Hydrogen in Europe, part 2: What are renewable fuels of non-biological origin?

Renewable fuels of non-biological origin in brief

Renewable fuels of non-biological origin (RFNBOs) are liquid or gaseous fuels made with renewable hydrogen. This renewable hydrogen must be produced with renewable electricity or heat. The non-biological origin in the abbreviation RFNBO, excludes any renewable electricity or heat produced with biomass.

RFNBOs can be:

1. Pure renewable hydrogen. This is not a greenhouse gas (GHG) and no CO2 is released during production.
2. Renewable hydrogen “mixed” with CO2, which is GHG neutral. This means that the CO2 used for production is first captured before it is released back into the atmosphere.
3. Renewable hydrogen “mixed” with nitrogen captured directly from the air. This results in renewable ammonia, which does not release any CO2 emissions.

RFNBOs can be a GHG neutral or GHG free alternative for fossil fuels in the transport sector, where battery electric is not an option. For example, in long distance aviation or the maritime sector. RFNBOs can also serve as a feedstock in the industrial sector, replacing fossil fuels in chemical processes.

In the previous version of the Renewable Energy Directive (RED), RFNBO targets were limited to the transport sector. In the current version (RED III), RFNBO targets have also been set for the industrial sector. Only renewable hydrogen that meets the RFNBO criteria counts toward the binding EU decarbonization targets. These criteria don’t only apply to RFNBO produced in the EU, but also to renewable hydrogen imported into the EU from beyond its borders.

EU compliant renewable hydrogen

In order to produce renewable hydrogen that qualifies as RFNBO, a strict set of conditions must be met, which are detailed in two separate delegated acts of the RED II. The first delegated act explains the methodology for the production of RFNBOs, and the second delegated act details the methodology for assessing GHG emissions savings from RFNBO production.

A heated debate preceded the final language used in the first delegated act. There was serious concern that scarce renewable electricity for the electricity grid would be redirected to hydrogen production. This would require the deployment of natural gas fired turbines to meet existing demand for electricity, thereby increasing GHG emissions. Another major point of friction was the qualification of nuclear power as an energy source for RFNBOs. The final wording of the delegated acts addressed both issues.

To qualify as RFNBO, the used renewable electricity must be produced with energy from a renewable electricity source (RES) other than biomass. These are wind, solar (solar thermal and solar photovoltaic), geothermal energy, osmotic energy, ambient energy, tide, wave and other ocean energy, and hydropower. Nuclear power is not a renewable energy source. However, Brussels does recognize that nuclear power has a low CO2 footprint, which means that it can reduce the carbon intensity of the electricity mix in the grid. This will be further explained in one of the sections below.

Additionality, temporal correlation, and geographic correlation

The first delegated act has defined three pathways to feed a hydrogen plant with renewable electricity. For each of these pathways, specific conditions apply: additionality, temporal correlation, and geographic correlation.

Additionality

The additionality condition addresses the deep concern that existing renewable electricity capacity would be redirected toward a hydrogen plant rather than fed into the grid. If this were to happen, “normal” electricity demand would need to be met with additional electricity generated with gas turbines, thereby increasing emissions: an undesirable situation.

The additionality condition therefore requires that the hydrogen plant consumes electricity from a renewable electricity source that is “new” to existing capacity. In this context, new means not older than 36 months by the time the hydrogen plant becomes operational (commissioning date). This prevents hydrogen plants from cannibalizing existing renewable electricity generation capacity. This RES must have received no operating or investment aid, other than financial support for land or grid connections.

The additionality condition does not apply for hydrogen plants that will come into operation before 1 January 2028. These plants are excluded from the additionality condition until 1 January 2038.

Temporal correlation

The temporal correlation condition assures that hydrogen plants with a grid connection only produce renewable hydrogen when renewable electricity is generated. Otherwise it could be economical for a hydrogen plant to draw electricity from the grid during a timeframe when prices are low, such as at night. At night, the share of renewable electricity in the mix could be low, meaning the plant would partly be using electricity generated with gas turbines.

The temporal correlation condition removes this concern. It demands that the hydrogen plant’s production of renewable hydrogen matches the generation hours of renewable electricity. This matching must occur and be proven on an hourly basis. To give the hydrogen industry some respite, a grace period has been implemented until 2030. During this grace period, the hours must match on a monthly basis. In other words, administratively, the plant’s number of renewable hydrogen production hours in a specific month may not exceed the number of hours that renewable electricity was generated in that month. From 2030 on, hourly matching will be the norm, pending the outcome of a review in 2028.

There is an exception. The temporal correlation condition is always automatically met when the day-ahead price in the bidding zone[1] is lower or equal to EUR 20/MWh, or lower than 0.36 times the price of an emission EU allowance (EUA) in the relevant period. The rationale behind this is to incentivize hydrogen production during times when electricity prices are too low for fossil-based electricity generation. Additional demand for electricity would therefore be met with renewable electricity generation.

If a battery is co-located with the hydrogen plant, charging is also subject to temporal correlation. Discharging obviously is not.

Geographic correlation

The geographic correlation condition ensures that renewable electricity and hydrogen production are in relatively close physical proximity. This is to prevent odd situations in which the contracted production of renewable electricity takes place in sunny southern Spain but the electricity “consumption” takes place at a hydrogen plant in the rainy Netherlands. Because there is not sufficient transport capacity on the European grids, this would further increase congestion problems on the grid. So, geographic correlation reduces the risk of grid congestion by avoiding load asymmetries between feed-in locations and offtake locations.

The geographic correlation condition therefore requires that the RES asset is in the same bidding zone as the hydrogen plant, or located in an interconnected offshore bidding zone. Alternatively, the RES asset can be located in an interconnected bidding zone with equal or higher day-ahead prices than the hydrogen plant’s bidding zone.

The three pathways to produce RFNBOs

The electrolyzer, the device that splits water into hydrogen and oxygen, must be supplied with electricity from a renewable electricity source (RES) using one of the following three production pathways:

1. A direct physical connection to a renewable electricity source (RES)
2. A connection to the electricity grid combined with a power purchase agreement (PPA)
3. A connection to the electricity grid with a low emission intensity

1. A direct physical connection to a renewable electricity source

In this configuration, renewable hydrogen is considered RFNBO if:

1. The hydrogen plant has a direct physical connection to a renewable electricity source (RES), such as a windfarm. The RES may have a grid connection as well, as long as it can prove through a smart meter that is hasn’t taken electricity from the grid to supply the electrolyzer.
2. The additionality condition also applies.

2. A connection to a grid in combination with a power purchase agreement

In this configuration, hydrogen is considered RFNBO if:

1. The hydrogen plant has a grid connection in combination with a power purchase agreement (PPA) from a non-subsidized RES. A PPA is not required when the RES belongs to the same owner as the hydrogen plant.
2. The additionality, temporal correlation, and geographic correlation conditions apply.
3. Or, if the plant’s additional electricity demand reduces the need for curtailment of renewable electricity sources. Curtailment occurs to prevent overproduction of renewable electricity that could create a situation of imbalance. In those moments, renewable electricity production is artificially capped to avoid a blackout. However, this is a waste of RES capacity. As an alternative solution, hydrogen production can be increased, thereby reducing the need for curtailment. All produced hydrogen in such an event automatically qualifies as RFNBO.

3. A connection to a grid with a low emission intensity

In this configuration, hydrogen is considered RFNBO if:

1. The hydrogen plant is connected to a grid in which the share of renewable electricity in the consumed electricity mix exceeded 90% in the previous calendar year. It is then assumed that this will be the case for the next five years. “The grid” refers to the bidding zone in which the hydrogen plant is located. Furthermore, the hydrogen plant’s capacity factor, which is the average realized output compared to the maximum theoretical output, may not exceed the share of renewable electricity in the grid.
2. Or, if the hydrogen plant is connected to a grid (a bidding zone) in which the emission intensity of the electricity mix is below 18 gram CO2 equivalent per megajoule (18 gCO2eq/MJ). This option was created to solve the issue of hydrogen produced with nuclear power, which isn’t classified as renewable electricity in EU legislation. This was an important issue for countries with a high share of nuclear power, such as France. The hydrogen plant in this grid must also have a power purchase agreement (PPA) with a renewable energy supplier in the same bidding zone to meet the temporal and geographic correlation conditions. The additionality condition does not apply in this case.
3. Or, if the plant’s additional electricity demand reduces the need for curtailment of renewable electricity sources, as explained before.

[1] Currently, most, but not all bidding zones in Europe are defined by national borders.

In practice, the three production pathways could be mixed. Everything depends on the business case: which pathway or mix of pathways produces the lowest levelized cost of hydrogen (LCOH) in that specific case.

The second delegated act is a more technical document that sets out the methodology to calculate greenhouse gas (GHG) emissions during the production process. It also explains how to calculate the GHG savings and provides a minimum savings threshold for GHGs. This delegated act is full of equations, numbers, and metrics. We will not dive into these details, as they go beyond the scope of this report.

Why is this delegated act relevant?

Renewable hydrogen (H2) can be “mixed” with captured CO2 to create a liquid fuel, such as kerosene (C₁₂H₂₆C₁₅H₃₂), diesel (approximately C₁₀H₂₀ to C₁₅H₂₈), or methanol (CH₃OH), which can be transported and stored under normal room temperature and pressure. Given the fact that renewable hydrogen is electricity based and not fossil based, these fuels are referred to as e-fuels, for example e-kerosene, e-diesel, or e-methanol. Sometimes synthetic fuel or synfuel is used.

The major advantage of e-fuels is that they are more or less plug-and-play. For example, e-kerosene can be used in airplanes without any reengineering of the plane, thereby using existing infrastructure, logistics, handling, and safety procedures. This simplifies the introduction and saves time and money.

Another great advantage is that they can be blended with their fossil counterparts, which provides the opportunity to decarbonize fossil fuels by gradually increasing the share of e-fuel in the blend. In this way, the aviation sector, for example, can be gradually decarbonized over the years by increasing the minimum blending requirement, or decreasing the maximum GHG limit for the aviation sector. When the sectors demanding renewable hydrogen are significantly expanded, it increases the chances for the renewable hydrogen industry to reach economies of scale sooner.

A significant drawback is the fact that these e-fuels release GHG emissions when combusted in engines. The fact that the used CO2 is first captured and then released, means that e-fuels don’t add to the GHG problem. However, they certainly don’t reduce the problem either.

Main metrics and measurement methodology

Because e-fuels contain captured CO2, a threshold for GHG has been set. According to the delegated act, an e-fuel must at least save 70% emissions compared to a fossil fuel comparator in order to qualify as RFNBO. The comparator has been set at 94 gram CO2 equivalent per megajoule (94 gCO2eq/MJ).

Applying the 70% threshold results in a maximum emission intensity of 28.2 gCO2eq/MJ for a RFNBO. This equals 3.4 kg CO2eq per kg RFNBO or 102 gCO2eq per kWh. CO2 equivalent is used here to make sure all GHG are included and not just CO2.

The 70% GHG reduction is measured over the entire lifecycle of the RFNBO, not just at the production plant. This means from the starting point of production, upstream, all the way to the end consumer, downstream including transport, distribution, and use of the RFNBO.

All renewable hydrogen that complies with the first delegated act and is used to produce e-fuels, is automatically attributed zero GHG emissions in the calculation of the second delegated act.

Allowed sources of CO2

The delegated act lists the allowed sources of CO2 for e-fuels.

1. Direct air capture is preferred. However, CO2 captured directly from the air is still too expensive at the moment and the technological readiness level is relatively low.
2. CO2 captured from the production or the combustion of biofuels, bioliquids, or biomass fuels complying with the sustainability and GHG saving criteria. Additionally, the CO2 capture must not have received credits for emission savings from CO2 capture.
3. CO2 captured from the combustion of RFNBOs or recycled carbon fuels.
4. CO2 captured from a geological source and if the CO2 was previously released naturally.
5. CO2 captured from electricity production with fossil fuels. Although the delegated act mentions that these should be avoided, this source is allowed up until 2035.
6. CO2 captured from other uses of fossil fuels in industrial processes. Although the delegated act mentions that these should be avoided, this source is allowed up until 2040.

How to deal with mixed electricity types

Mixing renewable electricity with electricity from fossil fuels to produce RFNBO is allowed. However, the GHG emissions must be averaged out. For example, when half of the electricity used is 100% renewable and the other half is not, the output as a whole should be attributed the average GHG emissions. The resulting average GHG emission intensity should not surpass the maximum GHG intensity limit of 28.2 gCO2eq/MJ (3.4 kg CO2eq per kg RFNBO, or 102 gCO2eq per kWh) mentioned earlier, in order to be labeled RFNBO. The reason is to prevent that all the used renewable electricity is attributed to part of the output so that this can be labeled as RFNBO, while the gray electricity is attributed to the remainder part and separately labeled as gray hydrogen.

If you have reached this point of this article, your head is likely spinning. The criteria for RFNBO are difficult and complex on paper, let alone in practice. It was a long struggle between many parties to finalize the delegated acts. On the one hand, the pragmatists wanted to have a starting point and sharpen the criteria gradually along the way. On the other hand, the perfectionists wanted the starting point to be as perfect as possible, fearing that once long-term heavy investments were made into projects, vested interests would jeopardize any improvements, that is, stricter criteria in regulation along the way.

In our opinion, the balance seems tilted in favor of the perfectionists as the final delegated acts are complex and extensive. We think that the complexity of the criteria is one of the reasons why until now, only very few projects have reached the operational phase. Many announced projects struggle to interpret and implement the criteria. As a result, the renewable hydrogen targets that Brussels has set for 2030 and beyond, are completely out of reach. Some still hope that Brussels will simplify or loosen the criteria, for example by introducing a simple metric based on the carbon intensity of hydrogen. This is the case in the US, for example. However, we don’t expect Brussels to change the regulation anytime soon, and projects will continue to struggle with the complexity, pushing the ambitious EU targets further out of reach.