Spot market and certificate market simulation

Spot market and certificate trade simulation

HyXchange and its partners aim to increase understanding of the hydrogen system and associated dynamics and volatility of marginal cost of production as an indicator of hydrogen pricing on a future hydrogen exchange. To this end the rules regarding trade and accounting of RFNBO certificates is of vital importance as it encapsulates the ‘green value’.

This study is finacially supported by Gasunie, Dutch sea harbours and EBN. Download the report here. 

And/or view the recent presentation by HyXchange director Bert den Ouden, here on the 2030 market simulation with temporary relaxtion of booking rules.

Main research questions
1.How do regulatory requirements under RED III affect regional hydrogen market dynamics in 2030?
2.How does the certificate trading design influence system efficiency and costs during infrastructure build‑up?

Model approach
The I-ELGAS dispatch simulation model will be applied to evaluate the hydrogen trade expected in 2030 in selected regional hubs. The model will look at physical trade (including imports of hydrogen derivates) and at certificate trade. For 2030 a single regional physical volume scenario has been developed based on market data and sector experts. For the certificate trade we compare three possible systems, to better understand the implications of each system on the traded hydrogen volumes. In the modelling, the following expected or already announced regulations and policy instruments are taken into account:

• 1. EU Member State obligation under the Renewable Energy Directive (RED), Article 22a: the deployment of RFNBOs for final energy consumption and non‑energy purposes in industry in 2030 and 2035, such that they account for at least 42% and 60%, respectively, of hydrogen consumption. Hereafter: Member State obligation.
  2. National law – annual obligation for renewable fuels of non‑biological origin in industry: an obligation for operators of industrial installations to annually use a certain percentage (4% in 2030; 9.9% in 2035) of their hydrogen consumption as renewable hydrogen units for industry. Hereafter: annual industry obligation.
  3. Additional national policy in the form of subsidies to stimulate the use of RFNBOs and enable compliance with the Member State obligation by 2030, as proposed in the Explanatory Memorandum for the annual industry obligation. This can be done by providing subsidies to both the supply side and the demand side. On the supply side, this includes instruments such as OWE, SDE++, and IPCEI; on the demand side, reference is made to the announced consultation on how this will (likely) be implemented.
  4. Obligation for renewable fuels of non‑biological origin in the transport sector, as laid down in Article 25 of RED III. This obligation requires a 1% share of RFNBOs in final energy consumption. Hereafter: transport sector obligation.
  5. Mass‑balance system under RED III: This stipulates a physical connection between hydrogen and its sustainability certificate. Unlike the current system of Guarantees of Origin, which allows the certificate and the energy carrier to be traded and transported separately, the new European regulations on green hydrogen certification require the transport of the green certificate together with its original physical hydrogen  (the mass balance principle).
  6. Temporary relaxation of booking rules: As the hydrogen transport infrastructure is still under development, the mass balancing requirement would make it impossible for many industries to fulfil their green hydrogen obligation or contribute to the national green H2 obligation for industries (following from EC guideline). Therefore in NL, this requirement can be temporarily softened within the annual obligation, allowing companies without physical access to renewable hydrogen to meet their obligation via: “book-and-claim” trading of the sustainability certificate (as long as, and in the cases that, the H2 infrastructure is not there). That sustainability certificate will in that case be disconnected from its original green hydrogen, hence that physical hydrogen will no longer be classified as renewable.

Scenarios analysed (for 2030) in this phase of the study
1a. Market-baseline case è no additionality regulation
1b. Market+RFNBO rules case è corrected for additionality regulation of EC according to the Delegated Act
2a. Full mass balance, with 42% target
2b. Full TVI (temporary relaxation booking rules), with 42% target
2c. 4% TVI (and 38% mass balance), with 42% target

In part 2 of this study 2035 (with national infrastructure) and 2040 (higher demand) will be simulated.

Key findings: TVI has profound positive effects

• 1.Additionality rule has negative impact on number of FLH hours and 42% target results in need for H2 imports:
  –  Lower overall utilization of electrolysers
  –  NL compliance targets have limited impact on NL elektrolyser FLH, impact larger with partial/full TVI
  –  Wider energy system impacts of relaxation RFNBO-rules (such as higher number of CCGT FLH) were not studied
•  2.Strict application of RED III mass balancing rules has the following consequence:
  –  This leads to the higher costs and lowest efficiency, for the whole NL H2 Market in 2030.
  –  Big differences between the regions in operational hours for electrolysers
  –  Some regions can contribute less to 2030 H2 target, or not at all. Other regions (have to) do more.
  –  Lower overall utilization of electrolysers
• 3.Applying relaxation of the RNFBO Booking rules = TVI (allowing temporary book & claim):
  –  Improves macro-economic market outcomes (cost & efficiency).
  –  Big improvement of electrolyzer utilization, if flexibility applies to the whole 42% target (instead of current proposed 4%).
  –  More balanced operational hours for electrolysers in each region.

A possibly second phase simulation study is contemplated. This could deliver more detailed analysis for the projected market in 2030, and extended to include 2035 and 2040, where further growth of the hydrogen volume, infrastructure and obligations is expected. This will also be very important for the set-up of a hydrogen exchange.

Planned next steps:
A.Extend analysis to 2035 & 2040 to capture higher H2 targets and challenges interconnected infrastructure.
B.Additional sensitivity analysis for the 2030 market
C.Update 1st phase of simulation results (Depending on EU Review Delegated Act)