatively low at 32-35 €/MWh, increasing to
approx. 45 €/MWh if payments for CO2 certificates are equally distributed among all
consumers. The power price is higher at 53 €/MWh (or up to 61 €/MWh if the CO 2 payments
are taken into account), but comparable among the three scenarios. Both results indicate
that in 2030, the energy system design has no influence on the consumer-related energy
prices. The highest energy prices of 105-132 €/MWh occur for hydrogen produced via
electrolysis based on the aforementioned electricity prices. The higher the overall
hydrogen demand the better the utilisation of the required units and infrastructure, and
hence the lower the average hydrogen price. This can be observed in Scenario 3 with lower
hydrogen prices.

In 2050, the average methane price increases substantially to 53-66 €/MWh. This is mainly
due to the switch from comparatively cheap fossil natural gas to more expensive
biomethane and synthetic methane. Power prices remain rather stable at 37-60 €/MWh.
The highest value is observed in the methane-focused Scenario 2, and the lowest in the
hydrogen-focused Scenario 3 where the overall system costs are low but the overall power
demand both from end user sectors and electrolysis are moderate. A similar behaviour can
be observed for hydrogen prices which, however, are much lower in comparison to 2030.
This is due to decreasing specific investment costs for electrolysis as well as lower
electricity prices. In general, hydrogen-focused systems as designed in Scenario 3 can be
seen as a robust compromise providing lower average end user prices.

4.6.1 ENVIRONMENTAL VALUATION OF HYDROGEN AND BIOMETHANE

In line with the objective of this study, environmental costs focus on CO 2 emission
avoidance costs.

The overall GHG emission reduction targets are met in each scenario both in 2030 and
2050. CO2 reduction in 2030 is approximately 53% compared to 1990, and 100% in 2050.
For the sake of comparability, all scenarios are characterized by similar CO2 emissions per
sector for the respective time horizon. Negative emissions stem from LULUCF and BECCS
in industry as estimated by the LTS in its “1.5TECH” scenario (300-400 MtCO2) as well as
from BECCS in energy supply of 51-68 MtCO2/a (district heating as well as biomass and
biomethane power plants). Emissions from aviation and navigation (35 MtCO2/a in 2015)
are not taken into account and will require either additional decarbonisation efforts in both

53
sub-sectors or additional negative emissions from BECSS in the power and industry sectors
or from biomethane production (see chapter 2.3.2).

The overall system costs are calculated in the energy system modelling as described
above, excluding the CO2 costs incurred in the model as the product of CO2 emissions and
the CO2 price (84 €/tCO2 in 2030, 350 €/tCO2 in 2050). Total system costs in 2030 are in
the range of B€ 470-480 in the three scenarios, and B€ 376 (electric scenario), B€ 428
(methane) and B€ 343(hydrogen), respectively.

A comparison between net emissions and total system costs reveals that increased use of
biomethane and hydrogen in combination with sector coupling and decreasing costs of
renewable energy supply lower both overall emissions and system costs between 2030
and 2050. On this basis, the CO2 avoidance costs are calculated as system cost difference
divided by emission difference between 2030 and 2050 resulting in negative values
ranging between -20 €/tCO2 in the methane focused Scenario 2 and -68 €/tCO2 in the
hydrogen focused Scenario 3.

4.6.2 SENSITIVITY ANALYSES

Additional sensitivity analyses allow for testing the robustness of the modelling results in
respect to predefined input parameters. Therefore, based on the findings from the first
modelling runs following three input parameters are defined for variations in the selected
scenarios:
 Sensitivity analysis 1 for the 3 scenarios in 2030: consideration of large-scale
instead of small-scale SMR with CCS for hydrogen production with lower specific
facility costs (see Appendix for details) and neglecting delivery costs for hydrogen
from the large-scale SMR to the end-user;
 Sensitivity analysis 2 for the 3 scenarios in 2030: carbon price 28 €/tCO2 as
defined in LTS instead of 84 €/tCO2 as defined by WEO 2016;
 Sensitivity analysis 3 for the 3 scenarios in 2030: natural gas price of 38 €/MWh
i.e. 20% increase in comparison to the original value of 31 €/MWh according to
WEO 2016;
 Sensitivity analysis 4 for the 3 scenarios in 2050: increasing biomethane costs by
20% for biomethane from digestion processes and 30% from gasification i.e. 5.4
ct/kWh from sewage sludge; 6.4 ct/kWh from forestry; 7.6 ct/kWh from manure;
7.8 ct/kWh from biological waste and 10.2 ct/kWh from crops and straw.

Sensitivity analysis 1: Large-scale SMR with CCS and lower costs in 2030
Hydrogen production changes significantly when large-scale SMR with CCS is taken into
account. Due to much lower technology costs almost the entire hydrogen demand is
covered by SMR with a high utilisation rate of approx. 5,000 full load hours. Nevertheless,
small electrolysis capacity of 2 GW (Scenario 2) to 10 GW (Scenario 3) with an utilisation
rate of less than 1,000 full load hours is still needed to provide additional flexibility in the
energy system. Given the unchanged intermittent feed-in, the power generation from
dispatchable power plants drops by 5%-23% from 1,250-1,400 TWh/a to 1,000-1,250
TWh/a as less electricity is needed to satisfy the end user hydrogen demand.
Consequently, also the investment in new power generation capacities is smaller. Due to
a more constant hydrogen production via SMR the system requires lower hydrogen but
higher methane storage capacities. Interestingly, methane supply decreases from 3,100-
3,500 TWh/a to 3,000-3,400 TWh/a as converting methane directly to hydrogen is more
efficient than hydrogen production from electricity provided by gas-fired plants. In
addition, investment needs in new gas pipelines are lower by 4%-25% (calculated as a
sum of capacity additions between network nodes) due to lower overall gas demand as
well as more constant methane consumption and a better geographical distribution of
large-scale SMR in comparison to gas power plants.

54
Although large-scale SMR has a significant impact on the optimal sizing and operation of
the energy system the overall costs remain rather unchanged being responsible for limited
decrease in total costs by 1%-2% or 1-8 B€/a. This is due to the fact that hydrogen
demand and production in 2030 are limited and the abovementioned effects balance out
each other. On the one hand the SMR and CCS technology costs account for additional 1
B€/a (Scenario 2) to 5 B€/a (Scenario 3). On the other hand, electrolysis costs decrease
by 0.8 B€/a (Scenario 2) to 3.6 B€/a (Scenario 3) whereas methane supply costs drop by
1 B€/a (Scenario 2) to 6 B€/a (Scenario 3). Additional costs savings from storage, gas
transmission network and dispatchable power plants are less significant.

Figure 4-26 Annual energy system costs in EU28 including large-scale SMR with CCS

Sensitivity analysis 2: Lower carbon price in 2030

Changing the carbon price in 2030 has a significant impact on the operation of the power
sector and the entire energy system. In fact, lower carbon price in combination with a low
coal price changes the merit order of power supply making power generation by coal-fired
plants more cost-competitive in comparison to the gas-fired plants. As a consequence,
power supply from coal rises from 115-124 TWh/a up to 517-541 TWh/a, whereas the
power generation from gas drops by 60% from 600-739 TWh/a down to 220-231 TWh/a.
In this context, the investments in new capacities for gas-fired power plants are also lower.
On the one hand the build-up of new gas transport infrastructure is smaller by 25%-30%
due to lower peak-demand from gas-fired plants. On the other hand, however, additional
power lines are needed to manage increased power transport from the coal-fired plants
with a less favourable geographical distribution across Europe. Therefore, the costs for
energy transport increase slightly due to the changing carbon price. Moreover, the costs
of dispatchable power generation (including fuel costs from power generation other than
natural gas) are higher by almost 30% rising to 41-44 B€/a due to additional coal
consumption. In contrast, the methane supply costs drop by approx. 10% due to lower
gas demand from the power sector. All in all, the above-mentioned effects balance out
each other and the overall energy system costs remain almost unchanged.

55
Figure 4-27 Annual energy system costs in EU28 for different carbon prices

Sensitivity analysis 3: Higher natural gas prices in 2030

Similar to the previous sensitivity analysis also increasing natural gas prices lead to a shift
in power generation from gas-fired to coal-fired generation. The capacity of gas power
plants is slightly lower whereas the utilisation of the coal power plants increases.
Nevertheless, the dispatchable costs (excluding methane supply for gas-fired power
plants) are almost unchanged as the merit order effect of increasing gas prices is rather
limited. The capacity requirement for new gas pipelines is lower by 20% in all scenarios
as the gas infrastructure is exposed to lower gas demand peaks from the power sector.
The sizing and operation of all other system components remains almost unchanged. Given
the decreasing natural gas demand from the power sector the overall costs of methane
supply to all sectors go up only by approx. 15% up to 116-138 B€/a. The overall impact
of the natural gas price on the entire system costs is limited: increase by approx. 3%-4%
while preserving the cost order between the three scenarios.

Figure 4-28 Annual energy system costs in EU28 for different natural gas prices

Sensitivity analysis 4: Higher biomethane costs in 2050

Increasing biomethane costs in 2050 have only a limited impact on the design and
operation of the overall energy system. In fact, biomethane is used mainly in the end-user

56
sectors either up to potential limits (Scenario 1 and 2) or up to a predefined level (Scenario
3) as described in previous chapters. Power generation by gas-fired plants for balancing
intermittent electricity supply are based either on the unchanged production of synthetic
methane from PtCH4 (Scenario 1 and 2) or hydrogen from PtH 2 (Scenario 3). Therefore,
the dimensioning and optimal operation of all system components inducing the gas
infrastructure remain unchanged. Nevertheless the overall costs for biomethane supply
increase according to the assumptions by 20%-30% up to 30-120 B€/a, however, having
only a limited impact on the overall system costs (increase by 2% up350 B€/a in Scenario
3 with lowest biomethane usage and 7% up to 450 B€/a in Scenario 2 with highest
biomethane demand). In this way the cost differences between the three scenarios are
more pronounced in comparison to the base case.

Figure 4-29 Annual energy system costs in EU28 for different biomethane costs

5 CURRENT STATUS OF THE GAS SECTOR IN SELECTED MEMBER

STATES
The following chapters focus on a selection of countries (and their respective regulatory
regimes), TSOs and DSOs.137 Each of the selected Member States has archetypical
characteristics which are briefly summarised below and further detailed in the following
sections. This chapter addresses the gas network planning, revenue regulation and
tariffication in these countries.

Table 5-1 Overview of the characteristics of the selected countries

Member State Description
Leading in both biomethane and hydrogen, virtually all biomethane injected
Medium share of gas in energy consumption (23%) & net importer of natural gas
Germany
Very extensive transmission (38 800km) and distribution (497 400km) networks
Large salt cavern storage capacity (152 TWh) & other gas storage capacity (118 TWh)
Limited regulatory or project developments for biomethane and hydrogen
High share of gas in energy consumption (32%) & net importer of natural gas
Hungary
Considerable transmission (5 900km) and distribution (86 500km) networks
No salt cavern storage capacity; 68 TWh of other gas storage capacity
Mature biogas development (virtually all injected to the network)
Incipient but ambitious role for power-to-gas
Netherlands
High share of gas in energy consumption (40%) & net exporter of natural gas
Very long transmission (12 600km) and distribution (125 200km) networks

137
The NRAs from Germany, Hungary and Spain, as well as gas TSOs from the five selected countries and one German DSO have been
interviewed in the context of this study. However, all views expressed in this report are the authors’ and do not necessarily represent the
opinions of the interviewed stakeholders.

57
 Member State Description
Limited salt cavern storage capacity (4TWh), studies for hydrogen storage, and 127 TWh
of other storage capacity
Limited network but central biomethane role (especially in transport, also off-grid)
Low share of gas in energy consumption (2%) & net importer of natural gas
Sweden Only one of the countries with no cross-border interconnection capacity (extra-EU)
Very limited network (600km transmission and 3 000 km distribution), marginal storage
capacity (0.1 TWh)
Initial developments in biomethane and hydrogen
Medium share of gas in energy consumption (21%) & net importer of natural gas
Spain
Considerable transmission (13 800km) and distribution (71 400km) networks
No salt cavern storage capacity; 32 TWh of other gas storage capacity
Source: Network lengths from CEER (2018) & CEER (2019) Report on Regulatory Frameworks for European Energy Networks
for Spain; Storage capacity (operation + under construction) from GIE (2018) Storage map

5.1 GAS NETWORK PLANNING

The most important European regulations for the planning of gas infrastructure are the
internal natural gas market directive,138 the regulation for access to natural gas
transmission networks,139 the Trans-European Networks for Energy regulation140 (TEN-E)
and the Connecting Europe Facility (CEF) regulation. 141 TEN-E and CEF are further
discussed in chapter 8.

According to the current EU gas network planning framework, the European Network of
Transmission System Operators for Gas (ENTSOG) 142 must develop a ten-year network
development plan (TYNDP)143 at the European Union level every two years, building on
the National Development Plans (NDPs, submitted by TSOs to their NRAs and cross-border
projects being planned or identified (including Projects of Common Interest - PCIs). These
plans include relevant information regarding the transmission system interconnections and
operation, as well as infrastructure development needs.

Textbox 5-1 TYNDP and PCI projects in selected countries

All selected countries have at least one planned gas project listed in the ENTSOG TYNDP 2018 and included
in the third PCI list. While Germany has the most gas infrastructure projects planned (20 projects) in the
ENTSOG TYNDP 2018 from the selected countries, Hungary has the most PCIs (8 PCIs).144 Besides the PCIs
and other projects included in the ENTSOG TYNDP, the five countries have their own NDPs. However, these
are not always publicly available. Germany145, Hungary146 and the Netherlands147 have publicly available
NDPs, while Spain’s latest infrastructure planning document148 was for 2012-2020 (and covered both gas
and electricity). Given the limited extent of Sweden’s gas infrastructure, Swedegas’ project portfolio includes
only one LNG terminal and one extension of the current gas network.149

Regarding gas network planning, increasing coordination is required both between gas and
electricity, as well as between transmission and distribution levels. These aspects have yet
to find their way into European legislation. They are further explained in chapter 8.

138
Directive 2009/73/EC concerning common rules for the internal market in natural gas
139
Regulation (EC) No 715/2009 on conditions for access to the natural gas transmission networks
140
Regulation (EU) No 347/2013 on guidelines for trans-European energy infrastructure
141
Regulation (EU) No 1316/2013 establishing the Connecting Europe Facility
142
Established by the Regulation (EC) No 715/2009 on conditions for access to the natural gas transmission networks
143
Regulation 715/2009 require ENTSOG to adopt and publish a Community-wide network development plan (TYNDP) every two years.
144
TYNDP 2018 – Annex A: Project table
145
FNB Gas (2019) Netzentwicklungsplan Gas 2018-2028
146
FGSZ (2018), 10 Year Development Proposal Consultation.
147
GTS (2017) Network development plan 2017 – consultation document.
148
Ministerio de industria, turismo y comercio (2011), planificación de los sectores de electricidad y gas 2012-2020. Desarrollo de las redes
de transporte.
149
Swedish Energy Markets Inspectorate (2018), The Swedish electricity and natural gas market 2017

58
Textbox 5-2 Increased coordination for network planning

Increasingly coordinated approach for gas and electricity infrastructure development planning
There is an increasing need for improved coordination for electricity and gas infrastructure development and
operations, among others to cover more efficiently the flexibility needs of the energy system. ACER
proposes an obligation for gas and electricity TSOs to cooperate and the European Commission is studying
the potential of sector coupling for the EU natural gas sector.150

Following the TEN-E requirement to develop a common interlinked electricity and gas market and network
model, the ENTSOs published common scenarios for the 2018 TYNDP and have released common storylines
for the 2020 TYNDP, which will allow for comparable assessments of future investment decisions between
the sectors.151 The ENTSOs are currently improving the interlinked model, due to be operational in 2019.152
Also, the ENTSOs cooperate with ACER and the European Commission in the PCI process.

TenneT and Gasunie are an example of enhanced cooperation of electricity and gas TSOs; they have
published a joint infrastructure outlook to 2050 for Germany and the Netherlands, which also analyses the
impact of power-to-gas developments.

Increasing importance of the distribution level

European regulation on the development of gas infrastructures used to focus on projects at the transmission
level, in particular with cross-border impact. However, the development of decentralized renewable and
decarbonised energy sources, of demand-side management initiatives and of ‘new’ conversion technologies
such as power-to-gas is shifting the attention to the distribution level to which many of these applications
will be connected, and to the interaction of the transmission and distribution levels. Several studies153
acknowledge the relevance of transmission and distribution level coordination. In Germany, for example,
DSOs have to elaborate ten-year forecasts of capacity needs, which are provided to their respective TSOs,
which take them into account for the development of their network development plan.

Despite the regulatory developments at the European level, stakeholders generally agree that the regulation
of distribution activities is best left at the national level. European legislation should provide the general
framework and guarantee the cooperation of the actors.

5.2 REVENUE REGULATION AND NETWORK TARIFFICATION

5.2.1 REVENUE REGULATION FOR GAS NETWORK OPERATORS

National regulatory frameworks for determining the revenue of regulated gas transmission
and distribution operators have some common structural elements. The regulated revenue
of system operators can be separated in three revenue streams: to cover operational
expenses, depreciation costs and capital remuneration of the regulatory asset base.154 To
determine these, regulators make use of key revenue-setting elements: the operational
and capital expenditures, the regulatory asset base, depreciation rules and the cost of
capital. These elements are indicated in Table 5-2 for the selected Member States.

150
European Commission (ongoing) Potentials of sector coupling for the EU natural gas sector - Assessing regulatory barriers
151
ENTSOG & ENTSO-E (2018), TYNDP 2018 – Scenario report & ENTSOG & ENTSO-E (2018) Overview of the proposed Gas and
Electricity TYNDP 2020 Scenario Building Storylines
152
Artelys (2018) Investigation on the interlinkage between gas and electricity scenarios and infrastructure projects assessment & ENTSOG
and ENTSO-E (2018) Focus Study Interlinked Model Joint ENTSOs Workshop
153
CEER (2015) The Future Role of DSOs - A CEER Conclusions Paper & CEER (2016) Position Paper on the Future DSO and TSO
Relationship - C16-DS-26-04 & CEER (2019) Conclusion paper - new services and DSO involvement - C18-DS-46-08 & CEDEC et al.
(2018) Joint Statement from the DSO Associations on the proposal to revise the TEN-E Guidelines & CEDEC, Eurogas, GEODE (2018),
Flexibility in the energy transition. A toolbox for gas DSOs.
154
ACER (2018) Report on the methodologies and parameters used to determine the allowed or target revenue of gas transmission system
operators

59
Regarding assessment methods employed by regulators for the operational expenses
of TSOs, bottom-up and top-down assessments are the most common methods in Europe.
The methods are usually combined and applied for different operational cost items, with
each regulator applying nonetheless usually one main method. Germany and Hungary
apply hybrid approaches with several methods: Germany combines multiple methods
(bottom-up, top-down, TOTEX155, benchmarking and trends analysis), while Hungary
combines mostly a bottom-up assessment with additional benchmarking and trends
analysis. The Netherlands uses mostly TOTEX and benchmarking, while Sweden and Spain
apply a top-down assessment.156

In Europe, national regulators most commonly apply bottom-up assessments for capital
expenditures, but this is not reflected in the Member States under study. While Hungary
does use bottom-up assessments and Spain combines them with benchmarking, Germany
applies multiple approaches, the Netherlands combines TOTEX with benchmarking and the
Swedish NRA verifies ex-post the CAPEX proposal of the TSO.157

Germany, the Netherlands and Spain have measures in place for increased efficiency
related to CAPEX (such as an X-factor or an efficiency requirement), while all considered
countries except Spain have such measures related to OPEX. 158 Ex-post assessments of
capital expenditures (i.e. to verify the relevance of the investment and its cost) at EU level
are more common, with around half of the national regulators conducting such reviews.
Furthermore, while traditional fixed network assets are in general included in the
regulatory asset base, the inclusion of linepack, customer connection assets and working
capital varies in the countries under analysis.159

Table 5-2 Summary of revenue regulation aspects related to gas network operators
Aspects Germany Hungary Netherlands Spain Sweden
Incentive-based
TSO & DSO (mixture of price Revenue Cap Revenue Cap
Revenue Cap – Revenue Cap –
regulatory system cap, revenue cap & quality – incentive
incentive based incentive based
in place and quality regulation based
regulation)
Mix of historical
Composition of and re- Historical cost- Historical
Re-evaluated Re-evaluated
the regulatory evaluated fixed based fixed cost-based
fixed assets fixed assets
asset base160 assets plus assets fixed assets
working capital
NRA-approved Pipelines 45-65
Pipelines 50 years
depreciation ratio years Mostly 30 – 55 Pipelines 90
Compressor 40 years
for transmission Compressors 25 years years
stations 50 years
network assets years
Depreciation Linear, indexed
Linear Linear Linear Linear
calculation to inflation
Difference
between RAB
defined on net
140% 121.50% NA NA NA
book value and
RAB based on re-
evaluated value
Methodology Methodology with
Methodology No specific No specific
Gas PCI project- with applicable applicable risks,
with application methodology methodology
specific incentive risks, project project pre-
information defined* defined*
pre-requisites requisites and

155
Totex: ‘Allowed revenues do not differentiate between CAPEX and OPEX, but considers the whole costs instead. Therefore, it ensures
that the incentive is technologically neutral’. CEER (2017) Incentives Schemes for regulating DSOs, including for Innovation.
156
ECA (2018) Methodologies and parameters used to determine the allowed or target revenue of gas transmission system operators (TSOs)
157
ECA (2018) Methodologies and parameters used to determine the allowed or target revenue of gas transmission system operators (TSOs)
158
CEER (2019) Report on Regulatory Frameworks for European Energy Networks
159
ECA (2018) Methodologies and parameters used to determine the allowed or target revenue of gas transmission system operators (TSOs)
160
ECA indicates a different classification, with Germany, Hungary, Spain and Sweden using historical costs while the Netherlands re-
evaluates costs. It can be explained by the fact that while Germany does apply historical costs at the beginning of the period, the RAB may
change due to efficiency targets and investments not foreseen.

60
 Aspects Germany Hungary Netherlands Spain Sweden
methodology and required required requirements
defined by NRA161 information information from promoters
*Spain and Sweden argue that the regulatory framework already provides sufficient incentives.162
Source: CEER (2019) Report on Regulatory Frameworks for European Energy Networks & ECA (2018) Methodologies and
parameters used to determine the allowed or target revenue of gas transmission system operators (TSOs)

Pre-tax nominal weighted average cost of capital (WACC) is the most common
methodology to determine the cost of capital in Europe, being applied by 12 national
regulators, followed by pre-tax real WACC in use in 6 Member States. For the countries
covered in this study, Hungary, the Netherlands and Sweden use the pre-tax real WACC
while Spain is using the pre-tax nominal WACC. Germany does not use the WACC approach
but determines the cost of equity and debt separately, with the cost of equity set by
law.163,164 The cost of capital of the Spanish gas TSO is indexed to the returns on
government bonds, accrued by a premium.165
5.2.2 GAS NETWORK ACCESS AND USE TARIFFICATION

Tariff setting for gas transmission in Europe is currently undergoing significant changes,
with the ‘network code on harmonized transmission tariffs structures for gas’ 166, which
provides much more detailed guidelines on tariff setting (compared to the 2009 gas
regulation167) and is due to be fully implemented by all Member States by 2021.

Table 5-3 presents key parameters of the tariff methodologies published by TSOs for
consultation.168 The parameters govern how TSO costs are allocated to different network
uses, considering the split between transit vs domestic uses, gas system entries vs exits,
capacity- vs commodity-based tariffs and transmission vs non-transmission services, and
any discounts to storage. Thus, the tariff structure as shaped by the TAR network code
will have a direct and distinct economic impact on network users, it being paramount that
the tariff structure be transparent, non-discriminatory and cost reflective.

Table 5-3 Gas transmission structure tariff parameters

Parameter Germany Hungary Netherlands Spain Sweden
Choice of
Capacity
reference TSO
Postage stamp Postage stamp Postage stamp Weighted Postage stamp
tariff
Distance
methodology
Revenue from
NCG:83.4%
transmission 98.8% 100% 100% 98%
GASPOOL:82.6%
services
NCG:32/68%
New entry-exit
GASPOOL:38/62 40/60% 50/50% 50/50% 0/100%
splits
%
Previous entry- Determined per
50/50% 35/75% 25/75% 0/100%
exit splits (2017) TSO169

161
For PCIs the TEN-E guidelines require that Member States and national regulators ‘ensure that appropriate incentives are granted’ in case
of higher risks. However, by October 2018 only 4 requests were submitted for gas projects, none in the countries selected for this study.
162
ACER (2018) Summary report on project-specific risk-based incentives
163
ECA (2018) Methodologies and parameters used to determine the allowed or target revenue of gas transmission system operators (TSOs)
164
‘Equity is valuated at an interest of 6.91% (nominal interest) and 5.12% (real interest rate) depending on the share of new and old assets
in the RAB’. CEER (2018) Report on Regulatory Frameworks for European Energy Networks
165
CEER (2019) Report on Regulatory Frameworks for European Energy Networks
166
Regulation (EU) 2017/460 establishing a network code on harmonised transmission tariff structures for gas
167
Regulation (EC) No 715/009 on conditions for access to the natural gas transmission networks provides few guidelines on tariff-setting
(i.e. tariffs should be transparent, non-discriminatory, account for system integrity, facilitate gas trade and competition, reflect efficiently
incurred costs and include an appropriate return on investment). According to this regulation cross-subsidization among different network
users is explicitly forbidden.
168
ENTSOG (2018) Implementation Document for the Network Code on Harmonised Transmission Tariff Structures for Gas – Second
Edition (revised)
169
50/50% according to ENTSOG (2017) Implementation Document for the Network Code on Harmonised Transmission Tariff Structures
for Gas. However, the split is actually determined per TSO, e.g. was 4/96% for Ontras in 2019, following the publication according to Art.
29 and 30 Regulation (EU) 2017/460 (NC Tariffs).

61
 Parameter Germany Hungary Netherlands Spain Sweden
Storage entry/exit
75/75% 90/100% 50/50% 100/100% 100/100%
discount
Discount to LNG No No No 0% No
Capacity cost
allocation NCG:2.6%
8.7% 6.3% 0.6% N/A
comparison GASPOOL:1%
index170
Transmission
services revenue
100% 85.1% 100% 96.7% 100%
from capacity-
based tariffs
NCG:75/25%
Domestic/cross-
GASPOOL:68.4/3 71.75/28.25% 57/43% 90.1/9.9% 100/0%
border split
1.6%
Biogas Odorization Pressure
Non-transmission Market area Title transfer reduction service
N/A N/A
services conversion Data provision Administrative
Metering Balancing services charge
Sources: Previous entry-exit splits: ENTSOG - TAR NC Implementation Document – Second Edition September 2017. All other
parameters: TAR NC national tariff consultations.

The TAR NC provides guidelines on how regulators should set up the revenue recovery
methodologies for gas TSOs. The TAR NC separates regulatory frameworks for tariff setting
in two categories: price cap and non-price cap (which includes revenue cap, cost plus and
rate of return).171 As seen, the Member States under study apply generally non-price cap
regulation. Revenue is recovered through two main streams: transmission services
revenue (separated into capacity and commodity-based charges) and non-transmission
services revenue.172 By default, transmission service costs should be recovered through
capacity-based tariffs, although a limited part of the costs may be recovered through
commodity-based tariffs upon regulatory approval. The three possible revenue streams
are shown in the figure (transmission service revenues from capacity- and commodity-
based charges and non-transmission service revenues).

Discounts are allowed for LNG and isolated system points, and required for gas storage
(minimum 50% unless it competes with an interconnection point). Of the Member States
covered in this study, the Netherlands applies the minimum 50% storage discount,
Germany 75%, while Hungary and Sweden apply 100% discounts (only for exit in the case
of Hungary).

170
Following the TAR NC, the capacity cost allocation comparison index provides a simplified indicator to identify the allocation of costs
according to cost drivers for intra- and cross-system flows, for capacity- and commodity-based tariff. The NRA is required to provide a
justification if the index is above 10%.’
171
ENTSOG (2018) Implementation Document for the Network Code on Harmonised Transmission Tariff Structures for Gas – Second
Edition (revised)
172
Ibid

62
Figure 5-1 Revenues and revenue recovery through tariffs in the TAR network code

The TAR NC requires the national regulator or TSO to conduct cost allocation assessments
on capacity-based charges (and commodity-based charges if applicable) to avoid cross-
subsidization between intra- and cross-system use. A cost allocation assessment must be
conducted, with the regulator justifying any cost allocation which exceeds the threshold of
10%. Of the concerned countries, none indicated a capacity cost allocation comparison
index above the threshold of 10%, but ACER indicates that if the storage discounts in
Hungary were considered in the index calculation, the actual value would be 17%.173
Member States are also obliged to publish the intra-system/cross-system split of revenues.
This split ranges from 100/0% for Sweden (which has no cross-system flows) to 57/43%
for the Netherlands.

According to the TAR network code, flow-based tariffs can differ for entry and exit points,
but have to be uniform within each point group. Of the concerned Member States with
available data, only Hungary makes use of commodity-based tariffs.174 Tariffs for non-
transmission services must respect cost-reflectivity, non-discrimination, objectivity,
transparency requirements and must minimise cross-subsidisation, trying to allocate costs
as much as possible to the service beneficiaries. 175 The ENTSOG provides examples of
services which will need to be classified as either transmission or non-transmission
services, including blending and/or ballasting; odorization and biogas services. In the
countries of interest, only Germany proposed non-residual non-transmission services
tariffs (around 17% of revenues), mainly split between a biogas charge (for recovering
costs due to subsidization to renewable gas injections) and market area conversion
services (related to the conversion of L-gas to H-gas).

6 DEVELOPMENT OF BIOMETHANE AND HYDROGEN IN SELECTED

MEMBER STATES
6.1 CURRENT STATE OF BIOMETHANE AND HYDROGEN IN THE SELECTED EU
MEMBER STATES

This chapter briefly investigates the current status of biomethane and hydrogen gases in
the selected countries. Table 6-1 provides an overview of the development of biomethane

173
ACER (2019) Analysis of the consultation document for Hungary
174
Hungarian Energy and Public Utility Regulatory Authority (2018) Response to ACER Consultation Template
ENTSOG (2018) Implementation Document for the Network Code on Harmonised Transmission Tariff Structures for Gas – Second
175

Edition (revised)

63
and hydrogen in the selected countries. There is a large difference across countries, with
Germany leading in both gases while Spain and Hungary have only incipient development.

Overview of biomethane and hydrogen with a focus on the selected countries

Production of biogas is more established in Europe than hydrogen, with a trend to shift
from local electricity and/or heat production from biogas towards upgrading it to
biomethane due to its higher added value176 and end of public support to biogas.
Upgrading biogas has expanded especially in countries where its production was already
consolidated.177 Hydrogen and power-to-gas (hydrogen or synthetic methane)
development is still relatively limited, but is growing due to its potential for supporting the
decarbonization of the economy. However, its economic feasibility is still quite poor due to
high costs of renewable electricity, high investment costs for electrolysers and low
efficiency in intermittent operation.178

Table 6-1 Overview of the development of biomethane and hydrogen in the selected countries

Biomethane Power-to-gas

injecting

(TWh/y)
capacity
Feed-in
Country Overview Use Plants Projects Gas use

26 Injection
Leading in both
Germany Injection 194 14.41 (9 of which can Mobility
gases179
inject H2 or CH4180) CHP
Little regulatory or
Hungary project developments Export 1 0.07 Lab prototype181
for either gas
Mature biogas 1
development, incipient Injection (and past Space
Netherlands 28 1.84
but ambitious role for 182
demonstration heating
PtG projects)183
Limited network but
Mobility
Sweden central role for 184 15 0.57 Planning pilots185
biomethane
Initial developments
Spain Injection 1 0.58 1 pilot186 Injection
in both gases
Source: Number of plants and feed-in from GIE (2018) European Biomethane Map 2018.187

Almost all EU Member States188 have natural gas transport and distribution infrastructure
which can easily be used for biomethane as well as for synthetic methane.189 Currently,
the injection capacity is limited in some distribution networks, especially in summertime.
In some areas this has become a barrier for biomethane plants to access distribution
176
EBA (2019). http://european-biogas.eu/2019/02/06/biogas-trends-for-this-year/
177
ISAAC (2016) Deliverable D5.2: Report on the biomethane injection into national gas grid
178
Glenk and Reichelstein (2019) Economics of converting renewable power to hydrogen. Nature Energy 4
DNV GL (2019) Hydrogen in the electricity value chain & http://europeanpowertogas.com/projects-in-europe/
179
Germany is one of the largest producers of biomethane in Europe, accounting for roughly 35% of the number of plants installed in
Europe and 46% of the injected biomethane volume. Source: Bundesnetzagentur (2019) Monitoringbericht 2018; EBA (2018), Annual
report 2018.
180
4 plants inject synthetic methane into the grid and 5 inject hydrogen. Stakeholders are effectively exploring the potential role of synthetic
methane with several demonstration projects experimenting with methanation.
181
Power-to-gas Hungary company was established in 2016, a protoype is in operation since 2018, and projects are being developed, in
Central and Eastern Europe countries, with first injection expected in 2021. Source: Communication with developers (2019).
182
In the Netherlands, the Dutch gas TSO GTS is assisting two new projects that will feed in biomethane into the transmission grid. Sources:
https://www.gasunienewenergy.nl/projecten/ambigo & https://www.gasunienewenergy.nl/projecten/scw
183
https://energiekaart.net/initiatieven/duurzaam-ameland-power2gas/
184
Transported by road instead of injected to the grid. Source: Energigas Sverige (2018), National biogas strategy 2.0.
185
https://www.swedegas.se & Energigas Sverige (2018), National biogas strategy 2.0.
186
https://prensa.naturgy.com/en/gas-natural-fenosa-launches-pilot-project-to-produce-renewable-gas-in-catalonia/
187
EBA & GIE (2018), European Biomethane Map.
188
Except Cyprus and Malta. Cyprus, however, has projects to exploit its own natural gas reserves by 2022, and has initiated constructing a
natural gas network and storage.
189
European Commission (2016) Optimal use of biogas from waste streams - An assessment of the potential of biogas from digestion in the
EU beyond 2020

64
networks, as production levels are relatively stable throughout the year. Solutions for the
Netherlands190 include the connection of biomethane plant to the transmission network and
better balancing of local supply and demand. In Germany, there are more than 10 gas
boosting installations for allowing reverse flows. 191

Discussions are currently ongoing on how much hydrogen can be blended into natural
gas without the need to adapt networks and end-use equipment (see chapter 4.4). Also,
adding hydrogen to natural gas pipelines reduces their energy capacity although this can
be partially offset by higher flow rates.192 Some studies assessed the requirements and
impacts for converting the natural gas infrastructure to hydrogen. A recent Dutch study
found converting the Dutch gas distribution grid into a 100% hydrogen grid is technically
feasible but would require adaptation of the gas metering equipment and the boilers and
cooking equipment on the users’ side. Another study found that the continued use of the
gas infrastructure for transport of renewable gas is the least-cost scenario for Germany.193

Storing large volumes of renewable energy will be one of the main challenges in the
transition to a low carbon energy system. 194 Using existing gas storage (e.g. to cover
seasonal energy peak needs related to heating) could be more economic than expanding
the electricity storage capacity, which is still limited (600 GWh at EU level). While almost
all gas storage capacity (1 100 TWh at EU level) could be used to store
biogas/biomethane/synthetic gas, part of it, in particular salt caverns, is also technically
suitable to store hydrogen.195 Storage of hydrogen in depleted gas fields might also be
feasible under certain circumstances, but has not yet been tested in practice.196 From the
selected Member States, only Germany (152 TWh of working gas) and the Netherlands (4
TWh) have salt-cavern storage capacity, which might offer them a competitive advantage
for hydrogen storage and thus the development of power-to-gas. The Netherlands already
has plans to test a salt cavern for hydrogen storage.

Concerning uses, in the EU, biomethane produced is mostly used for transport and space
heating.197 In 2018, biomethane was injected into the gas network in 18 European
countries.198 The reason that most biogas production is not converted into biomethane is
that the direct local use of biogas is currently more cost-effective. In Germany, biomethane
use for heating especially of the old building stock has been growing, with a willingness of
consumers to pay a premium.199 Also in the other selected countries at least some
biomethane is injected into the network. In 2016 approximately 80% of Sweden’s
biomethane was used in the transport sector.200

The hydrogen and synthetic methane produced in PtG projects are consumed in a
variety of ways. Around 40% of the power-to-gas plants operational in the selected
countries are injecting gas into the network, 7 of which inject hydrogen and 7 synthetic
methane, with experimentation by network operators especially in Germany and the

190
Netbeheer Nederland (2018) Advies: ‘creëren voldoende invoedruimte voor groen gas’.
191
CEDEC, Eurogas, GEODE (2018), Flexibility in the energy transition. A toolbox for gas DSOs.
192
Effects are nonlinear and depend on energy density and H2 flow properties. As hydrogen is also less compressible, the effect becomes
more pronounced at higher pressures. Source: Quarton et al. (2018) Power-to-gas for injection into the gas grid: What can we learn from
real-life projects, economic assessments and systems modelling?
193
Netbeheer Nederland (2018), Toekomstbestendige gasdistributienetten; Frontier Economics et al. (2018) The importance of the gas
infrastructure for Germany's energy transition.
194
Ecofys (2018) Gas for Climate - How gas can help to achieve the Paris Agreement target in an affordable way.
195
FCH JU Hydrogen Roadmap Europe 2019 p.22
196
HYUNDER (2013)Assessment of the potential, the actors and relevant business cases for large scale and seasonal storage of renewable
electricity by hydrogen underground storage in Europe.
197
EBA(2018), Annual report 2018; Eurostat (2018) Complete energy balances Nrg_110a. & Biosurf (2015) Market survey on determining
the market accepted threshold for the value of tradable biomethane certificates.
198
EBA (2018), Annual report 2018.
199
DENA (2019) Biogaspartner – gemeinsam einspeisen - Biogaseinspeisung und -nutzung in Deutschland und Europa - Markt, Technik
und Akteure
200
ACEA (2018) Vehicles in use Europe 2018 & https://www.swedegas.se/gas/biogas/nyttan-med-biogas

65
Netherlands.201 Next to injection, fuel production for transport and use of the gases for
combined heat and power (CHP) are the most common uses.

6.2 POLICY AND REGULATORY FRAMEWORK FOR BIOMETHANE AND

HYDROGEN

6.2.1 TARGETS AND REGULATORY FRAMEWORK AT THE EU LEVEL

Several EU policies and regulations shown in Table 6-2 address biomethane and hydrogen
as part of the European decarbonization options, though from a technology-neutral
approach. However, in general, EU regulation does not extensively address the treatment
of these gases in infrastructure and for the injection of hydrogen into gas networks there
is not yet a comprehensive regulatory framework at EU level.202 The hydrogen value chain
is complex,203 and some of the concerned activities do not entirely match current
classifications or are not addressed by current legislation. There is thus still the need for
clarifications on which European and national regulations apply to power-to-gas, either at
the transmission or the distribution level, despite economic considerations still being the
main barrier to large scale development of the technology.204

Table 6-2 Overview of key EU policies and strategies for biomethane and hydrogen
Policy Overview
 EU-wide 2030 target of 32% for renewable energy plus a 2023 upward review clause;
 EU-wide target of 1.3% average annual renewable energy increase in the heating and
cooling sector from 2020 to 2030;
 EU-wide target of 14% for renewable energy in the transport sector by 2030,
Recast including ‘gaseous transport fuels of non-biological origin’ and recycled carbon fuels;
Renewable  Provisions for the access to and operation of gas networks with gases from renewable
Energy sources;
Directive205  Extension of guarantees of origin to all renewable gases, including hydrogen
 Sub-target for transport of 3.5% in 2030 from advanced biofuels and biogas206
 Sustainability and greenhouse gas emissions savings criteria207
 Biomethane is included in the definition of biogas as ‘gaseous fuels produced from
biomass’
 Regulators to ensure the definition of technical design and operation rules for the
network and connection, including safety
 Promoting, in line with energy policy, the integration of large- and small-scale
production of renewable gas both in transmission and distribution networks, including
through the removal of barriers for new capacity
Gas directive  Regional cooperation between regulators for operation, network codes and congestion
 Unbundling rules to DSOs and exemption possibility to those serving less than 100
000 customers
 Regulatory exemption to closed distribution systems
 Duties of regulators, including setting the rules and conditions for connection and
access to networks and ensuring there are no cross-subsidies
Recast
 Participation in the development of and opinion on the network codes and guidelines
regulation
 Recourse decision-maker on cross-border issues
establishing
 Monitoring of infrastructure investments including TYNDP and TEN-E guidelines
ACER
 Scope of pipelines includes biogas transport
TEN-E
 Eligibility criteria for gas projects include support to biogas and power-to-gas under
regulation
the sustainability category
 Financial support to PCIs
CEF 2021-2027
 Financial support for studies and construction of cross-border renewable energy
proposal
projects (if part of joint cooperation mechanisms of the Renewable Energy Directive)

201
Sources: for German projects: powertogas.info as well as personal communication with individual projects, for NL: Stedin (2018), Fact
Sheet Power-to-gas Rozenburg 2018-2023; and for Spain: SEDIGAS (2018), Plan de Desarrollo de Gas Renovable – Hoja de ruta al 2030.
202
HyLAW (2019) Horizontal Position Paper - Gas Grid Issues
203
The hydrogen value chain is highly complex, involving the conversion from electricity into hydrogen, possible methanation and then
injection into the gas network.
204
HyLAW (2018) D4.1 Cross-country comparison
205
Directive (EU) 2018/2001 on the promotion of the use of energy from renewable sources (recast)
206
As carbon neutral methane is one of the possible solutions for decarbonizing transport, renewable methane is eligible for the advanced
biofuel consumption target of 3.5% by 2030 of the directive
207
Increasing from 60% in 2020 to 80% in 2030, with typical and default emission values for biomethane

66
 Policy Overview
 CO2 emissions standards for heavy-duty vehicles, with at least a 30% reduction in
2030 compared to 2019
Clean mobility
 European Commission role regarding CNG standards (and hence H2 %vol)
package
 Consideration of hydrogen and natural gas including biomethane as alternative fuels
for heavy-duty vehicles

6.2.2 EXISTING PLANS AND TARGETS FOR BIOMETHANE AND HYDROGEN

In some Member States, the draft National Energy and Climate Plans to 2030 also provide
specific measures for the deployment of biomethane and hydrogen. Table 6-3 provides an
overview of the relevant plans, targets and other policy measures related to biomethane
and hydrogen included in the draft NECPs.208 Only a few of the selected EU Member States
have set explicit targets for biomethane.

In April 2019, 17 EU energy ministers (including Hungary 209) signed a declaration 210
supporting the role of hydrogen and renewable gases in the decarbonization of the EU
economy and stating that gas infrastructure needs to be prepared to support the
integration of biomethane, synthetic methane and hydrogen, while addressing methane
venting and fugitive emissions. However, this declaration was not signed by 4 of the 5
selected Member States due to a perceived lack of ambition: Germany, the Netherlands,
Spain and Sweden.211

Table 6-3 Overview of overarching RES target as well as plans, targets and other policy measures
related to biomethane and hydrogen in the draft NECPs

Country Biomethane and hydrogen in draft NECPs

 Share of RES in final energy use 2030: 20% (14.65% by 2020)

 Target 2030: 93 GWh of renewable hydrogen for transport
Hungary 212
 Target 2030: 93 GWh of biogas for transport
 No significant increase in electricity generation from biogas
 Share of RES in final energy use 2030: 30% (18% by 2020)
 No specific measures for the stimulation of biomethane mentioned
Germany
 Reference to a National Innovation Program for hydrogen and fuel cell technology.
 0.1% share of hydrogen in the final energy demand for transport in 2030
 Share of RES in final energy use 2030: NA (12.4% by 2020)
Netherlands  No specific targets for biomethane nor hydrogen mentioned
 The Netherlands intends to set up a program for hydrogen innovation and deployment
 Share of RES in final energy use 2030: 65%214 (50% by 2020)
 Rural development programme 2014-2020: Including measures for production of
biogas
Sweden213  Support for biogas production through anaerobic digestion of manure
 Fossil-free transport solutions: SEK 1 billion 2018–2023 allocated to fossil-free
transport (including biogas)
 No explicit mention of hydrogen in the context of future policies
 Share of RES in final energy use 2030: 42% (20% by 2020)
 R&I for introducing renewable gas (biomethane and syngas) into the gas infrastructure
 R&I for hydrogen (including hydrogen for transport)
Spain215
 Advanced biofuels in transport: Adapt certification system to gather advanced
biofuels, especially biomethane injected into the network. Support programme for
advanced biofuels production facilities.

208
https://ec.europa.eu/energy/en/topics/energy-strategy-and-energy-union/governance-energy-union/national-energy-climate-plans
209
However, 4 (Germany, the Netherlands, Spain and Sweden) of the 5 selected Member States did not sign due to a perceived lack of
ambition. Source: Euractiv (2019) https://www.euractiv.com/section/energy/news/11-eu-countries-snub-romanian-presidencys-gas-
declaration/
210
Sustainable and Smart Gas Infrastructure for Europe (2019)
211
Euractiv (2019) https://www.euractiv.com/section/energy/news/11-eu-countries-snub-romanian-presidencys-gas-declaration/
212
Hungary (2018) National Energy and Climate Plan of Hungary (Draft). Courtesy Translation in English provided by the Translation
Services of the European Commission.
213
Government offices of Sweden (2018), Sweden’s draft integrated national energy and climate plan According to Regulation (EU)
2018/1999 of the European Parliament and of the Council on the Governance of the Energy Union and Climate Action.
214
Not an explicit national target; results from 2016 reference scenario.
215
Spain (2019), Borrador Plan Nacional Integrado de energía y clima 2021-2030.

67
 Country Biomethane and hydrogen in draft NECPs
 Promotion of renewable gases including biomethane and hydrogen. An assessment
will be undertaken to determine their potential, in view of defining a strategy for its
effective use, and the design of the necessary support mechanisms
 Integration of gas market: become a hub for natural gas, renewable gas / hydrogen

In Germany the German Renewable Energy Heat Act of 2008 (EEWärmeG) aims for 14%
share of renewables in final energy consumption for heating and cooling by 2020.
Biomethane withdrawn from the gas network may count towards that target when a mass
balance system is used.216 Germany had an ambitious target for biomethane of 6% of total
gas consumption by 2020, reaching 10% by 2030, but these targets are now outdated. 217
The draft NECP indicates that biogas domestic production would decrease from 79.93 TWh
in 2015 to 62.5 TWh in 2040.218

While biomass-based energy is sporadically addressed in the Hungarian strategies and

programmes, a clear, comprehensive and integrated approach is lacking, particularly for
the injection of biomethane and hydrogen in the network. The support for renewable
energy in the country has furthermore been characterized by changes in the measures
implemented, such as in the revised KÁT program.219 However, the Hungarian draft NECP
indicates two specific relevant targets: 93 GWh of renewable hydrogen for transport and
93 GWh of biogas for transport by 2030. 220 In 2017 the 2nd Second Climate Change
Strategy221 was adopted. While the Strategy also included funding for biomass-based
energy, it does not cover specifically biomethane, hydrogen or its injection in the gas
network, although specific projects may be supported.

In the Netherlands, there are no national targets for biogas or biomethane production,
but the new draft climate agreement sets some national targets for hydrogen production
for 2030. The Dutch government is currently negotiating a Climate Agreement which
foresees that biomethane will play a role in the Dutch energy transition and is expected to
publish a biomethane roadmap in 2019. The Climate Agreement also includes concrete
plans with regard to hydrogen, aiming to realise 3-4 GW of electrolyser capacity by 2030
for which a hydrogen program will be set up,222 a follow-up to the Hydrogen Roadmap of
2018.223 Also multiple regional initiatives exist in the country.224

Spain does not have specific targets for renewable gases in its draft NECP, but proposes
measures to adapt the certification system, assess the potential, determine a strategy,
and design support mechanisms. While initiatives have been set up, the dedicated
roadmaps and plans are mostly from the private sector. 225 Spanish authorities have
developed a national framework for alternative energy in transport 226 which includes
biomethane and hydrogen.

216
Erneuerbare-Energien-Wärmegesetz - EEWärmeG
217
GreenGasGrids (2013) Proposal for a European Biomethane Roadmap. NB the biomethane target of 6 bcm was converted into TWh,
using the biomethane energy contents from: Ministry of food and Agriculture (2014) Bioenergy in Germany: Facts and figures.
218
DG Energy (2019) National Energy and Climate Plans (NECPs). Available at https://ec.europa.eu/energy/en/topics/energy-strategy-and-
energy-union/governance-energy-union/national-energy-climate-plans.
219
Biosurf. Hunga ry’s country network. Available at http://www.biosurf.eu/en_GB/networking/hungarys-country-network/ & Kovács
(2017) Roadmap for Hungary. Biosurf 2017 Project Meeting & Inter-Association Workshop.
220
Hungary (2018) National Energy and Climate Plan of Hungary (Draft). Courtesy Translation in English Provided by the Translation
Services of the European Commission
221
Innovációs és Technológiai Minisztérium (2018) Második Nemzeti Éghajlatváltozási Stratégia
222
Ontwerp Klimaatakkoord (2018) & CBS Statline (2019) 1. Elektriciteitsbalans; aanbod en verbruik; Hernieuwbare elektriciteit; productie
en vermogen.
223
Topsector Energie TKI Nieuw Gas (2018) Outlines of a hydrogen roadmap.
224
Noordelijke Innovation Board (2017) The green hydrogen economy in the northern Netherlands & De Volkskrant (2019) Onderzoek naar
mogelijkheid grootste groene waterstoffabriek in Rotterdamse haven.
225
SEDIGAS (2018). Plan de Desarrollo de Gas Renovable – Hoja de ruta al 2030; http://prensa.naturgy.com/el-gas-renovable-es-una-de-
las-soluciones-para-cumplir-los-objetivos-de-descarbonizacion-e-impulsar-la-economia-circular/; http://www.ptehpc.org/
226
https://industria.gob.es/es-ES/Servicios/Documents/marco-energias-alternativas.pdf

68
Sweden set out a new climate policy framework in 2018227 and reiterated the goals in its
NCEP. The Swedish government put in place the Fossil Free Sweden Initiative228 and has,
since 2009 articulated its political ambition to have a fossil-independent vehicle fleet by
2030.229 The Swedish Gas Industry aims to have 100% biomethane in the gas network by
2050 and prepared a proposal for a national biogas strategy 2.0. 230 The Sweden Energy
Agency has commissioned Sweco to develop a strategic innovation agenda for vehicles
powered by hydrogen.231
6.2.3 NATIONAL LEGAL FRAMEWORK FOR THE INJECTION OF BIOMETHANE
AND HYDROGEN

In the following sections we discuss the diverse regulatory frameworks for injection of
hydrogen and biomethane across the selected Member States. The main issues identified
are summarized in the table below. Injection of biomethane is authorized in an increasing
number of European countries, including Germany and Sweden, as long as the gas
conforms to national technical specifications.232 Nonetheless, some national frameworks
lack or have limited provisions specific to renewable gases in general or biomethane,
hydrogen or synthetic methane in particular. Furthermore, the acceptable hydrogen
blending levels vary significantly, from trace levels to 10%vol or more.233

The legal status and classification of power-to-gas in the gas and electricity market designs
is still unclear. The lack of a clear regulatory framework for power-to-gas in most Member
States and at the EU level means that even if hydrogen injection is allowed, every project
needs to be addressed individually, resulting in a complex process. In addition, there is a
lack of coherence in initiatives on higher hydrogen blending levels, hampering the
development of EU-wide solutions and cross-border transport of hydrogen.234

The injection of biomethane and hydrogen may have consequences on the gas calorific
value, with possible fluctuations across the network and in time. These fluctuations will
require monitoring of the flows and measuring of the gas properties as well as the revision
of national gas metering and billing regulation at the domestic level and of cross-border
trade aspects at the European level.235

Table 6-4 National regulatory framework aspects for the injection of biomethane and hydrogen
Aspects Germany Hungary Netherlands Spain* Sweden
Same as
Connection and access
Same as natural gas, Same as
rules (except technical Specific Same as natural gas
natural gas hydrogen not natural gas
specifications)
allowed
Obligation Same as Same as Same as
Connection regulation Same as natural gas
to connect natural gas natural gas natural gas
Classification of power- Not Not
Not specified Not specified Not specified
to-gas specified236 specified
0.5 mol% for the
Not specified
distribution and mid-
(5 mol% for
Maximum allowed Not pressure TSO 0.1-0.5
10 vol% non-
hydrogen specified networks, <0.02% vol%
conventional
for high-pressure
gas)
TSO networks

227
Swedish government bill 2016/17:146. A climate policy framework for Sweden.
228
http://fossilfritt-sverige.se/in-english/
229
Regeringens proposition 2008/09:162.
230
Sia Partners (2018) Observatoire du biométhane - Benchmark des filières européennes; Svensson (2015) Natural gas and biomethane are
complementary fuels – developments in Sweden; Energigas Sverige (2018), National biogas strategy 2.0.
231
https://www.sweco.se/en/our-offer/project/hydrogen/
232
CEDEC, Eurogas, GEODE (2018), Flexibility in the energy transition. A toolbox for gas DSOs. & HyLAW (2018) D4.1 Cross-country
comparison
233
HyLAW (2018) D4.1 Cross-country comparison
234
HyLAW (2018) D4.1 Cross-country comparison
235
HyLAW (2018) D4.1 Cross-country comparison
236
Except for methanation for the production of synthetic methane

69
 Aspects Germany Hungary Netherlands Spain* Sweden
Non-
Exception to inject Clarification
Yes No No conventional
pure hydrogen? needed
gas (strict)
* A new version of Spanish regulation is in approval phase to allow the injection of pure hydrogen into the Spanish gas
network. The limit will depend on the connection point.

The legal framework for renewable gases in Germany is not addressed by a single piece
of legislation but determined by a number of laws and regulations, due to the variety of
uses (especially heat, CHP and transport). 237 Network operators are obliged to connect
biogas facilities on condition that the connection is economically feasible, and they cannot
refuse it due to capacity bottlenecks. They must design transparent, non-discriminatory
and efficient standard contracts for biomethane access to the network.238 Exemptions on
network access tariffs apply also to renewable hydrogen and synthetic methane239. On the
other hand, the 2017 Renewable Energy Sources Act excludes hydrogen and synthetic
methane from receiving EEG support. In Germany PtG is not considered as a storage
activity, while electricity consumption by PtG facilities is classified as final consumption.
Nonetheless, PtG is considered a competitive activity and as such BNetzA has indicated
that gas and electricity network operators cannot be allowed to own and operate such
facilities.

In Hungary, biogas producers in Hungary are treated as natural gas producers and are
entitled to non-discriminatory access to the gas networks as long as the gas quality
provisions are respected.240 The gas quality requirements of standard MSZ1648:2000
could constitute a barrier to further biomethane development.

In the Netherlands, injection of biomethane and hydrogen is allowed, as long as the gas
complies with the quality standards. The maximum allowed hydrogen content is a molar
fraction up to 0.02% in the transmission network and 0.5% in the distribution network.241

In Spain, the regulation for natural gas also applies to unconventional gas types242 as long
as it is technically feasible and safe to inject and transport them. The PD-01 protocol
defines specific requirements for unconventional gas (including biomethane) to be injected
into the transmission and distribution networks (with a maximum of 5% hydrogen
concentration). However, the quality specifications are very strict243 and alignment to the
European standard is currently being discussed.244 In Spain, power-to-gas has not been
recognised as energy storage and electrolysers cannot yet participate in the provision of
flexibility in the electricity sector as there are no demand-side flexibility incentive
mechanisms beyond the interruption services (for which a threshold of 5MW applies).245

237
DENA (2019). Biogaspartner – gemeinsam einspeisen - Biogaseinspeisung und -nutzung in Deutschland und Europa - Markt, Technik
und Akteure
238
Regulation on access to gas supply networks (Gas Network Access Ordinance - GasNZV)
239
This refers to hydrogen and synthetic methane produced with electricity and CO2 from predominantly renewable energy sources;
meaning that 80% of the electricity used in the electrolyser in the yearly average must come from renewable sources, as must all the carbon
used for methanation (i.e. biogenic sources or direct air capture). Available at https://www.gesetze-im-
internet.de/enwg_2005/BJNR197010005.html
240
GreenGasGrids. Available at http://www.greengasgrids.eu/market-platform/hungary/grid-connection.html
Decree at https://net.jogtar.hu/jogszabaly?docid=A0900019.KOR
241
Regeling gaskwaliteit - https://wetten.overheid.nl/BWBR0035367/2016-04-01#Bijlage8
242
Ley 34/1998, de 7 de octubre, del sector de hidrocarburos
243
BOE 6 (7 January 2013). 185 Resolución de 21 de diciembre de 2012, de la Dirección General de Política
Energética y Minas, por la que se modifica el protocolo de detalle PD-01 «medición, calidad y odorizacion de gas» de las normas de gestión
técnica del sistema gasista.
244
Gas Natural Fenosa (2018), I Fórum Tecnológico: Impulsar el desarrollo del gas renovable en España. Documento base para el debate &
SEDIGAS (2018), Plan de Desarrollo de Gas Renovable – Hoja de ruta al 2030
245
HyLAW (2018), Draft report with legal recommendations for the hydrogen sector in Spain.

70
Sweden’s Natural Gas Act246 explicitly considers biogas as natural gas, as long as it
respects the technical specifications. In 2011, new tax rules were introduced to facilitate
joint distribution of natural gas and biogas in a single network. 247 Further, given that
biogas’ injection leads to a difference in the energy content, new rules and methods apply
since 2016 for the settlement and debiting according to a varying heating value of gas. 248

6.2.4 SUPPORT FOR BIOMETHANE AND HYDROGEN

Overall, there is a complex patchwork of support mechanisms for biomethane and

hydrogen. As the gap between the green hydrogen production costs and the fossil fuel
market price is still very large, there are no large-scale production support schemes yet
except in Germany, while for biomethane (and biogas), support schemes have been widely
implemented. Table 6-5 provides an overview of regulatory incentives for biomethane and
hydrogen in the selected countries.

The internalisation of the external costs related to climate change and other environmental
impacts (such as those due to extraction or combustion) into the fossil fuel prices would
substantially improve the competitiveness of biogas/biomethane and hydrogen from
renewable energy-based electricity. Partial exemptions from network fees, electricity taxes
or levies for electrolyser operators, provided these offer benefits to the electricity system,
also help improve the economic feasibility of power-to-hydrogen, which is the main barrier
to its large-scale deployment. Such partial exemptions are already in place today in some
countries (e.g. France, Germany, Great Britain, Denmark). 249

Moreover, power-to-gas technologies are modular, allowing the stacking of multiple

electrolysis units to increase the overall capacity to several megawatts. The nominal
capacity which is used for continuous hydrogen production can be flexibly increased to
achieve higher peak capacities, which can be used for electricity system balancing
purposes.250 If electrolysers were able to participate in balancing markets and network
congestion management services, this would provide additional revenue streams
improving their economic feasibility,251 but this is not yet the case in all national electricity
markets, due to for instance thresholds for participation (e.g. 5 MW in Spain).

Guarantees of origin support biomethane and hydrogen by recognising their economic

value compared to natural gas when injected in the gas network. The recast Renewable
Energy Directive252 extends the guarantees of origin requirements to renewable gases.
The European Renewable Gas Registry (ERGaR) aims to enable cross-border trade and
mass balancing of renewable gases, building on (voluntary) national registries. In
December 2018 ERGaR re-applied to be recognized by the European Commission as a
voluntary international scheme for transport fuels in the calculation of their contribution
to the renewable energy share in the transport sector, following the Renewable Energy
Directive.253 Germany, the Netherlands and Sweden (the latter in a limited form) have
certification registries, of which the first two are currently members of ERGaR.

246
Natural-gas Act (2005:403) https://www.riksdagen.se/sv/dokument-lagar/dokument/svensk-forfattningssamling/naturgaslag-
2005403_sfs-2005-403
247
Swedish Energy Markets Inspectorate (2018), The Swedish electricity and natural gas market 2017
248
https://www.energimarknadsbyran.se/gas/dina-avtal-och-kostnader/varmevarden-och-gaskostnader/
249
Tractebel (2017) Study on early business cases for H2 in energy storage and more broadly power to H2 applications & Tractebel et al.
(2018) Power-to-Hydrogen: Early business cases in Europe.
250
Quarton et al. (2018) Power-to-gas for injection into the gas grid: What can we learn from real-life projects, economic assessments and
systems modelling?
251
Roland Berger (2018) Fuel Cells and Hydrogen for Green Energy in European Cities and Regions.
252
Directive (EU) 2018/2011 on the promotion of the use of energy from renewable sources
253
ERGaR (2019) Presentation - European Renewable Gas Registry

71
 6.2.5 NETWORK CONNECTION AND ACCESS TARIFFS

Network connection and access tariffs can influence significantly the business case of
biomethane and hydrogen. At present, there is in general an absence of a coherent
regulation, both at the transmission and distribution levels (with the exception of
Germany).254 Contrary to electricity there is no EU network code governing the connection
of producers to gas networks, whether natural gas or other gas types.

It is relevant to consider the tariff levels but also their structure, taking into account design
parameters such as discounts for storage and entry-exit/commodity-capacity splits. For
example, the shift to capacity-based transmission service tariffs will favour gas producers
which have a more constant injection profile; the consequences of capacity-based tariffs,
also for intermittent end-users such as gas fired power plants, need hence to be further
understood. An open issue is the ownership and operation of facilities for compression,
treatment and metering of biomethane or hydrogen before its injection. Possible
arrangements include ownership and/or control by the producer or by the network
operator, and the extent the costs are borne by the concerned producers or socialised via
the network fees.

Germany has a number of incentives related to network connection and access for
biomethane and hydrogen including exemption of transmission tariffs, feed in tariffs and
priority access.255 Network operators pay a flat-rate tariff to shippers feeding biogas into
the gas network, for ten years after the commissioning. The recovery of this cost is to be
charged in the non-transmission services component of the tariff, which is questioned by
ACER.256 Also, the network operator is responsible for 75% of the connection costs, as well
as for the maintenance and operation of the network connection and the input facility, and
has to ensure a minimum availability. Finally, designated market area managers in
Germany are obliged to provide a special framework for biomethane balancing.257

Biomethane plants in the Netherlands have to pay the same connection and access costs
as other gas operators.258 In Spain, there is no clear framework defining the ownership
of the connection. In Sweden there are no network access restrictions as long as the gas
quality specification is upheld.259

Table 6-5 Regulatory incentives for biomethane and hydrogen

Germany: 2017 EEG pay-as-bid tenders for biomethane and hydrogen & statutory
Production support260+ injection premium
incentives Netherlands: Feed in premium for injected biomethane & biogas with guarantees of
(FiT/FiP) origin via SDE+261
Sweden: Applicable for biomethane
Germany: Connection for biomethane and hydrogen
Netherlands: Energy Investment Deduction (EIA), allows companies to deduct
Investment
investments (including e.g. biodigesters, electrolysers and injection systems) from
incentives
corporate profit tax. Plans to set up a financial support scheme for hydrogen
demonstration projects.

254
HyLAW (2018) D4.1 Cross-country comparison
255
Also, they must take measures (when economically reasonable) to ensure the capacity necessary for biomethane transport at all times,
including regarding reverse flows into the transmission network, being also required to assess the adequacy of transportation capacities
considering future needs. Source: Regulation on access to gas supply networks (Gas Network Access Ordinance - GasNZV)
256
BNetzA (2018) Decision BK9-18/610-NCG and BK9-18/611-GP
ACER (2019) Analysis of the Consultation Document on the Gas Transmission Tariff Structure for Germany
257
Regulation on access to gas supply networks (Gas Network Access Ordinance - GasNZV).
258
http://www.greengasgrids.eu/market-platform/netherlands/grid-connection.html
259
http://www.greengasgrids.eu/market-platform/sweden/technical-standards.html; Swedish Energy Markets Inspectorate (2018), The
Swedish electricity and natural gas market 2017
260
BMWi. Renewable Energy Sources Act (EEG 2017).
261
Sia Partners (2018) Observatoire du biométhane - Benchmark des filières européennes; RVO (2019) Stimulering Duurzame
Energieproductie.

72
 Priority
connection Germany: Applicable for biomethane and hydrogen
and access
Minimum
renewable Germany: Building heat (30% for biogas)
gas share
Germany: Electricity consumption for power-to-gas in Germany is currently exempt from
Consumption
the EEG surcharge for financing the support schemes for renewable electricity262
incentives
Sweden: Fiscal exemptions & subsidies for biogas and biomethane (mostly transport)263
Germany: Long history of support for biogas
Hungary: Low level and uncertainty concerning feed-in electricity tariffs (METAR & brown
premium for biogas and biomass-fuelled power plants) & absence of support for
biomethane injection264
Other Netherlands: No financial support mechanism yet for hydrogen (wo be included in SDE+
once it is competitive). The costs for the SDE+ are recovered through a charge on the
energy bill of consumers.265
Sweden: Long history of support for biogas though various schemes and policies266
Spain: Focus on renewable electricity generation
Source: Country analyses

7 IMPACT OF CONSIDERED SCENARIOS ON SELECTED TSOS AND DSO

The objective of this chapter is to assess the impact of the three scenarios focusing on the
use of the full EU potential of biomethane and hydrogen, on the business of selected
network operators in five Member States (Germany, Hungary, the Netherlands, Spain and
Sweden), both in the short- and the long-term.

This chapter first presents the impact of the scenarios on the gas demand in the considered
countries as well as on the investments and operational expenses of the selected system
operators. Second, a simulation of these impacts on the volumetric network tariffs in 2030
and 2050 is developed, where the two main elements determining tariffs are analysed:
the cost of service (composed of investment depreciation, capital remuneration and
operation and maintenance expenditures) and the transported gas volumes. Finally, a
summary is provided of the assessed impacts of the three scenarios on the system
operators’ business cases.

Some preliminary considerations are important in order to correctly understand the aim
and scope of this analysis:
 In line with the study objectives, this section does not aim to provide a forecast of
probable future developments of biomethane and hydrogen, and their impact on
the gas infrastructure and network operators, but rather forms the basis for the
impact analysis of a strong development of these gases, based on the use of their
full EU potential;
 The focus of the modelling exercise on the EU28 as a whole (as opposed to
particular Member States) and the focus on the impact of the use of the full
biomethane and hydrogen potential may lead to differences in the data resulting

262
Kreeft (2018) STORE&GO D7.3 ‘Legislative and Regulatory Framework for Power-to-Gas in Germany, Italy and Switzerland’
263
Board of Agriculture. http://www.jordbruksverket.se/amnesomraden/stod/andrastod/biogasstod2018.4.3ed012e7163ab843f5e5557.html;
https://www.iea.org/policiesandmeasures/pams/sweden/name-47928-en.php; https://www.iea.org/policiesandmeasures/pams/sweden/name-
167633-en.php; https://www.iea.org/policiesandmeasures/pams/sweden/name-21456-en.php; ISAAC (2016) Deliverable D5.2: Report on
the biomethane injection into national gas grid
264
RES Legal. Government Decree No. 299/2017; GreenGasGrids (2013) Hungarian roadmap for the development of the biomethane
sector; MEKH (2017) Information on the Renewable Energy Support System (METÁR).
265
Law opslag duurzame energie. Available at https://wetten.overheid.nl/BWBR0032660/2019-01-01
266
Rural Development Programme 2014-2020; Klimatklivet 2015-2018 (Climate Leap – Swedish EPA); 2015 support scheme for anaerobic
digestion of manure; 100% deduction of the energy and CO2 tax granted for biogas consumed or sold as motor fuel. Sources: Government
offices of Sweden (2018), Sweden’s draft integrated national energy and climate plan; https://www.naturvardsverket.se/klimatklivet; State
aid decision SA.51967; Swedish Tax Authority.

73
 from the modelling for individual Member States compared to targets and
expectations of national stakeholders;
 The modelling to 2030 and 2050 are independent, so pathways are also
independent, and represent the gas system evolution from the present to the target
years separately;
 The present chapter focuses only on gas network infrastructure and does not
address electricity infrastructure; the cost impacts of the scenarios on other actors
such as end-users are also not included. Nonetheless, the gas network costs
discussed here result in avoided costs for electricity networks and end-users, which
differ per scenario, as presented in Chapter 6. Thus, no conclusions should be
drawn from this chapter on which is the socially optimal scenario.
7.1 IMPACT OF BIOMETHANE AND HYDROGEN IN THE NETWORKS OF SELECTED
SYSTEM OPERATORS

Whereas chapter 4 shows the impacts of the three scenarios for the EU28 as a whole, this
chapter focuses on the impacts in the five selected TSO’s Member States.

Developments in gas demand

Most of the five selected countries follow the European trend of declining gas demand,
especially in the 2030-2050 period, a decline which would be highest in the electricity
scenario and lowest in the methane scenario. Sweden is an exception, where the modelling
results show an overall increase, in the 2030 scenarios as well as in the 2050 scenarios
(Figure 7-1). For Spain, gas demand would remain relatively stable in the 2030 scenarios,
but would decrease in some of the 2050 scenarios. The modelling results show that the
distribution-connected demand would be significantly higher than the transmission-
connected one by 2050 for all scenarios.

Figure 7-1 Total gas demand for the selected countries, compared to the gas demand in 2017.

Note: The gas demand for 2017 is the total primary energy demand for gas, including off-grid use. The scenarios only
include grid-connected demand.

The evolution of the gas mix

An important difference in the gas mix between the 2030 and 2050 scenarios can be seen
in Figure 7-2. The key results on the gas supply structure in the six scenarios for the five
case study countries are as follows:
 Natural gas dominates the supply structure in the 2030 scenarios. Only the
methane scenario for Germany shows significant amounts of biomethane in 2030;
 Synthetic methane only enters the mix in the 2050 scenarios and only plays a
significant role in the methane scenario;

74
  At the EU-level the electricity scenario has the lowest gas injection levels in 2050,
but for three of the five case study countries this is the hydrogen scenario. In the
hydrogen 2050 scenario, hydrogen dominates the gas mix accounting for 62-96%
of all national gas injection;267
 In Sweden and Hungary biomethane not only plays an important role in the
methane scenario but is also the major gas type in the electricity scenario.

Figure 7-2 Gas injection by type for the selected Member States

Decarbonisation scenarios in perspective

As stated earlier, the goal of the modelling exercise in this study is not to give a plausible
forecast of the changes in gas demand and gas mix for each Member State, but rather to
assess the impacts in a uniform manner of particular policy choices based on using the full
potential of biomethane and hydrogen, on the gas infrastructure in the EU28. Still, as the
previous sections described the modelling results in rather high detail for the case study
countries, it is useful to put these results in the context of national policies, plans and
strategies. In general, the total gas demand resulting from our study tends to be lower
than in several other studies. Compared to the forecasts for 2030 in ENTSOG’s TYNDP
2020 the results of this study are mostly lower, although for Germany the ranges for 2030
are rather similar. The demand forecasts used by the Dutch TSO are consistently higher
than in our study, around 50% higher in 2030 and 19-70% higher in 2050. In Germany,
the technology mix scenario is mostly used as a guidance for future gas demand. In the
technology mix scenario that assumes a 95% GHG emission reduction by 2050, gas
demand is 30-92% higher than in our study, which is based on 100% GHG emission
reduction while using the full hydrogen and biomethane potential.

Table 7-1 Comparison of gas demand estimates of our study with other commonly used studies
TWh/α ENTSOG TYNDP National studies This study
2030 2030 2050 2030 2050
DE 642-812 812 268
785-877 682-740 456-673
HU 88-100 69-76 39-65
NL 277-348 330269 216270 211-231 127-182
ES 299-400 308-327 215-319
SE 14-21 17-28 52-78

267
Injection = domestic production + imports
268
DENA (2018) Leitstudie integrierte Energiewende.
269
Gasunie Transport Services (2017) KCD investment plan 2017.
270
Gasunie & Tennet (2019) Infrastructure Outlook 2050.

75
 7.1.1 NETWORK INVESTMENTS

Investments in cross-border gas transmission capacity

The added value of gas infrastructure for the future energy system is in particular that it
can be used to transport large energy quantities over long distances at a relatively low
cost. The for 2030 required cross-border transmission capacities in the selected Member
States

Figure 7-3) are comparable across scenarios, although for Germany and the Netherlands
the electricity scenario requires significantly higher cross-border gas transmission
capacities. In contrast, for 2050 the scenarios show diverging results, with the hydrogen
scenario requiring the largest cross-border gas transmission capacity in all selected
countries while the electricity scenario shows the lowest required gas transmission
capacity in 2050.

Figure 7-3 Required cross-border gas transmission capacity and average use

Investment in the gas transmission network

The transition towards a decarbonised gas supply in Europe will require investments in the
gas transmission network, for domestic as well as for cross-border gas transport. Figure
7-4 provides an overview of the investment needs at the TSO level, and the following
findings stand out:
 For 2030 the investment requirements are limited across scenarios and
investments are only related to methane networks;
 Towards 2050 the investment needs increase, especially in the hydrogen scenario,
which requires the largest investments;
 Across all scenarios, investment in cross-border transmission capacity dominate,
except for Sweden;
 In the three considered scenarios, the overall investment needs for Sweden would
be very high compared to the current size of the gas sector, due to a strong increase
in gas supply, demand and exports in this country.

The hydrogen scenario has the highest investment requirements for new or converted gas
infrastructure at the TSO level, whereas the electricity scenario has the lowest gas
investment requirements. At the EU28 level, there is a factor 4.4 difference in required
gas transmission investments between the hydrogen scenario (€245 bn) and the electricity
scenario (€56 bn) to 2050. However, required investments in the electricity network will
be higher in the electricity scenario, balancing the investment needs across scenarios.

76
Figure 7-4 Total investment requirements at the TSO level (national + cross-border)

Note: 2030 investments represent cumulative investments for the period 2020-2030, while 2050 investments are cumulative
over the period 2020-2050, so costs for 2030 and 2050 are not additional.
Costs for decommissioning are not included due to its negligible impact on total investment requirements.

When looking at the five selected countries, we see the same trend as for the EU28 (Figure
7-4). Up to 2030 the investment requirements at gas TSO level are still rather limited,
with the exception of the hydrogen scenario for Spain. For the Netherlands, the 2030
scenarios do not require any investments in the gas transmission network. In the period
2030-2050 the investment requirements increase in all countries, with the exception of
Hungary, which is related to the sharp fall in gas demand towards 2050. Costs related to
decommissioning of pipelines (not shown in the figure) are very limited in all scenarios,
accounting for a maximum of 13% of all investment needs, but an average (unweighted)
of 3%. The model results only show decommissioning in cross-border transmission
capacity.

The hydrogen scenario is the costliest scenario, with total gas investment requirements in
the case study countries being 2-25 times higher than in the electricity scenario. The
methane scenario requires much lower investments in gas transmission infrastructure, but
it is still significantly more expensive than the electricity scenario in most cases. In all five
countries except Sweden, investments in cross-border transmission capacity dominate the
overall costs, although this is most pronounced in Hungary. Also, in the hydrogen scenario
for 2050, the investment requirements relate primarily to cross-border gas transmission
capacity (around 57-85% of the total investments in the 5 countries). In the electricity
and methane scenario, all investments in hydrogen networks relate to conversion of
existing methane networks to hydrogen networks. In the hydrogen scenario, new pipelines
dominate the investments in all case study countries, except Germany.

Investments in the gas distribution network

Apart from the investments in the transmission network, the considered scenarios aiming
at full decarbonisation also require significant investments in gas distribution networks.
Overall, these costs represent for the five countries on average 37-85% of the total
investments needed in gas infrastructure. At the distribution level, the hydrogen scenario
is not always the one that needs the highest investments. In Spain and Sweden, the
investment needs for the methane scenario exceed those of the hydrogen scenario. Similar
to transmission networks, the 2050 scenarios require much higher distribution network
investments than the 2030 scenarios.

77
Figure 7-5 Total investment requirements at the gas distribution level for the three scenarios

Network investments in perspective

To date, gas network operators are in many countries are already actively investigating
how they can anticipate and facilitate a stronger uptake of renewable and decarbonised
gases. It should be noted that the technical feasibility and investment costs for conversion
of existing transmission and distribution networks into hydrogen networks are still
uncertain. The cost levels will also quite differ amongst Member State, depending on the
characteristics (e.g. PE vs other material) of their network; therefore, some system
operators have indicated that the cost levels assumed in this study for the refurbishment
of the distribution networks might be too high for their grid.

Also, some short-term investments might not be reflected in the 2030 scenarios. The
modelling exercise does not take all actual investments into account, as it is based on a
theoretical optimisation of investments based on minimisation of overall energy system
costs. As an example, the modelling results foresee no investments in the gas distribution
networks for the Netherlands in any of the 2030 scenarios, while the Dutch system
operators are currently investing in compressor stations to enable the feed-in of
biomethane from the distribution networks into the transmission network.

7.2 IMPACT ON THE BUSINESS CASE OF SELECTED SYSTEM OPERATORS

In this section the results are presented of tariff simulations that estimate the impact of
the use of the full biomethane and hydrogen potential on the system operators’ costs of
service and their tariffs, with a focus on the distribution level. Very few studies have been
dedicated to analysing the impact of infrastructure costs from this perspective. One
notable exception is the study on the future regulation of the UK gas network271.
The scope and limitations of the analysis comprise:
 The tariff simulation considers the necessary investments to start in 2020, so tariff
estimates are additional to the tariff components that cover the depreciation of pre-
2020 investments. However, especially by 2050 most of the pre-2020 investments
will have been depreciated;
 Tariffs indicated are volumetric tariffs, calculated according to the transported gas
volumes, while the actual gas tariffs are split between gas entries and exits and
are mainly capacity-based;

271
Frontier Economics et al. (2016) Future regulation of the UK gas grid - Impacts and institutional implications of UK gas grid future
scenarios – a report for the CCC

78
  Common parameters are used across countries such as the cost of capital, while
the parameters are in practice set by national regulators and can differ per MS;
 These considerations combined with the uncertainties to 2050 mean that the tariff
levels resulting from this study are not forecasts, but rather serve to evaluate the
possible impact of the three considered scenarios on the TSOs/DSOs and their
tariffs.

The tariff simulation methodology first calculates the cost of service for gas transport from
the network costs. The cost of service is composed of four components: depreciation,
capital remuneration, decommissioning and operation and maintenance expenses (OPEX).
The cost of service for gas transport is separated as transmission (subdivided in intra-EU
cross-border and national transmission) and distribution. The regulatory asset base (RAB)
is composed of the accumulated (adjusted) investments minus the accumulated
depreciation. Then, the transported gas volumes are calculated (for distribution only
distribution-connected demand). Volumetric tariffs can be derived for each network by
dividing the total cost of service by the transported gas volumes (for transmission equal
to exports + storage injection + transmission-connected demand).

As indicated, the main tariff simulation parameters are the cost of capital and the
depreciation period. In order to enhance the comparability of the simulated cost of service
and tariffs, the same values for the cost of capital and depreciation period are used across
countries and years in the analysis, with a sensitivity analysis being also conducted.
Following an analysis of ACER and CEER272 data, a cost of capital of 5% is used for both
transmission and distribution system operators, with a sensitivity analysis based on a level
of 9%. A depreciation period of 45 years is used, with a sensitivity analysis based on an
economic lifetime of 25 years. In order to assess the impact of different OPEX levels, the
cost of service and tariffs have been calculated for high (2% of CAPEX) and low (1% of
CAPEX) OPEX levels.

Cost of service
Figure 7-7 presents the cost of service for the gas transmission level (related to cross-
border and national transmission assets). For the EU28 and all selected Member States,
the hydrogen scenario in 2050 has the highest gas transmission cost of service, amounting
to 8.1 billion EUR/year for lower OPEX levels (1% of CAPEX). The cost of service is driven
by investments in cross-border hydrogen transmission networks to accommodate
increased cross-border gas trade, especially in hydrogen corridors to Central Europe. In
the other scenarios, cross-border and national transmission play a more balanced role,
with a transmission cost of service in 2050 of 2.6 billion EUR/y for the methane scenario
and 1.7 billion EUR/y for the electricity scenario, with main new export corridors leading
from Scandinavian and Baltic countries to central Europe.

Of the selected countries, Germany and Spain present the highest cost for gas
transmission services, also due specially to cross-border investments in the hydrogen
scenario. Cross-border investment costs for Germany are driven by gas transmission
capacity expansions to Denmark and the Netherlands and to a lesser extent to Belgium
and Italy. For Spain, the major driver is the expansion of transmission capacity primarily
with France, and secondly with Portugal.

For the 2030 horizon, OPEX form the most important component of the cost of service for
the EU28 and the selected Member States at the transmission level. For the EU28 average,
OPEX account for 60-70% of the cost of service in 2030 in all scenarios, rising to around
80% in the case of high OPEX assumptions (2% of CAPEX). Looking to 2050, the
importance decreases, but still OPEX remains significant under high OPEX assumptions,
accountable for 40-60% of the cost of service across the EU28.

272
CEER (2019) Report on Regulatory Frameworks for European Energy Networks & ECA (2018) Methodologies and parameters used to
determine the allowed or target revenue of gas transmission system operators (TSOs)

79
Capital remuneration accounts for 25-36% of the cost of service across the EU28 in 2050
for a higher OPEX assumption. Logically, selected Member States with higher investment
levels compared to the existing asset base exhibit higher shares of capital remuneration.
By 2050, depreciation amounts to 4% of the regulatory asset base, so capital
remuneration is 1.2 times the depreciation in 2050, for the parameters chosen.

While decommissioning costs are assumed to be passed through to network users via the
tariffs and to occur before the 2030 and 2050 horizons, thus not affecting tariffs in those
years, they may lead to modest tariff increases in the years before. Decommissioning costs
in years before the end of the horizon occur only for cross-border transmission assets,
where, if spread over the 2020-2029 horizon, they could represent up to 2.0% of the
transmission cost of service in 2030 for the EU28. For 2050, only the electricity scenario
would lead to a relevant decommissioning level, amounting to around 1.2%.

Dedicated hydrogen networks have in 2030 a very limited impact on the cost of service.
At the transmission level, cost of service is due exclusively to methane networks, with no
share for hydrogen networks. For 2050, the impact of hydrogen networks remains limited
in the electricity and methane scenarios for transmission (20% and 12% of the
transmission cost of service, respectively). In contrast, the deployment in the hydrogen
scenario makes H2 drive the total cost of service at the transmission level for that year.

The regulatory asset base of system operators

The transmission RAB per unit of transported gas for the EU28 ranges from 3.6 million
EUR/TWh in 2050 in the electricity, 3.8 million EUR/TWh in the methane and 14.6 million
EUR/TWh in the hydrogen scenario. Hence, a hydrogen-focused scenario could lead to a
transmission RAB per unit of transported gas in the EU (due to investments from 2020 on)
which would be substantially higher than for the electricity or methane scenarios.

The unit transmission RAB varies significantly between selected Member States and levels
of renewable and decarbonised gases, ranging from very low RABs to up to 18.3 million
EUR/TWh in 2050. Nonetheless, for any given country and scenario, the RAB in the 2050
horizon would be higher than the 2030 one (not considering the depreciation of pre-2020
investments). The fact some transmission and distribution networks were developed
earlier than others (e.g. Germany compared to Spain) means the actual RABs may not be
proportional to the size of the network, as smaller but newer networks may have a larger
RAB than older networks which are depreciated to a greater extent.

Transported gas
Transported gas volumes in the transmission level are stable across scenarios for the EU28
and selected Member States in 2030, with by 2050 the hydrogen scenario exhibiting the
largest transported volumes and the electricity scenario the smallest. Regardless of the
scenario, transmission gas volumes decrease from 2030 to 2050, ranging from -43% in
the electricity scenario to -20% in the other two. Exports and storage injection help contain
the fall in transmission volumes. Cross-border gas flows will remain fairly constant across
scenarios in 2030, and both for the EU28 and the selected Member States the transported
gas volumes at the transmission level are higher than at the distribution level, for all
scenarios in 2030 and 2050.

80
Figure 7-6 Transported gas volumes at the transmission level

Tariff impact
The accumulated depreciation and regulatory asset base arising from the investments in
the 2020-2030 and 2030-2050 periods lead to higher tariffs in 2050, which should however
be offset by the depreciation of the current system operators’ RAB, partially or entirely.
Likewise, gas network costs in the methane and hydrogen scenarios are offset by avoided
electricity system and end-users’ costs, which are not analysed here.

The EU28 average transmission volumetric tariffs to 2030 are modest, amounting to less
than 0.5 EUR per MWh transported in the different scenarios (with a low OPEX
assumption). In 2050, tariffs remain in the order of 0.5 EUR/MWh, except for the hydrogen
scenario which shows the highest volumetric tariffs, reaching 1.6 EUR/MWh, driven by
cross-border investments, while an increase in transported gas volumes for the EU28
partially offsets this. The conversion of cross-border methane networks for hydrogen
transport forms about one third of the cross-border investment costs for the 2020-2050
period. At a country level, a similar pattern is observable, but the importance of conversion
of cross-border infrastructure to hydrogen varies significantly.

The results of the sensitivity analyses show that a shortened linear depreciation of 25
instead of 45 years would increase tariffs in the short-term while leading to lower tariffs
in the long-term. A depreciation period of 25 years would lead to a +3.4 to 4.0% increase
in the 2030 EU28 transmission cost of service, while causing a 2.8 to 4.1% decrease for
the 2050 horizon. For the selected Member States the range is larger, but still the impact
of accelerated depreciation never surpasses +10 to -5% of the transmission cost of
service.

A higher 9% cost of capital compared to the standard level of 5% leads to a 10-12%

increase in the transmission cost of service for 2030 across the scenarios, while the impact
for 2050 is in the range 20-29%. The impact of a natural gas price increase from 31 to 38
EUR/MWh is limited, resulting in a 1.1-1.7% increase in volumetric transmission tariffs to
2030 for the three scenarios, while an increase in biomethane costs has no noticeable
impact to 2050 on the service cost, transported gas volumes or tariffs, for all scenarios.

81
Figure 7-7 Gas transmission cost of service

800 1 600 12 000

700 1 400 10 000
600 1 200
million €/year

500 8 000
1 000
400 800 6 000
300 600 4 000
200 400
100 2 000
200

H2
H2

H2

H2

H2

H2

H2

H2
CH4

CH4
CH4

CH4

CH4

CH4

CH4

CH4
EL

EL
EL

EL

EL

EL

EL

EL

H2
H2
CH4

CH4
EL

EL
H2

H2
CH4

CH4
EL

EL
2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050
Hungary The Netherlands Spain Sweden Germany EU28

Figure 7-8 Gas transmission volumetric tariffs

3.0
2.5
2.0
€/MWh

1.5
250
million €/year

1.0 200
150
0.5 100
50
0.0 0
EL CH4 H2 EL CH4 H2
EL CH4 H2 EL CH4 H2 EL CH4 H2 EL CH4 H2 EL CH4 H2 EL CH4 H2 EL CH4 H2 EL CH4 H2 EL CH4 H2 EL CH4 H2 EL CH4 H2 EL CH4 H2
2030 2050
2030 2050 2030 2050 2030 2050 2030 2050 2030 2050 2030 2050
Hungary
Germany Hungary The Netherlands Spain Sweden EU28
Cross-border transmission National transmission Higher OPEX

Note: Higher gas network cost of service in the gas scenarios are partly or entirely offset by avoided electricity system costs, not shown here.
The tariff graph does not include tariffs related to depreciation of the current RAB.
 7.3 MAPPING OF THE SYSTEM OPERATORS BUSINESS CASES

TSOs face low risk in the short-term, especially within the current regulatory period, and
foreseeable at least in the next ones. Presently, the regulatory period in the selected
Member States varies from 4 to 7 years.273 In the long-term, the risk to TSOs results from
changes in the allowed revenues based on the cost of service and from tariff increases
which may cause the loss of network users, threatening cost recovery in the long-run due
to a vicious circle of tariff increases and reduction of transported volumes.

The main cost of service components influencing risk comprise the investment
depreciation, the capital remuneration and operation & maintenance costs (in their turn
influenced by regulatory parameters such as the return on capital, the depreciation period,
pass-through of O&M expenditures and efficiency requirements). Tariffs are also influenced
by the transported gas volumes, a function of transmission services demand by both
domestic and foreign users.

Therefore, in the mid- and long-term the risks faced by TSOs result not from the end of
the present regulatory period, but rather from changes in underlying technical and
regulatory factors affecting the cost of service and transported gas volumes. While some
TSOs are acting (in various extents) to address these risks in the long-run, ultimately the
confidence of stakeholders that in the mid-term the risks to the business case of TSOs is
limited is related to the belief that these underlying factors such as the need for gas
transport services will remain stable to 2030, or at least that measures to contain the cost
of service and extreme tariff increases are available.

The tariff simulation indicates that the most important risks to TSOs in case of an important
change in the cost of service or transported volumes (and thus tariffs) arise from:
 Cross-border transmission investments leading to an increase in transmission
tariffs in case of a significant reconfiguration of gas flows in the EU to 2050,
especially if dedicated cross-border hydrogen networks are developed. This is
enhanced by the fact that currently hydrogen networks are an unregulated activity
and thus not a TSO responsibility, with the conversion of methane networks
forming only part of the necessary investments in hydrogen networks;
 Uncertainty on the regulatory framework for hydrogen networks (related to the
point above). While the CEER Future Role of Gas and consultation indicates
hydrogen networks have similar economic characteristics to methane networks and
thus would warrant regulation, national regulators do not see the immediate need
to act. This is confirmed by the modelling results to 2030, but in the case of a
strong development of hydrogen to 2050 it will be necessary to determine the role
of existing and future TSOs for both new hydrogen networks and converted
methane ones. Furthermore, the regulatory cycle length and proactive planning will
require the definition of the approach for hydrogen networks much before 2050;
 Re-evaluation of the regulatory asset base in case some assets become stranded
to the 2050 horizon, especially if gas transmission investments are made before
2030 while not considering the uncertainty to 2050 regarding investment levels,
cross-border corridors and hydrogen/methane content in transmission networks.
While the components of investment depreciation and OPEX may not represent a
risk, capital remuneration based on the RAB remains a major component of the
revenues and would be affected in case of important re-evaluations;
 Short-term rises in tariffs due to the implementation of shorter depreciation periods
to reduce the exposure of network users and thus TSOs to long-term tariff increases
and the grid defection spiral (vicious circle). The use of shorter depreciation periods
should consider the short- and long-term impact on tariffs and the capacity of
network users to absorb any tariff increases in either horizon resulting from the
application or absence of such measure;
273
CEER (2019) Report on Regulatory Frameworks for European Energy Networks
83
  Misallocation of the cost of service between network users, as long-term
investments in hydrogen and/or methane transmission networks coupled with an
important reconfiguration of the EU gas production, demand and cross-border
trade, will requiring a timely adaptation of cost allocation between users. The
reconfiguration to 2050 with cross-border flows occurring from peripheral regions
(Scandinavia, Southern Europe and British Isles in varying degrees per scenario)
to Western and Central Europe will require the restructuring of entry-exit tariffs
and other parameters to allocate the cost of service to domestic or foreign users
as adequate. This may be aggravated by significant changes from 2030 to 2050 in
the contribution to total transported gas volumes of cross-border flows, storage
and exchanges with transmission-connected end-users and DSOs;
 Higher OPEX levels due to hydrogen transport admixed in methane networks or
through dedicated hydrogen networks, as OPEX is an important component of the
total cost of service and given the uncertainty on O&M costs, both due to hydrogen
development and any future variations across EU Member States in H 2 content and
O&M requirements. This will impact particularly those national networks which have
lower investment requirements by 2050, as then OPEX will constitute a higher
share of the total transmission cost of service;
 Uncertainty and inflections in national policy regarding renewable and decarbonised
gases (either increasing or decreasing support) as well as related aspects such as
decarbonisation targets and nuclear and coal phase out plans. TSOs (and NRAs)
must evaluate investment plans based on supply and demand scenarios, which are
highly affected by policies which are not the competence of NRAs. Hence, TSOs
require stable or at least predictable long-term policies which reduce the
uncertainty to 2050 while at the same time providing correct and consistent signals
for the development of biomethane and hydrogen. This is compounded by the
varying positions of stakeholders including TSOs on the potential development of
specific technology routes, concerning e.g. hydrogen from hydrolysis, steam
methane reforming with CCS or synthetic methane.

The latter point on the importance of stable long-term policies is pivotal for the business
case of TSOs and impacts many of the other risks discussed, as the period from 2030 to
2050 is where the most important transitions will occur (although this will vary per Member
State, and may be accelerated by national policy). Moreover, the stability of the regulatory
framework as set by national regulators is also important. Finally, as the required actions
to achieving full net decarbonization by 2050 differs significantly to a policy aiming for
near-complete decarbonization (80 to 95% decarbonization) given hard-to-decarbonise
end-users such as some industries and the old buildings stock, clarity on the target
decarbonization levels will provide the overarching framework from which the planning
scenarios should be developed.

Impact of the tariff simulation on DSOs

Given the extensive discussion on the impact of the scenarios on the TSOs which forms
the central focus of the assignment, Table 7-3 highlights only the main impacts on DSOs
which are additional to those discussed above. DSOs will also have a major role in the gas
infrastructure transition, having an important asset base and usually representing a higher
cost of service than TSOs, with a high impact of OPEX levels.

Eventually, DSOs will be faced with some of the same drivers impacting the business case
of TSOs, but the impact magnitude will be different and much more variate across regions.
Local developments are expected to be more divergent than at the transmission level, and
while the transmission volumes would in general decrease, certain DSOs will see an
increase in their transported volumes (which remains dependent however mainly on local
injection and demand).

84
Table 7-2 Mapping of the TSO business cases

Aspect Impact
Gas sector
 Importance of policy making to provide guidance and reduce uncertainty to 2050
decarbonization
 Policy support central to PtG pathway, impacting importing and exporting MSs
pathways
 Balanced impact of cross-border and national transmission assets for EU28, variable per MS
 Cross-border hydrogen network investments: role of regulated TSOs or left to market (new TSOs/merchant operators)
 Strong investments increase share of depreciation and capital remuneration, dampened by effect on OPEX through increase of asset
Cost of service
base
 Strong influence of OPEX, with additional uncertainty especially for hydrogen networks
 Marginal impact of decommissioning, country-specific, higher for electricity scenario
 Accelerated depreciation would increase cost to 2030 and lower increase of tariffs post 2030
RAB and
 Countries with developed gas infrastructure may see RAB decrease
depreciation
 Important differences in RAB between scenarios to 2050 -> risk of stranded assets
 Transported gas volumes less dependent on main driver than distribution
Transported gas
 Despite increases in injection at distribution level, reverse flow needs to 2030 would remain limited
volumes
 Transmission transported volumes decrease to 2050, especially in electricity scenario (with MS exceptions)
 Tariff increases due to new investments to be (partially) offset by decreasing depreciation of current RAB
 Short-term cost recovery of TSOs is assured
 Gas network users may absorb tariff increases, similar to the electricity system transition
Gas tariffs
 Changing environments will require flexible tariff structures that adequately allocate cost of service among network users
 Volumetric tariffs may be commensurate with current tariffs and other studies, despite uncertainty and comparability challenges
 Some concern in regions with already high network tariffs or vulnerable consumers
 Some few TSOs are taking anticipatory measures
 Potential provision of PtG conversion services (as service provider, without buying/selling energy)
Potential TSO  Other potential services (treatment of biomethane before injection, deodorization, deblending)
roles  Experience with H2 networks and power-to-gas varies strongly across the EU TSOs
 Exclusion from new and converted hydrogen networks would lead to loss of potential business activities
 Possible risk in cost recovery when stepping out of PtG activity once market maturity is reached
 Differences in renewable gas supply potential among countries may increase the need for cross border capacity
 Increasing deployment of intermittent renewable electricity will incentivize PtG for flexibility, requiring gas transport services
Non-demand
 Investment needs to facilitate further market integration, but this is expected to become less important on the medium-term
drivers
 Increased use of gas storage for flexibility and security of supply might lead to increasing (bi-directional) cross-border flows within
the EU -> complementarity of transmission and storage flexibility

Legend: potential impact of indicated factors

Positive impact Mixed impact Negative impact

85
In several Member States biomethane is increasingly being injected into the distribution
network, and some DSOs are already planning or exploring dedicated hydrogen networks.
While reverse flows should remain limited to the 2030 horizon, nonetheless there should
be increasing interaction between TSOs and DSOs, especially regarding the coordination
for the connection of renewable and decarbonised gas projects in order to optimize the
utilization of existing gas infrastructures.

Table 7-3 Summary of the impacts on DSOs of the use of biomethane and hydrogen
Impact Summary
 Important cost of service variation across scenarios with methane scenario having the
highest cost
Cost of service  Reverse flows are mature technology but may still require important investments, would
however be limited to the 2030 horizon
 OPEX is major cost of service component across scenarios, especially in 2030
Depreciation  There is less visibility on the current RAB and forecast of its depreciation cost at the
period & RAB national level for DSOs
 Stable or increasing distributed gas volumes
 Near total dependence of distributed gas volumes on local end-user gas demand, in
Distributed
contrast to transmission level
gas volumes
 Increasing share of gas remaining in distribution networks and not flowing from or to
transmission networks
Volumetric  Volumetric tariff increases from 2030 to 2050 due to required additional gas transition
tariffs costs (CAPEX and OPEX)
 Hydrogen distribution networks are implemented by 2030 (earlier than dedicated
transmission pipelines) and represent both in 2030 and 2050 a higher proportion of gas
Hydrogen
network costs than for transmission
networks and
 Certain Member States have integrated DSOs owning and operating both electricity and
power-to-gas
gas networks, enabling sharing of services (lowering fixed costs) and reducing exposure to
scenario uncertainty

8 READINESS OF THE REGULATORY REGIMES TO SUPPORT

DECARBONISED GASES & PROPOSED POLICY AND REGULATORY
MEASURES

This section assesses the readiness of the European and national regulatory regimes to
support the development of infrastructure needed to accommodate renewable and
decarbonised gases. Further, it proposes policy and regulatory measures to address
identified gaps or potential issues, in view of improving the regulatory frameworks such
that they more adequately support the deployment of decarbonised gases.
8.1 READINESS OF THE TEN-E AND CEF REGULATIONS

There have been a number of assessments of the Trans-European Networks for Energy
(TEN-E) and Connecting Europe Facility (CEF) regulations which propose recommendations
for their improvement.274 This section aims to provide a focused analysis with regards to
their readiness to support the deployment of (gas infrastructure for) decarbonised gases
in particular.

TEN-E lays down the procedure to identify Projects of Common Interest (PCIs), which can
benefit of enabling permitting procedures, possible additional economic incentives
addressing project-specific risks and access to CEF funding. Gas infrastructure275 is one of
the four main energy infrastructure categories in the TEN-E guidelines, including
underground storage facilities and pipelines for natural gas, but excluding pipelines at the
distribution level and not explicitly including hydrogen transport infrastructure nor
conversion projects such as power-to-gas. Nonetheless, the sustainability criteria for the
evaluation of gas infrastructure do include the contribution of a project to support not only

274
Trinomics (2018), Evaluation of the TEN-E Regulation; and SWD(2018) 44 on the mid-term evaluation of the Connecting Europe
Facility (CEF); and CEDEC, E.DSO, Eurelectric and GEODE (2018) Joint Statement from the DSO Associations on the proposal to revise
the TEN-E Guidelines
275
Covering transmission pipelines, underground storage, LNG and CNG facilities and other required equipment such as compressors

86
biomethane (referred to as biogas) but also power-to-gas. This has been included in the
2nd ENTSOG methodology for cost-benefit analyses276, where the project benefits must
consider the sustainability criteria of integration of ‘biomethane and other synthetic
gases’.277 Hence, the evaluation of the TEN-E guidelines does note that gas PCIs have the
potential to support the development of renewable energy sources.278 However, none of
the gas PCIs in the 3rd or 4th PCI list (published for consultation in 2019) make reference
to the integration of biomethane or hydrogen.

All gas PCIs are eligible for grants for studies under CEF and some are eligible for grants
for works. Gas PCIs are also eligible to receive funds from the European Fund for Strategic
Investments (EFSI). The proposed CEF renewal279 still covers the energy PCIs but also
includes funding for the study and deployment of cross-border renewable energy projects,
a new project category which is not included in the TEN-E regulation. Eligible renewable
energy sources are those indicated in the Renewable Energy Directive, which does include
landfill gas, sewage treatment plant gas and biogas. While not explicitly mentioned, power-
to-gas projects from renewable energy resources should qualify as long as they can
participate in one of the cross-border cooperation mechanisms referred to in the Renewable
Energy Directive (joint projects, joint support schemes and statistical transfers).

Another relevant aspect that may need to be addressed at EU level are the technical and
regulatory requirements to facilitate cross-border transmission of hydrogen, including the
definition of quality conversion to handle for example varying hydrogen admixture rates.
While authorities and network operators are assessing the potential of different (higher)
hydrogen blending levels, there is a lack of coherence which may hinder the development
of a consistent European approach and therefore of cross-border transport of hydrogen. 280
The HYREADY project, for example, aims to deliver engineering guidelines for gas TSOs
and DSOs to support them with preparing their networks for the accommodation of
hydrogen-natural gas mixtures with acceptable consequences and risks.281 International
standard developments are also key in this regard with CEN/CLC/JTC 6282 leading the work
regarding standardization in the context of hydrogen in the energy system.

Considering this, the following aspects would need to be addressed to enhance regulatory
readiness:

Table 8-1 Overview of proposed policy and regulatory measures regarding TEN-E, CEF and other
aspects to facilitate the deployment of renewable and decarbonised gases
Aspects Proposed measures
 Assess potential update of the priority corridors and areas and
the eligibility criteria of the TEN-E regulation, using flexible
guidelines which can be adapted to a changing context.
 Assess broadening the TEN-E scope to projects at the
distribution level
 Broadening the scope to projects facilitating sector coupling
and/or the integration of decarbonised and renewable gases,
Scope and eligibility (PCI/CEF) including dedicated hydrogen networks, PtG and cross-border
quality conversion (i.e. H2 deblending)
 Include robustness to uncertainty in mid- and long-term
scenarios and innovation in the PCI selection criteria
 Ensure that PCI cost-benefit analysis methodology and
underlying scenarios account for renewable and decarbonised
gases and prioritise making best use of existing infrastructure,
including through conversion
 Clear EU wide specifications for the injection of hydrogen
Cross-border hydrogen transmission o Revise CEN provisions on gas quality
o Revise interoperability network code

276
TEN-E specifies that the PCI cost-benefit analysis methodology must consider the evolution of the gas network taking into account
projects with a final investment decision which are due to be commissioned in the next 5 years.
277
ENTSOG (2019) 2nd ENTSOG Methodology for Cost-Benefit Analysis of Gas Infrastructure Projects
278
Trinomics (2018) Evaluation of the TEN-E Regulation and Assessing the Impacts of Alternative Policy Scenarios.
279
European Parliament (2018) Briefing: Connecting Europe Facility 2021-2027 - Financing key EU infrastructure networks & European
Council (2019) ST 9951/18 + ADD 3 - Proposal for a Regulation establishing the Connecting Europe Facility - Progress report
280
HyLAW (2018) D4.1 Cross-country comparison
281
http://www.gerg.eu/projects/gerg-projects"
282
https://standards.cen.eu/dyn/www/f?p=204:7:0::::FSP_ORG_ID:2121095&cs=1D3657688753497E82D704DC9DE846D33

87
 8.2 PERFORMANCE OF THE SELECTED NATIONAL REGULATORY REGIMES UNDER
THE THREE SCENARIOS

This section aims to assess the performance of the selected national regulatory regimes to
support the development of the infrastructure needed under the different scenarios, by
focusing on planning of gas infrastructure; revenue regulation; network tariffication; role
of system operators in the development of new technologies; and network connection and
access for renewable and decarbonised gases. These are discussed in further detail in the
sections below.
8.2.1 PLANNING OF GAS INFRASTRUCTURE

Article 20 of the recast Renewable Energy Directive requires, where relevant, Member
States to assess the need to expand gas infrastructure to integrate renewable gas. As such,
long and mid-term gas infrastructure planning should take into account the future role of
renewable and decarbonised gases, as well as the integration of the electricity and gas
sectors and the transmission and distribution levels. Currently, several member states do
take into account renewable and decarbonised gases in their planning, though to different
extents.

The need for interaction and coordination between transmission and distribution
system operators is increasing due to the development of decentralised renewable and
low carbon energy sources, demand-side management initiatives and ‘new’ conversion
technologies such as power-to-gas. CEER recognizes the need for this interaction. 283 The
current level of cooperation between TSO and DSO across the selected countries varies,
with most having only limited operational cooperation and others already cooperating with
regards to investment planning.

Similarly, there is also an increased need for interaction and coordination between
electricity and gas (and heating) system operators, in view of valuing the synergy
(coupling) potential between the sectors. The electricity and gas TSOs are, for example,
already required to jointly develop the scenarios for the sectoral ten-year network
development plans and the common interlinked electricity and gas market and network
model. Some stakeholders already notice closer cooperation between electricity and gas
TSOs given the increasing links between the sectors, but do not expect joint investment
planning; while others noted that the current regulation does not incentivize integrated
sectoral planning, even though it would offer a number of benefits. TenneT and Gasunie,
for example, have published a joint infrastructure outlook to 2050 for Germany and the
Netherlands, analysing the impact especially of power-to-gas developments.

Key aspects regarding future-proof planning of gas infrastructure are listed below along
with proposed measures.

Table 8-2 Assessment of the performance of the regulatory regimes regarding planning of gas
infrastructure and proposed policy and regulatory measures

Aspect Description Proposed measures

Article 20 of the REDII requires,
 NDPs regulation to consider flexibility options such
where relevant, Member States to
as power-to-gas, injection at distribution level,
assess the need to expand gas
storage and demand response, and H2 deblending,
infrastructure to integrate renewable
based for example in the Energy Transition Projects
National gas. According to the transmission
process of the gas TYNDP 2020.
infrastructure planning framework, TSOs shall
 NDPs regulation to require the inclusion of
planning submit to their national regulator a
hydrogen network roll-outs when these are planned
ten-year network development plan
by policy makers
(NDP) containing information on
 TSOs to establish a project collection system for
planned infrastructure from the short-
3rd parties to indicate projects for inclusion.
to the long-term.

283
CEER (2015) The Future Role of DSOs - A CEER Conclusions Paper & CEER (2016) Position Paper on the Future DSO and TSO
Relationship - C16-DS-26-04

88
 Aspect Description Proposed measures
 Authorities should improve the transparency and
the vision on the future infrastructure constraints and
costs that will weigh on the energy system.
 Provision of guidance from policy makers and/or
regulators to TSOs regarding the NDP scenarios and
the consideration of flexibility options such as power-
Guidance provision from regulators/ to-gas, injection at distribution level, storage and
Guidance policy makers, with long-term visions demand response.
for TSOs  Provision of guidance from policy makers
regarding development of hydrogen networks and
cooperation with system operators for staged roll-out,
with adequate risk-revenue balance
Interaction between TSOs & DSOs is
 Effective coordination between DSOs and TSOs for
key due to the development of
the assessment and/or planning of infrastructure
decentralised renewable and low
needs and, especially in the decision for
carbon energy sources, demand-side
connection/injection of biomethane and/or power-to-
management initiatives and ‘new’
Cooperation gas at transmission or distribution level.
conversion technologies such as PtG.
between DSO  DSOs could base their investment plans on the
DSOs and TSOs should coordinate in
& TSO same scenarios as those developed by the TSO for the
the assessment and/or planning of
NDPs
infrastructure needs and in the
 Clarify the role of the EU DSO association for the
decision for connection of
gas sector, to ensure cooperation with ENTSOG on the
biomethane/PtG at transmission or
operation and planning of the gas networks
distribution level.
 Regulated initiative for systematic coordination of
Stronger coordination and interaction
Coupling of electricity-gas to ensure effective cooperation
between electricity, gas and heat
electricity & between electricity and gas TSOs for the assessment
infrastructure will contribute to more
gas and/or planning of infrastructure needs, including
efficiently cover the higher flexibility
infrastructure through common scenarios and joint project impact
needs of the energy system resulting
planning and assessment when significant intersectoral interactions
from the increasing penetration of
operation are identified. The interlinked ENTSOs model could
intermittent RES.
provide inspiration for cooperation at national level.

8.2.2 REVENUE REGULATION

The revenue regulatory framework is of key importance for the timely expansion,
renewal or conversion of the gas infrastructure needed in the different scenarios. Generally
the current regulatory framework assures the recovery of the ‘reasonable’ cost of service
for the regulatory period (which typically ranges between 3 and 5 years).284 While the
framework allows, in general, for certainty in the short term (during the current regulatory
period), there is some uncertainty regarding guaranteed revenues for system operators in
the medium and long term. However, even beyond the present regulatory period, risks to
system operators should be limited in the absence of important developments such as the
need for large investments in new or refurbished infrastructure, or a significant fall in
transported gas volumes. At present, there are no indications that NRAs are considering
to substantially change the revenue regulation principles; this means that a (significant)
fall in transported volumes would not necessarily lead to lower remuneration levels for
network owners and operators in the short-term, as cost recovery is guaranteed.
Increasing network tariffs might, however, put pressure on NRAs and network operators
to reduce costs.

In most EU member states, the capital remuneration of gas network operators 285 depends,
among others, on the Regulatory Asset Base. This approach might stimulate network
operators to favour long depreciation periods, even if from a macro-economic perspective
and taking into account the upcoming energy transition, shorter depreciation periods could

284
CEER (2019), Incentive regulation and benchmarking work stream: Report on regulatory frameworks for European energy networks.
285
In the current regulatory framework, gas network operators are remunerated either on the basis of their actual or approved cost of service,
which may result from a benchmarking exercise and/or imposed efficiency improvements. This cost of service includes a return on their
investment, allowing them to remunerate their capital providers. This rate of return is in general based on the level a company would get in a
competitive market environment. In some national regulatory regimes, network operators can get a bonus or malus on top of this
remuneration level, depending on their efficiency level and/or their achievements of imposed or agreed objectives.

89
be more appropriate in order to reduce the exposure to stranded asset risks. However,
shifting to shorter depreciation periods would have disadvantages, especially the resulting
short-term increases in tariffs, and are hence in general not favoured by NRAs or
operators.286

A supporting regulatory framework is needed to incentivise innovation by transmission

and distribution system operators. Some countries, where power-to-gas is most
developed, are planning to launch sandboxes within the regulatory framework to provide
specific incentives and a tailored regulatory regime to experiment with innovative
technologies, such as power-to-gas. This type of scale-up programme can provide the
space and regulatory flexibility necessary for experimentation in certain projects.

Table 8-3 Assessment of the performance of the regulatory regimes regarding revenue regulation &
proposed policy and regulatory measures

Aspect Description Proposed Measures

 As revenue levels are regulated based on actual (or
allowed) costs, measures should be considered to reduce
Revenues are guaranteed in
costs and hence tariff increases due to falling transport
the short term (within
volumes, e.g. by exploring and valuing synergy potentials
current regulatory period).
between regulated operators via vertical (TSO/DSO) and/or
After this regulatory period,
horizontal (storage & network, electricity & gas)
risks should be limited in the
Revenue cooperation/integration in order to reduce fixed costs,
absence of important
levels pending an analysis and potential changes to unbundling
developments (i.e. cross-
requirements
border hydrogen
 NRAs should recognise within the RAB investments which
infrastructure or significant
contribute to decarbonisation of gas networks (such as
fall in transported gas
hydrogen-tolerant pipeline materials and devices or
volumes)
investment in technologies or measures to limit methane
emissions)
 In countries where innovation is expected/needed,
development of a supporting regulatory framework (e.g.
‘sandboxes’) providing incentives and tailored regulatory
regime to experiment with innovative technologies, such as
power-to-gas.
A supporting regulatory  Project-specific risk incentives (i.e. premium) for
Incentives framework is needed to innovative projects with higher risks, similar to the PCI
for TSO/DSO
incentivise TSO/DSO project-specific incentive methodology defined by NRA under
innovation
innovation. the TEN-E regulation
 Incentive regulation for gas networks should support and
facilitate the conversion of gas infrastructure to
accommodate higher proportions of hydrogen287 and even
allow system operators to proactively explore hydrogen
network rollouts
Regulatory frameworks need
Incentives  Revision of revenue-setting criteria for allowing
to reward system operator
for investments addressing sustainability issues such as
actions internalizing
sustainability methane leakages
environmental externalities
The linear depreciation
method applied in all
selected member states,  Review regulation rules so that they better anticipate
and related depreciation expected evolutions of gas system and properly reflect the
periods (which differ per economic lifetime of assets, considering current tariff levels
Depreciation
Member State and asset and the ability of network users to absorb short-term hikes,
type) may be misaligned especially vulnerable consumers and industrial users exposed
with the best depreciation to international competition.
approaches for the
transition.

286
See among others CEER (2019), Regulatory challenges for a sustainable gas sector: Public consultation paper. Ref: C18-RGS-03-03;
Eurogas (2018) Eurogas discussion paper for the gas package (2020)
287
DENA (2018) Integrated Energy Transition - Impulses to shape the energy system up to 2050

90
 8.2.3 NETWORK TARIFFICATION

Gas network tariffs in the current regulatory framework are determined and approved ex-
ante for a period of several years. The shift from commodity to capacity tariffs has an
impact on the competitiveness of both natural and renewable gas. This shift will negatively
affect consumers with a low load factor (e.g. hybrid installations where gas is used as back-
up) and favour base-load consumers (e.g. use of gas as feedstock).

Several measures could be considered to reduce the impact of a fall in gas demand which
can either allow to recover costs via additional services (e.g. offering flexibility services,
such as balancing, to the energy system), or to reduce the overall cost level (e.g. by
structural measures, as mentioned supra). One of the most straightforward solutions to
anticipate the tariff impact of a potential future fall in transported gas volumes is to shorten
the depreciation periods, though this would lead in the short term to an increase in tariffs
(as discussed supra). Moreover, short-term tariff increases from accelerated depreciation
may have a disproportionate effect on vulnerable consumers or in Member States where
tariffs are already comparatively high. Although this can be addressed with targeted
policies, the broader distributional impacts may hinder the implementation of accelerated
depreciation.

Table 8-4 Assessment of the performance of the regulatory regimes regarding tariffication &
proposed policy and regulatory measures

Aspect Description Proposed measures

 Joint tariffication of methane and hydrogen
networks
 Allow in TAR NC tariff discounts for
There are several new cost renewable and/or decarbonised gases
allocation issues within the gas  Apply super-shallow connection charges
Cross-subsidization & sector concerning hydrogen and tariff discounts for renewable and/or
allocation of tariffs networks, domestic/foreign split, decarbonised gases when justified by system
changing flows between T&D, benefits or policy objectives
among users intertemporal cost allocation and  Apply shallow/deep connection charges for
connection of new methane users the connection of new gas users when there is
absence of system benefits
 Share reverse flow costs between
transmission entry and distribution exit tariffs
 Non-tariff support measures defined by
policy makers
 Menu of options for users to pay for
Impact of tariffs on
connection costs
network users  Joint tariffication of methane and hydrogen
networks
 Targeted policies for vulnerable consumers
A fall in transported gas volumes
 Joint tariffication of methane and hydrogen
would lead to higher gas network
networks, or even electricity
tariffs, which would in turn make
Grid defection spiral  Policy measures above targeted at
defection more attractive, thus
addressing the impact of tariffs on network
undermining the TSO/DSO’s
users.
traditional business model.

Specific case: A fall in gas demand

According to our scenario analysis, a reduction in transported gas volumes via transmission
networks would occur in all scenarios by 2050, though varying per scenario and Member
State. The fall in gas demand and consequently transported volumes at the transmission
level288 could lead to tariff increases, though this would be offset entirely or partially by
depreciation of the current RAB (and would also differ as investment levels and transported
volumes will vary strongly per Member State). This is attenuated also by storage injections
and cross-border exchanges which provide more stability to transmission transported
volumes. Coupled with the cost of service arising from investments in the renewal,
expansion and conversion of methane and/or hydrogen networks, the potential for the
288
Except for Sweden, from selected Member States

91
largest tariff increases are in the hydrogen scenario to 2050, due to cross-border
investments in hydrogen networks. However, as discussed in Chapter 7 the tariffs arising
from the post-2019 investments and operation of the gas transmission network in 2050
are not significantly higher than current tariff levels as indicated by Eurostat data (but the
remaining depreciation cost by 2050 of pre-2020 investments needs still to be factored in).

While the scenarios focus on the deployment of renewable and decarbonised gases, a
significant fall in overall gas demand was not indicated as likely by some stakeholders,
since they expect that a mixed technology scenario leveraging biomethane, hydrogen
and/or synthetic methane will be implemented rather than an all-electricity scenario.
Stakeholders also mentioned their concern regarding signals of a fall in demand to the
market, as these could discourage network investments. Therefore, policy makers should
take care to provide clear and stable signals reducing uncertainty to the 2050 horizon,
allowing system operators and network users to take actions accordingly based on
expected demand levels (and consequently transported gas volumes).

The current regulatory frameworks guarantee in principle the cost recovery of efficient
investments and operational expenses made by TSOs; hence, regardless of the uncertainty
on the probability of a fall in demand, it does not provide any measures to deal with a
potential increase in tariffs due to a fall in transported volumes coupled with transmission
network investments. As cost recovery is guaranteed in the regulatory frameworks and
taking into account that the transmission tariff simulation indicates only modest tariff
additions due to investments to the 2050 horizon (except in the hydrogen scenario), the
business case for investments in Trans-European gas infrastructure is not substantially
threatened. However, this applies in principle only for methane infrastructure, as at present
there is no regulatory framework for hydrogen networks at the EU or Member State level,
and hydrogen infrastructure is also not included in the TEN-E regulation.

Rationale for changes in cost allocation

Transmission tariffs account generally for between 5 to 10% of the overall gas bill, but
their actual share largely varies depending on the demand level and characteristics as well
as on the gas price level and other cost components, such as the distribution costs and
taxes and fees. This section addresses the issue of cost allocation among gas network
users and of partial recovery of costs by other mechanisms than tariffs, such as direct or
indirect subsidies which would not pose all costs on gas network users.

While the TAR NC regulates a number of tariffication aspects, there are still important
differences between the selected Member States in how national tariff structures are set.
Chapter 7.3 indicates for example that the TAR network code still allows a non-marginal
share of costs to be recovered through non-transmission services or commodity-based
tariffs. Also, the entry-exit and domestic-transit tariff splits and the discount to storage all
vary between the Member States. Moreover, chapter 6.2 shows that the connection and
access rules for the injection of biomethane and hydrogen in gas networks also vary
significantly across countries. Hence, while hydrogen injection is not allowed in Hungary,
the Netherlands and Sweden provide equal treatment to biomethane and hydrogen as long
as they respect the technical specifications. On the other hand, Germany explicitly
addresses the issue, imposing the obligation for system operators to connect renewable
gas producers and establishing incentives for both connection and access costs.

The different tariff structures, specific connection and access costs, and incentives to
renewable gas lead in practice to different cost allocations between network users.
Moreover, positive externalities arising from gas infrastructure and the development of
renewable gas, may justify alternative cost allocation approaches which do not pose all
costs on some or all gas customers. This might be especially relevant in the case of a rise
in transmission and/or distribution tariffs due to investments in the renewal, expansion or
conversion of methane or hydrogen networks or due to a fall in demand (or a combination
of both, and possibly only at a local level). The beneficiary-pays principle would entail that
not all costs should be allocated to gas network users if these are not the only to benefit
from renewable or decarbonised gas injection in gas networks.

92
Also, unaddressed negative externalities such as inadequate carbon pricing in non-ETS
sectors could result in unfair competition of natural gas with renewable and decarbonised
gases. This could argue for (cross-)subsidization measures in order to promote the
deployment of the latter and compensate for the non-internalization of climate externalities
in the price of natural gas. However, as this approach would not allow to properly
internalize external costs, it would only adjust relative costs but not in the most appropriate
way, as network costs would not be related to the inadequate carbon pricing. Thus, in this
case, (cross-)subsidization of network costs would also not be an appropriate option.

The gas regulation of 2009289 provides few guidelines on tariff-setting and explicitly forbids
cross-subsidization among different network users. These legal provisions have been
translated in Article 7 of the TAR network code. To avoid cross-subsidization between intra-
and cross-system uses, the TAR network code requires NRAs or TSOs to conduct cost
allocation assessments on capacity-based charges (and commodity-based charges if
applicable).290 As presented in chapter 7.3, no selected Member State presented a capacity
cost allocation comparison index above the indicative threshold of 10% 291 (although
Hungary’s case is particular). However, the Agency’s analysis of the national tariff
consultation documents highlights some relevant aspects regarding cost allocation: 292

Table 8-5 Agency analysis of the national tariff consultation documents on cost allocation

Country Description
Proposed methodology will result in a significant increase of tariffs to cross-system users.293 The
Agency cannot rule on cross-subsidization in the absence of information relating the reference
Germany price methodology to network characteristics. The Agency praises the German sensitivity analysis
of cost allocation given different levels of storage use by cross-system users.
Proposed rescaling adjustment leads to cost under-recovery, which constitutes intertemporal
subsidization. NRA should provide additional information on the choice of tariff structure, and
Hungary adjust aspects such as tariff scaling. Moreover, if storage discounts were considered in the cost
allocation assessment calculation, the actual value would be 17%, thus above the 10% threshold
Allocation of quality conversion services (related to H/L gas) impacts cost-reflectivity, cross-
Netherlands subsidizing l-gas users, although it does create a positive externality by facilitating trade
Under-recovery of costs will persist in the following regulatory period according to the TSO tariff
proposal. Hence, the Agency considers the tariffs are not cost-reflective and that there is cross-
Sweden subsidization. In response, the Swedish Energy Markets Inspectorate calculates tariffs to ensure
full cost recovery for the 2015-2018 period
Note: For Spain no consultation document was available by April 2019
Source: ACER (2019) Analysis of the national consultation documents.

Previous studies294 indicated that (cross-)subsidization measures are not fully compatible
with all the tariffication principles simultaneously, especially cost-reflectivity and non-
discrimination. However, the studies and the 2050 Long-Term Strategic Vision concur that
the reduction of gas demand is a possible scenario, which could lead to significant tariff
increases to 2050. The tariff simulation of the present study indicates that estimated
volumetric tariff additions due to investments necessary to address the gas transition to
2050, will to a certain extent be compensated by the decreasing depreciation cost of the
current regulatory asset base.

Based on the adopted assumptions295, power plants would be affected mostly by

transmission tariffs, and industries will be affected by both transmission and distribution

289
Regulation (EC) No 715/009 on conditions for access to the natural gas transmission networks
290
Following the TAR NC, the capacity cost allocation comparison index provides a simplified indicator to identify the allocation of costs
according to cost drivers for intra- and cross-system flows, for capacity- and commodity-based tariff. The NRA is required to provide a
justification if the index is above 10%.
291
Following the TAR NC, the capacity cost allocation comparison index provides a simplified indicator to identify the allocation of costs
according to cost drivers for intra- and cross-system flows, for capacity- and commodity-based tariff. The NRA is required to provide a
justification if the index is above 10%.
292
ACER (2019) Analysis of the national consultation documents. Available at
https://www.acer.europa.eu/en/Gas/Framework%20guidelines_and_network%20codes/Pages/Harmonised-transmission-tariff-structures.aspx
293
https://www.euractiv.com/section/energy/news/italy-squeals-on-german-gas-tariff-reform-eu-ready-to-step-in/
294
Trinomics, LBST et al. (2018) The role of Trans-European gas infrastructure in the light of the 2050 decarbonisation targets & Frontier
Economics et al. (2016) Future regulation of the UK gas grid – Impacts and institutional implications of UK gas grid future scenarios
295
The most important assumptions for the analysis of the cost allocation per main type of user concerning the use of transmission and
distribution infrastructure are:

93
tariffs to varying extents. Distribution tariffs will directly impact buildings and transport
gas demand, while methane transmission tariffs will affect those users less in the future,
with the opposite happening for hydrogen transmission tariffs if a hydrogen scenario
materializes. Storage needs at the transmission levels will also change per scenario,
generally decreasing in the hydrogen scenario to 2050 in certain Member States, especially
hydrogen exporters such as in Scandinavia and Southern Europe.

The subsidization of the network cost of service is generally not favoured by policy makers,
regulators and stakeholders and would be against the cost-reflectivity tariff principle.
However, there is a number of new cost allocation dimensions within the gas sector which
need to be considered in the revenue regulation and the tariff structure, comprising:
 Costs for hydrogen networks, which may be allocated to the users of this
network or be recovered from the larger base of methane and hydrogen network
users;
 The split between domestic and foreign users (due to gas transit or exports)
in a context of changing cross-border gas flows where regions such as
Scandinavia, Southern Europe and the British Isles may become significant
renewable and decarbonised gas exporters, and where traditional EU natural gas
suppliers will either disappear or switch to supplying renewable or decarbonised
gases;
 The potential system benefits of renewable or decarbonised gas injection,
alleviating congestion and reducing network investment needs;
 Changing flow patterns between transmission and distribution, with
potentially a reduction in transmission volumes, an increase in distribution ones
and a more frequent occurrence of reverse flows;
 The intertemporal arbitrage in the recovery of the cost of service from gas
users either in the present or in the future reflecting choices in the rate of
investment depreciation, stability of the user base and capacity of present and
future users in absorbing tariff changes;
 The connection of new methane network users as a consequence of e.g.
continued network expansion in specific areas or changes in policy (e.g.
substitution of coal and oil or end of economic support to CHP production from
biogas);
 Trans-European Networks for Energy, and aspects such as the cost allocation
between developing and affected Member States, financial support from the CEF
and potential inclusion of hydrogen networks, power-to-gas and distribution-level
projects in a revision of the TEN-E regulation.

Regulation at the EU and MS level should aim for cost-efficient, non-discriminatory and
reproducible tariffs which do not distort cross-border trade and manage volume risks for
domestic users following TAR network code guidelines. Although subsidization of gas
network costs is in general not favoured by stakeholders nor allowed by the current
regulation, several cost of service allocation issues remain.
8.2.4 ROLE OF SYSTEM OPERATORS IN THE DEVELOPMENT OF NEW
TECHNOLOGIES

System operators may have additional tasks and roles to facilitate the energy transition.
The regulatory framework might need to be adjusted to include new technologies such as
power-to-gas and dedicated networks for hydrogen, and thus allow for an increasing share
of renewable or decarbonised gases in the gas network.

Currently, the legal status for power-to-gas remains unclear, and therefore also the
role of system operators in this regard. On the one hand, the gas directive seems to

Methane and hydrogen power plants will remain connected for the most part in the transmission level
The large majority of gas demand for buildings would still be at the distribution level (though with the opposite trend for hydrogen demand
in buildings, which may increasingly be transported through the transmission network);
Industry methane demand separation of flows between the transmission and distribution levels may remain stable, while increasingly
hydrogen flows due to industry demand may flow through the transmission network
Transport gas demand will remain connected at the distribution level with the impact on methane transmission flows decreasing, while the
share of hydrogens demand which also flows through the transmission level will increase.

94
determine the unbundling of gas TSOs for storage facilities but power to gas is excluded
from its classification of the storage function296. On the other hand, the ACER gas target
model and the recast electricity directive classify power-to-gas as storage.297 At national
level, there should be a clear legal status and classification which do not hinder power-to-
gas from providing balancing and ancillary services. If power-to-gas facilities were treated
as electricity consumers and needed to pay the corresponding connection and access fees
as well as related taxes, their business case would be undermined. Currently, the
regulatory framework in most countries assessed does not specify the legal status of
power-to-gas.

Concerning the ownership and operation of power-to-gas facilities, the gas directive
requires storage to be unbundled from the activities of transmission and distribution
system operators, but the applicability of the unbundling requirements is unclear due to
the above-mentioned uncertainty on the facilities’ legal status. In the electricity sector, the
recast electricity directive provides the possibility for national regulators to grant
exemptions to the unbundling requirements for transmission and distribution system
operators.298 In Germany, power-to-gas is considered a competitive activity and, as such,
network operators cannot own and operate such facilities under the current legal
framework. TSOs favour the classification of power-to-gas as a conversion service rather
than storage, in order to avoid unbundling rules and be allowed to provide conversion
services to market parties.

The role of system operators (if any) would also need to be determined with regard to the
potential construction and operation of dedicated hydrogen networks, which are
relevant mostly in the hydrogen scenario. For this scenario, it would be important, first, to
define whether these dedicated networks should be regulated or not, and secondly, to
clarify the role of incumbent and new system operators in this regard. Currently, these
aspects are not addressed by the regulatory framework in the assessed countries.

Table 8-6 Assessment of the performance of the regulatory regimes regarding the role of system
operators in the development of new technologies and proposed policy and regulatory measures

Aspect Description Proposed measures

 Clarification at EU level on the role
of power-to-gas (legal certainty), and
definition of a clear legal status and
classification at national level which
There are inconsistencies at EU level do not hinder power-to-gas from
in the legal status of PTG, and providing balancing and ancillary
whether it should be considered as services.
storage or not (and, therefore,  Implement a market test
unbundled or not from SO activities). framework to allow system operators,
PtG legal status
At national level, there should be a if there is no market interest, to
clear legal status and classification develop, own and operate power-to-
which do not hinder PTG from gas as conversion services with
providing balancing and ancillary separation from network activities,
services. and to step out when there is market
interest, while guaranteeing the cost
recovery
 Role of TSOs in deblending should
be defined in regulation
 Clarification at EU level on
whether dedicated hydrogen networks
In the future, dedicated hydrogen should be regulated or not. If need
distribution or transmission networks be, tailor the gas framework or
may be put in place (e.g. as show in develop a dedicated hydrogen
Hydrogen networks
the hydrogen scenario). However, framework defining what the role of
they do not fit within the current incumbent and new system operators
regulatory framework. will be in this regard, as well as of
merchant cross-border
interconnectors

296
Directive 2009/73/EC: “‘storage facility’ means a facility used for the stocking of natural gas and owned and/or operated by a natural gas
undertaking, including the part of LNG facilities used for storage but excluding the portion used for production operations, and excluding
facilities reserved exclusively for transmission system operators in carrying out their functions”
297
ACER (2015). European Gas Target Model Review and Update
298
The recast electricity directive allows for exemptions to the unbundling requirement, e.g. if storage facilities are necessary for the
fulfilment of their obligations and if tendering procedures were not able to award these facilities to market actors.

95
 8.2.5 NETWORK CONNECTION AND ACCESS FOR RENEWABLE AND/OR
DECARBONISED GASES

Having the right regulatory framework for the network connection and access of renewable
and decarbonised gases is a first step to ensure they can cover a substantial part of the
future energy mix. Article 20 of the recast Renewable Energy Directive requires network
operators to publish technical rules for the integration of renewable gases (i.e.
network connection rules including gas quality, odorization and pressure requirements).
These rules should, ideally, also provide clarification regarding possible ownership and
operation of facilities for network injection providing compression, mixing (if necessary)
and metering functions (e.g. ownership and/or control by producer or network operator).

Most countries assessed apply the same connection and access rules for injection of
biomethane and hydrogen as for natural gas, while only Germany has specific rules for
renewable gases, including priority access (obligation to connect). Currently, there is a
broad range regarding the maximum amount of hydrogen allowed in the network, ranging
from 0.1% to 10% volume (or not specified at all) in the countries assessed. Regulatory
regimes in some countries limit the injection of renewable or decarbonised gases (e.g. do
not allow the injection of hydrogen or do not recognise hydrogen as gas for transport);
while others, such as Germany, incentivise hydrogen production by allowing a relatively
high (10% H2) admixture. However, there are at present in several countries ongoing
discussions or planned changes regarding injection of hydrogen in the network.

Article 20 of the recast RED also requires network operators to publish connection tariffs
for renewable gases. These network connection and access tariffs may influence
significantly the business case of renewable gas injection in the transmission and
distribution levels. Exemptions from access tariffs for renewable gas injection and even
injection support measures (as done in Germany) positively impact the business case for
injection of decarbonised gases, while applying the same connection and access costs as
for natural gas operators as done in most other countries can hinder the business case and
not reflect system benefits of local gas injection.

Table 8-7 Assessment of the performance of the regulatory regimes regarding network connection
and access for hydrogen and biomethane and proposed policy and regulatory measures

Aspect Description Proposed measures

Article 20 of the REDII  Publication of technical rules for the integration of
requires network operators to renewable gases by TSOs and DSOs (transposition of
publish technical rules for the REDII), allowing higher hydrogen admixtures to the extent
Injection of
integration of renewable that it has no impact on pipelines and end-use equipment
hydrogen/ gases (i.e. network connection and ensuring that no renewable/decarbonised gases are
biomethane rules including gas quality, excluded.
odorization and pressure  Clarification regarding ownership and operation of
requirements). facilities for network injection.
Article 20 of the REDII  Publication of connection tariffs for renewable gases by
requires network operators to TSOs and DSOs based on objective, transparent and non-
Tariff for
publish connection tariffs for discriminatory criteria (transposition of REDII).
injection of
renewable gases. These tariffs  Provide incentives to the injection of
hydrogen/
have an impact on the hydrogen/biomethane (e.g. obligation to connect, priority
biomethane
business case of renewable access) following policy priorities and/or according to added
gases. system benefits

9 CONCLUSIONS AND RECOMMENDATIONS

The EU potential for sustainable biomethane is limited, while the technical
potential for hydrogen and synthetic methane production based on renewable
electricity is large enough to also substitute the natural gas demand. Policies
should ensure that the potential of renewable energy, including gas, is valued in
the best possible way.

96
In this study, a conservative domestic technical biomethane production potential of 1,150
TWh/a is considered for the EU28, which corresponds to 24% of the current natural gas
demand. As the biogas/biomethane production is at present about 200 TWh/a, the
additionally available potential is estimated at 950 TWh/a. Fully utilizing this potential
would leave little room for bio-energy with carbon capture and storage (BECCS) based on
bioenergy firing, an important element in climate neutral scenarios of the European
Commission’s Long-Term Strategic Vision. However, in any case CO2 captured in the
process of upgrading biogas to biomethane could be geologically stored resulting in
negative emissions. As the biomethane potential is not equally spread across the EU, it can
in some Member States play a significant role to substitute natural gas, while other Member
States would rather have to import biomethane or rely on other options to decarbonise
their natural gas consumption. Further consideration of sustainability requirements and
interactions with other biomass uses could be explored to refine this potential.

The technical domestic long-term potential considered for hydrogen production based on
renewable electricity is much higher; the renewable electricity potential is estimated at
some 14 000 TWh/a and would be sufficient to cover both the final electricity demand
(currently approx. 3,100 TWh/a) and the electricity volumes needed for the production of
hydrogen to cover the entire gas demand in 2030-2050 (estimated at maximum 4,100
TWh/a, depending on the scenario). However, the renewable electricity potential is,
similarly to biomethane, not equally spread across the EU; some Member States would
have a (large) export potential while others would have to import renewable electricity
and/or gas to decarbonise their energy supply. In addition, the technical potential estimate
does not take into account critical factors like public acceptance of energy infrastructure.
However, such restrictions would only represent a limitation to European hydrogen
production, or more generally energy supply, if they reduce the potential significantly.
Hence, particular Member States with more limited renewable electricity potential (such as
in Central Eastern Europe) could be impacted by these potential limiting factors, but they
would not affect the overall conclusions for the European Union.

Physical and trade exchanges of renewable gas (and electricity) between Member States
in an integrated market will hence be of great importance to decarbonise energy supply
and cover energy demand at least cost and to ensure efficient energy system and market
functioning. In this context, the interoperability of gas networks facilitating domestic and
cross-border transport of renewable gas as well as an EU wide system for guarantees of
origin for renewable gas are important prerequisites. Imports of renewable gas from
outside the EU may also be of relevance, given the high production potentials of
neighbouring regions and countries. As this study focuses on domestic renewable gas
production and excludes imports, further analyses could be useful to assess the impact of
imports of different renewable and decarbonised energy carriers along various
decarbonisation pathways on the overall energy system in the EU. In this context, the role
of power-to-gas as a flexible load could also be further examined.

Biomethane and small admixtures of hydrogen can be safely transported in

existing natural gas networks. Appropriate technical standards and
specifications should be elaborated to facilitate this development. A supportive
regulatory framework for hydrogen blending as a tool for decarbonising the gas
supply should be developed. For higher hydrogen volume concentrations,
dedicated transport/distribution infrastructure would be more appropriate than
admixture to methane.
Biomethane may replace fossil methane with very limited or no technical requirements for
changes in the gas network, mainly related to adjustments to the network structure
(reverse flows) linked to the decentralized nature of biomethane production. Hydrogen
may be admixed to methane in limited quantities (a hydrogen admixture rate of 10 vol%
to methane can be safely assumed), which do not require investments in adjustments to
the gas networks and thus allow for using renewable hydrogen without additional costs to
the gas infrastructure. Moreover, even if a (constant) 10-20 vol% admixture rate may be
technically feasible (both at TSO and DSO level), the cost-benefit of the necessary
adjustments seems questionable and cannot be conclusively answered today.
Alternatively, a dedicated hydrogen network may be established retrofitting the

97
existing network and building new network elements where necessary, if transport of
higher hydrogen concentrations is desired. In this scenario, parallel methane and hydrogen
networks may develop.

Injecting hydrogen into existing natural gas transmission and distribution networks
requires a preliminary assessment and review of the gas specifications. Standards defining
maximum hydrogen admixture levels should be addressed at European cross-border
points, with coordination between interconnected countries. A regulatory challenge is to
identify hydrogen thresholds which provide equal and adequate opportunities to develop
hydrogen injection into the network in each market (without penalizing “downstream”
countries compared to “upstream” countries). Specifically, the framework should define
thresholds of hydrogen content applicable for the upstream gas networks that will be
compatible with the downstream cross-border network; alternatively, the framework could
require an additional treatment of the gas, e.g. methanation, decreasing the hydrogen
share.

Hence, a supportive regulatory framework for hydrogen blending as a tool for

decarbonising the gas supply should be developed. TSO/DSO cooperation in this domain
(focusing on research and demonstration projects, elaboration of technical standards and
specifications) should be encouraged in order to contribute to the development of an
adequate European and national framework for the blending of hydrogen in gas networks.
In parallel, it would be appropriate that TSOs/DSOs further assess the technical and
economic feasibility of refurbishing (specific sections of) the gas infrastructure in view of
their use for 100% hydrogen in the medium and long term.

A thorough assessment of three scenarios (focusing respectively on strong

electricity, green methane or hydrogen end-use) shows that a scenario based on
electricity and gas sector coupling where hydrogen plays a central role would
offer the least-cost outcome, while also allowing to value existing gas assets.
Further analysis of the role of hydrogen and of strategies for a stepwise
development of 100% hydrogen network “islands” is worth exploring.
The comparison of the system costs for the three scenarios reveals until 2030 similar cost
structures and magnitudes with major contributions from fossil energy imports. In this
time period, biomethane and hydrogen supply would still have a limited impact on the
energy system costs. In the long-term, until 2050, the overall system costs decrease due
to cheap renewable power production and increasing sector integration between power and
gas. The lowest system costs are achieved in the hydrogen-focused scenario followed by
the electricity and methane-focused scenarios and can be viewed as a trade-off between
renewable energy production, system flexibility and gas supply. The system design with a
focus on hydrogen technology appears to be a robust compromise where the advantages
of a higher system flexibility overcompensate the disadvantages of lower energy efficiency
in comparison to the electricity-focused scenario. The methane-focused scenario is less
attractive due to its lower overall energy efficiency (related to additional investments and
energy losses in the methanation process and lower end-use efficiency for transport
applications) in comparison with the other two scenarios.

It is important to highlight that the scenario modelling is of explorative character with

regard to the demand for the major energy carriers within the end-user sectors. Moreover,
different assumptions are made regarding the supply of biomethane and hydrogen
(focusing on the domestic EU supply), the availability and location of flexibility resources
to 2050 such as batteries and H2, as well as the hourly profile for renewables supply and
demand for electricity and gas. The optimal mix in this respect is an interesting area for
further research.

From a system perspective, the optimal design strongly depends on the anticipated GHG
emission reduction targets. Therefore, binding targets in particular in the long-term (until
2050) are needed for a cost-effective transition of energy supply and transport
infrastructures both for gas and power. In this way, suboptimal investment decisions and
unfavourable lock-in effects can be avoided. A more coordinated development of power
and gas infrastructures, and between the transmission and distribution level, in line with

98
the build-up of renewable energy and seasonal storage capacities, is also needed to
minimize the system costs.

Moreover, further analyses from the end-user and business perspectives would be useful
to complement the current modelling exercises from a pure system perspective. Especially
for gas infrastructure, the ongoing or planned re-investments in ageing assets should be
assessed in more detail both from an operator perspective and from an overall energy
system perspective, taking into account sustainability criteria and alternative solutions, in
order to ensure that new investments are future-proof and take into account expected
developments in the energy market.

In order to facilitate the modelling of the overall energy system, the availability and quality
of data should be improved aiming towards a European set of harmonised national gas
network data covering structural, technical and economic data. Cost elements of hydrogen
networks including pipelines, compressor stations, pressure reduction stations, metering,
etc. for the full range of relevant technical parameters should be further analysed and
refined allowing for improved cost modelling and more robust economic results.

Based on this study’s results, strategies for fully decarbonised gas systems by 2050 should
be developed describing stepwise and cost-effective transition pathways in the medium-
term (2030). Notably for hydrogen, further analysis of possible development strategies
and pathways for a stepwise development of 100% hydrogen network “islands” that
subsequently grow into one large hydrogen network in the future are worth carrying out.
For this purpose, a European roadmap for the transition from a fully methane-based gas
system to a gas system with separate hydrogen and methane network systems in 2050
would be useful.

Planning of new energy infrastructure should be more integrated and be based

on the overall future energy system while optimising the use of existing
infrastructure.
Policy makers should provide clear guidance on gas decarbonization pathways to reduce
uncertainty for investments and base system operators’ planning scenarios for efficient
investments. As such, authorities should improve the transparency and the vision on the
future infrastructure constraints and costs of the energy system, which would be key to
prepare the adaptation of gas infrastructures to the energy transition.

Planning of new energy infrastructure should be based on a “future” energy system

concept, anticipating the increasing development of renewable gas (and electricity) and
accounting for the necessary changes required. Network planning should, therefore, take
a holistic view, guaranteeing cost-efficiency across all available options299 and optimal use
of existing infrastructure, while accounting for national differences and ensuring new
investments are future-proof. Moreover, planning should be more integrated, both between
distribution and transmission levels (including with storage and LNG terminal operators),
as well as between the electricity and gas (and heating) sectors. As such, mid-term and
long-term developments and planning should be coherent, to avoid investments in
potentially stranded assets given uncertainties in national pathways towards a fully
decarbonised energy system. Furthermore, regulation should ensure appropriate
coordination between DSOs and TSOs especially for defining the most efficient way to
connect renewable gas production. As such, the future regulatory framework should
foresee that national and European network development plans (NDPs and TYNDPs) are
developed in a coordinated way between electricity and gas, ensuring cross-sectoral
optimisation of investments and overall cost-efficiency. This also entails further
harmonised scenarios and methodologies for both electricity and gas infrastructure
planning.

299
As such, planning should consider the roll-out of hydrogen networks and alternative flexibility solutions such as demand response, reverse
flow projects, and power-to-gas. Further, CCU and CCS (and the related networks) should also be considered when planning for a carbon
neutral energy system.

99
TEN-E and CEF regulations should support projects facilitating the integration of
renewable gas
As renewable gas and gas infrastructure are expected to play an important role in the
transition to a decarbonised energy system, and as the European gas markets are already
well-integrated and security of supply is properly ensured in most EU Member States, the
focus of the TEN-E and CEF regulations should for the gas sector shift to projects that are
future-proof and efficiently contribute to the energy transition, thereby limiting the risk of
stranded assets. To this end, infrastructure projects supporting the integration of
renewable gas (including power-to-gas projects, connections of renewable gas production
to the grid, cross-border hydrogen transmission projects or facilities allowing renewable
gas reverse flows from DSO to TSO grids) should be eligible to apply for PCI status and
consequently CEF support. Although such investments may seem rather local in nature,
they can have important cross-border impacts and benefits as collectively such
investments can facilitate the trade of renewable gas between countries with high and low
production potentials. The eligibility criteria should also include adequate sustainability
criteria to ensure that candidate projects are future-proof and sustainable (in terms of
decarbonisation as well as other environmental impacts) and should value sector coupling
projects, for which adequate principles on allocation of costs between electricity and gas
network tariffs should be defined.

An adequate regulatory framework for power-to-gas should be developed

Although power-to-gas is considered as a promising technology to facilitate the deployment
of renewable energy and to provide system flexibility, the carbon price is still too low to
trigger large scale commercial investments in power-to-gas installations. In order to help
kick-off this technology, there could be a role for TSOs to build, under well-defined
conditions, power-to-gas facilities as demonstrator or as industrial unit, and operate them
as service provider for market parties, e.g. via a tolling agreement. To enable this option,
regulatory changes would be needed to integrate the facility in the TSO regulated asset
base and to implement regulated open and non-discriminatory third-party access to the
power-to-gas conversion services.

Moreover, barriers for investments in power-to-gas facilities should be removed, e.g. by

classifying them as energy conversion facilities rather than as electricity end-users, and as
such they could be exempted from taxes and levies on end-use of electricity. Given their
role for seasonal flexibility and to optimize the electricity system, power-to-gas could also
be entitled to a discount on the exit capacity tariff from the electricity network on the same
basis as underground gas storage. Since power-to-gas facilities also contribute to the long-
term use of gas infrastructure, gas network charges could be reduced or eliminated to the
extent that they provide system benefits (as is the case for biogas plants in certain Member
States).

An appropriate regulatory framework for dedicated hydrogen networks should be

defined in a timely manner
In view of facilitating the development of dedicated hydrogen networks, likely using
existing natural gas infrastructure, the regulatory framework of how these pipelines are
developed and operated will have to be determined in a timely manner. Hydrogen networks
can be considered as natural monopolies with similar characteristics as methane networks:
essential facilities, with considerable fixed costs that only can be recovered over a long
time period. In the current context, it is unlikely that private parties will invest in new
hydrogen transport infrastructure. Taking into account that (sections of) the existing
natural gas network could serve as a basis for developing dedicated hydrogen transport
and distribution infrastructure, it might be appropriate to extend the role of TSOs/DSOs
and to allow them to develop and operate hydrogen networks under the same regulatory
framework as natural gas networks. This would include regulated non-discriminatory third-
party access to support and further develop the internal European energy market, including
for hydrogen.

Independent of being fully or partially regulated or not, there are several benefits of
TSOs/DSOs building and operating hydrogen pipelines including, for example,

100
infrastructure optimisation and cost savings as a result of coordinated planning, as well as
integration of hydrogen and (bio)methane markets to deliver one price signal for gaseous
energy, preventing market fragmentation. This would, however, require a redefinition of
the TSOs/DSOs’ role and mandate as they are currently only entitled to act as the
monopoly operator for methane networks.

National policy and regulatory frameworks for renewable gas are current largely
diverging. Streamlining efforts are required to improve effectiveness, avoid
competition distortion between energy vectors, and value economic benefits of
local renewable gas production.
Currently, there is a variety of incentives and support schemes in place to stimulate the
deployment of renewable gases, though these vary widely across Member States, ranging
from specific targets, support schemes for production or consumption to tax exemptions.
However, investments in renewable and decarbonised gas production are still limited and
substantial increases are not expected in the short-term, except in some Member States
in Western-Europe. In order to stimulate the deployment of renewable gas, stakeholders
argue for more and specific policy support, ranging from R&D incentives, to binding
national targets for renewable and decarbonised gases, to feed-in-tariffs. Renewable gas
injection into the grid could also be supported by priority access rules and discounts on
connection and/or injection costs, justified by the positive impact of local injection on the
gas system costs.

Internalising the external cost of climate change into the price of all fossil fuel end-uses,
would be the most efficient and least distortive measure to support renewable and
decarbonised gases. Such as measure should preferably be implemented at EU level.
Renewable energy targets can also be a cost-efficient and non-distortive measure.
However, specific sub-targets per market segment or per energy vector, as specifically
proposed by some stakeholders for renewable gas, might be useful to stimulate
investments in innovative gas technologies, but could lead to higher overall energy system
costs.

As such, national incentives and support schemes for renewable and decarbonised gases
should be streamlined from an overall energy system perspective to ensure that
decarbonisation is reached at least cost, while also taking national differences into account,
including the direct and indirect economic benefits of valuing local renewable gas
potentials.

Decarbonising gas supply will substantially affect the business case of gas
network operators and could lead to higher grid tariffs. Options to mitigate this
impact should be further considered.
At the EU level, a decrease in the overall transported/distributed gas volumes is expected,
with the most important changes in the 2030-2050 period. The impact per Member State
will be different, depending on national differences at the supply and demand side. Given
the current regulatory framework, the direct impact on the revenue levels of network
owners/operators would be limited, in the absence of important evolutions, such as the
development of cross-border hydrogen infrastructure by third parties or substantial
changes in the regulation principles. As the revenue levels are at present regulated based
on actual (or allowed) costs, decreasing transported gas volumes would mainly translate
into increasing grid tariffs, which would put pressure on authorities and network operators
to mitigate this impact, in particular for vulnerable consumers and industrial gas users
exposed to international competition. As (cross-)subsidisation of network costs is not
considered as an appropriate option, and lowering the remuneration level of grid owners
might jeopardise their willingness to invest, measures should be explored to reduce
network costs, e.g. by valuing synergy potentials between regulated operators via vertical
(TSO/DSO) and/or horizontal (storage & network, electricity & gas) structural cooperation,
allowing to reduce the overall fixed costs and to enhance the energy system efficiency by

101
an improved coordination. Valuing these synergy potentials might require changes to the
unbundling requirements.300

300
As defined by the Gas Directive 2009/73/EC and the recast Electricity Directive 2019/944, which establish unbundling requirements for
gas and electricity TSOs and, to a lesser extent, DSOs. For an overview of the requirements and the changes brought by the Clean Energy
Package, see CEER (2019) Implementation of TSO and DSO Unbundling Provisions - Update and Clean Energy Package Outlook. C18-
LAC-02-08

102
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The EU Open Data Portal (http://data.europa.eu/euodp/en) provides access to datasets
from the EU. Data can be downloaded and reused for free, for both commercial and non-
commercial purposes.
 MJ-03-20-252-EN-N

doi:10.2833/492414