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Renewable Energy Directive
The Renewable Energy Directive (RED) provides the legal framework for the development of renewable energy in the European Union. The first revision of the text happened in 2018, while the EU’s increased climate ambition under the EU Green Deal and Climate Law required a further revision, through which the current RED (III) was adopted and entered into force in November 2023. After this date, the Member States have 18 months to transpose it into national law.
The 2018 text imposed collectively on Member States an obligation to ensure that the share of energy from renewable sources (RES) in the Union's gross final consumption of energy in 2030 is at least 32%. Member States are obliged to meet this target collectively, with their national contributions towards it being set in their Integrated national energy and climate plans (NECPs) in accordance with Regulation (EU) 2018/1999 (The Governance Regulation) and other acts (e.g. Effort Sharing Regulation).
During the revision of the Directive, the co-legislators settled on a target for the share of renewable energy in the EU’s overall energy consumption of 42.5% by 2030, with an additional indicative top up of 2.5%.
Apart from the general target, the RED also addresses specific sectors where the uptake of renewable energy has been slower, such as transport, industry, and the built environment.
Transport
The 2018 RED provided that Member States shall set an obligation on fuel suppliers to ensure that at least 14% of the energy content of the fuels they supply for the road and rail is provided from energy from renewable sources.
The revised RED III gives Member States two options for targets to increase renewable energy in the transport sector. They can opt for a binding target of 14.5% greenhouse gas emissions intensity reduction in the sector by 2030 through the use of renewable energy sources or opt for binding share of at least 29% of renewables within the final consumption of energy in the sector by 2030.
In relation to hydrogen, demand is to be increased through the directive via a binding combined sub-target of 5.5% for advanced biofuels and renewable fuels of non-biological origins (RFNBOs) by 2030. This sub-target is strengthened by an additional sub-sub-target of 1% of RFNBOs in the share of energy supplied to the transport sector in 2030. To facilitate compliance with these targets for Member States, the methodology for calculation of RFNBOs establishes multipliers where the energy content of RFNBOs supplied is counted several times their actual energy content. For the aviation and maritime sectors, the multiplier is of 1.5 times their energy content, while for the other transport sectors, it is twice the energy content.
Industry
Under the revised RED, the industrial sectors of the Member States will have to increase their use of renewable energy by 1.6% annually. Specifically, for hydrogen, 42% of the hydrogen used in industry from 2030 onwards must be in the form of RFNBOs. This target is further raised to 60% of hydrogen consumed in industry by 2035. Some degree of flexibility is allowed to Member States, where the latter two targets can be reduced by 20%, if the following two conditions are met:
- if the Member States’ national contribution to the binding overall EU target meets their expected contribution, and if;
- the share of hydrogen from fossil fuels consumed in the Member State is not more than 23% in 2030 and 20% in 2035.
Buildings, heating and cooling
In the heating and cooling sector, under the 2018 RED each Member State was obliged to increase their share of renewable energy by 1.3% annually, calculated on average over two periods in the next decade, while TSOs and DSOs had to begin publishing the connection tariffs to connect gas from renewable sources.
Under the revised Directive, a specific provision is introduced to mainstream renewable energy in buildings. The provision sets an indicative target of 49% of energy from renewable energy sources in buildings in 2030. Furthermore, in relation to heating and cooling, each Member State is obliged to an increase of at least 0.8% of the share of renewable energy in the sector until 2026 and 1.1% for the 2026-2030 period. The minimum average rate applicable to all Member States is complemented with additional indicative increases which are Member State specific.
Delegated Acts
A key part of the RED framework are two delegated acts detailing a specific regulatory framework governing the production of RFNBOs. The first delegated act defines the conditions under which electricity used for production of hydrogen, hydrogen-based fuels or other energy carriers can be considered as fully renewable, with the key concepts within it being additionality, and temporal and geographical correlation. The second delegated act provides a methodology for calculating life-cycle greenhouse gas emissions for RFNBOs and recycled carbon fuels (RCF).
The concept of additionality features significantly in the Directive in relation to hydrogen. It refers to the rule that renewable electricity used for production of RFNBOs must come from assets that would not exist in absence of RFNBO production. In practice, this means that the renewable energy installation needs to be commissioned not earlier than 36 months before the electrolyser and it must not have received any public financial support. In their final version, the delegated acts provide for a transitional phase from additionality where all RFNBO installations which become operational before the end of 2027, will be subject to additionality requirement only from 1 January 2038 onwards. All RFNBO installations operational after 2027 will have to comply with additionality from the start.
As for emissions, the maximum GHG emission intensity threshold is defined at 70% of the fossil fuel comparator which is 94 gCO2eq/MJ. In other words, RFNBO produced must have a GHG intensity of no more than 28.2 gCO2eq/MJ, delivered to the final consumer.
Thus, to be considered as RFNBO, four ways of sourcing renewable electricity are recognised under this framework:
- The default option is to use electricity from the grid. To determine the share of renewable energy, the average share of electricity from renewable source in the country, as measured in the two years before the year in question will be used. However, in most Member States, this will not deliver RFNBOs production, as most countries are not able to achieve the abovementioned 70% GHG emissions reduction, either because of the GHG intensity of the power grid is too big or because the RFNBO output would be too small.
- The second option is to source fully renewable electricity through a direct connection between the RFNBO facility and a renewables generation installation. However, two preconditions must be fulfilled to count the electricity as fully renewable:
- Additionality, as explained above;
- The installation producing electricity must not be connected to the grid or if it connected to the grid, it must have a smart meter to measure all electricity flows, in order to show that no electricity from the grid has been taken to produce RFNBOs;
- The third case under which electricity can be counted as fully renewable is when electricity is taken directly from the grid, as long as it is produced exclusively from renewable sources and the renewable nature is demonstrated and claimed only once. In other words, this case covers situations, where electricity for RFNBO production is sourced via a Power Purchase Agreement. To be counted as fully renewable however, three conditions must be met:
- Additionality, as explained above;
- Temporal correlation, which is the requirement that RFNBO production matches temporally the electricity production unit with which it has a PPA;
- Geographical correlation, where the electrolyser and renewable power plant are located in the same bidding zone or in an interconnected bidding zone, where the prices are higher compared to the bidding zone where the electrolyser is located.
- Considering that the different ways to source electricity can be used at the same time, a mix of fully renewable electricity (via direct connection or PPA) and electricity taken from the grid can also be used. This is advantageous as it can enable the utilisation of the electrolyser and to adjust the hydrogen production profile to the needs of the off-taker.
In case that grid electricity is used, which does not qualify as fully renewable, the second delegated act on GHG provides three methods to calculate the carbon intensity of grid electricity. Once a method is chosen, it is to be used for the entire calendar year, therefore no mixing of calculation methods is allowed in that year. The three methods are:
- Taking the average annual emissions intensity determined at the level of bidding zones;
- Attributing, depending on the number of operational full load hours of the electrolyser, where the number of full-load hours is equal or lower than the number of hours in which the marginal prices of electricity was set by installations producing renewable electricity or nuclear power plants, it can be considered zero-emission. If the number of full-load hours is exceeded, grid electricity is to be attributed the GHG emissions value of 183 gCO2eq/MJ;
- Based on the GHG emissions value of the marginal unit generating electricity at the time of production of RFNBOs in the bidding zone.
What’s in it for hydrogen?
The revised Renewable Energy Directive (RED) will have a major (positive) impact on the deployment of clean hydrogen technologies, in particular the production and storage of renewable hydrogen as well as the integration of renewable hydrogen in end use sectors.
To achieve the 2030 renewable energy target of 42.5%, hydrogen technologies will need to be deployed at scale to allow for the higher penetration of renewables in energy systems. Specific cases, where PtX technologies will be key are storage, grid balancing, sector-coupling. In relation to storage, PtX is one of the few technologies that can deliver long-term storage of variable renewable energy, which guarantees security of supply and sustainability of European energy systems. Additionally, considering the pressure under which electricity grids are placed with the higher penetration of renewables, PtX can play an important role in grid balancing by enabling fast demand and depending on the setup, deliver electricity also when renewable energy sources are not available. Lastly, PtX enables the integration of different energy sub-systems, such as electricity, gas and heat to enable more efficient use of existing infrastructure.
As to the introduction of renewable energy in end use sectors, the Directive does not provide specific indication for heating and cooling but makes the ambition for hydrogen technologies in industry and transport clearer. Coupled with other files under the Fit for 55 package, a significant demand for renewable hydrogen technologies is to be expected.
Lastly, the delegated acts set a complex regulatory framework that guides RFNBO production. Although they are based on the sound principles of avoiding that RFNBO production diverts existing renewable electricity from the market, the strictness of the requirements on sourcing electricity will present a challenge to the uptake of hydrogen technologies. This is especially the case in the industry and transport sectors, as the renewable electricity required to produce RFNBOs might not be sufficient to meet 2030 targets.
Links to the original document and additional information:
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
Proposal for a Directive as regards the promotion of energy from renewable sources
Directive (2023/2413) as regards the promotion of energy from renewable sources
