Hydrogen: Consultation by the Dutch regulator (ACM) on the role of group companies of TSOs and DSOs in the Dutch hydrogen market

In this strategy document, the Dutch government builds on the national climate agreement (“Climate Agreement”) of June 2019 where it elaborates on the role it envisages in the growing hydrogen market for gas and electricity transmission system operators (“TSOs”), distribution system operators (“DSOs”)(netbeheerders) and companies within the corporate group to which they belong (“TSO and DSO Group Companies”, netwerkbedrijven).

Demand for clean hydrogen from industry in Northwest Europe is expected to increase in coming years. With this in mind, the Dutch government believes it may prove very advantageous for the Netherlands to position itself as a pivotal player in the hydrogen chain, and to use existing natural gas infrastructure for this purpose. At the same time, the Dutch government expects that a transport and distribution network for hydrogen may have the characteristics of a natural monopoly, comparable to current electricity and natural gas networks.

The policy agenda provides that the Dutch government intends to play a key role in the development of this hydrogen infrastructure and the ‘hub’ function which the Netherlands can play. The Dutch government will research the possibilities to repurpose part of the existing natural gas network for the transport and distribution of hydrogen.

With regard to the activities they may employ, a distinction must be made between the activities of TSOs and DSOs active in the electricity and gas sector and TSO and DSO Group Companies. TSOs and DSOs must limit their activities to the operation of gas and electricity networks within the parameters set by law. TSOs and DSOs are thus by law not allowed to act on the hydrogen market. TSO and DSO Group Companies have more flexibility to act on the hydrogen market, albeit to a limited extent, as discussed below.

Illustrative of this distinction is Gasunie Waterstof Services B.V. (“GWS”), a company in the same group as national gas TSO, Gasunie Transport Services B.V. (“GTS”). GWS manages a hydrogen pipeline, transports hydrogen through this pipeline and has the ambition to develop and manage large-scale hydrogen infrastructure. On 2 April 2020, On 2 April 2020, the ACM adopted a commitment decision and suspended its investigation into a possible violation by GTS of article 10c of the Dutch Gas Act for allowing GWS to use the name and logos of GTS. GTS has a binding commitment to change the name and logo of GWS, which must ensure that GWS is not favoured by the use of the GTS logo and name, compared to private companies in competition with GWS.

On the basis of currently applicable legislation TSOs and DSOs are not allowed to act in the hydrogen market. Following the conclusion of the Climate Agreement (paragraph C5.7), the government has announced in its strategy document of 30 March 2020 that it aims to have a governmental decree (AMvB) ready in 2020, allowing TSOs and DSOs to cooperate with private parties in experimental projects concerning the transport and distribution of hydrogen. This decree will be adopted on the basis of the current Gas Act and is intended for 'temporary tasks'.

TSO and DSO Group Companies

At the request of the Minister, the Dutch energy regulator (Authority for Consumers and Markets (“ACM”)) published a consultation on a draft ACM guidance note

 (“Draft Guidance Note” Leidraad netwerkbedrijven en alternatieve energiedragers) on 24 March 2020, which concerns the activities of TSO and DSO Group Companies with regard to alternative energy carriers such as hydrogen, biogas, heat and cold under the current legal framework.

In the Draft Guidance Note, the ACM summarizes the rules as follows:

1. TSO and DSO Group Companies may establish (aanleggen) and manage (beheren) infrastructure for alternative energy carriers.
2. TSO and DSO Group Companies may transport alternative energy carriers over that infrastructure, but are not allowed to supply (leveren) or trade alternative energy carriers.
3. TSO and DSO Group Companies may establish and manage, but not exploit (exploiteren), production and storage facilities for alternative energy carriers.

The ACM notes that the distinction between management and exploitation is not defined by law and will be assessed on a case-by-case basis.

The role which TSO and DSO Group Companies are allowed to play in the hydrogen sector seems to be considerably broadened in this Draft Guidance Note when compared to the role which TSOs and DSOs are allowed to play in the electricity and natural gas sectors. This is shown, for example, in the ACMs considerations concerning the management and exploitation (beheer en exploitatie) of hydrogen production infrastructure (paragraph 3.3 of the Draft Guidance Note).

The ACM states that TSO and DSO Group Companies may decide to jointly develop a hydrogen production project with a private party. The TSO or DSO Group Company is allowed to construct the electrolyser which will produce the hydrogen, but is not allowed to exploit it to produce hydrogen. A private party must produce hydrogen independently from the TSO or DSO Group Company and should bear the commercial risk in respect of the production and sale of hydrogen.

The TSO or DSO Group Company is not allowed to have an interest in the production of hydrogen. The TSO or DSO Group Company may thus not bear any commercial risk and may not have a positive or negative financial interest in the revenues of the produced hydrogen and the production volume as such.

In return for the ‘making available’ of production capacity, the TSO or DSO Group Company may charge management costs (beheerkosten) at a market-conform price, in line with the actual costs of the management of the infrastructure. The ACM prefers a fixed management fee, but depending on the circumstances, a variable fee linked to the produced volumes may be acceptable if the management costs are depending on the production volumes and these production volumes are difficult to predict.

These principles concerning construction, management and remuneration of hydrogen production projects also apply to hydrogen storage projects.

The deadline to respond to the Draft Guidance Note is Friday 24 April 2020.