20 - The Regulation of Hydrogen in the Heating Markets

Summary

While energy production (the energy sector) has undergone huge efforts to reduce greenhouse gas emissions, transportation and heating are next to be tackle. Hydrogen could be a solution for one of them, the heating sector. This chapter focuses on the Netherlands as a case study to investigate the (absent) legal framework and the regulatory challenges that the development and deployment of hydrogen in the heating markets face. After an overview of the EU regulatory framework, it delves into the specificities of Dutch legislation. The Netherlands is a suitable object of study because it has instituted concrete initiatives from which the energy supervisor, the Authority for Consumers and Markets (ACM), has created a temporary framework. The analysis reveals significant gaps and inconsistencies in the regulatory landscape and offers concrete suggestions for sector-specific regulation. In addition, the chapter discusses the implications of the regulatory framework for market participants and their behaviour, as well as the role of competition law and potential sector-specific rules in ensuring a level playing field for all market actors. The Dutch experience could potentially generate a model that other EU Member States could follow.

20.1 Introduction

In an era that is increasingly defined by concerns about climate change, the imperative to transition to a low-carbon economy has gained prominence in policy and legal frameworks at both the national and international level.¹ As part of this multifaceted transition, the potentially transformative role of hydrogen is beginning to be recognised in the EU.² Gaseous fuels account for approximately 22 per cent of total EU energy consumption at present. The figures for electricity and heat production are 20 and 39 per cent, respectively.³ Moreover, these fuels account for 64 per cent of the energy that is being used to heat homes, a market in which demand is price inelastic.⁴ This chapter scrutinises the end uses of hydrogen in the heating markets.⁵ Critically, it examines the applicable legal framework as it pertains to the dynamics of the Dutch market.⁶ Intriguingly, for the Netherlands, embracing hydrogen as a source of heating energy is a return to the future – the ‘city gas’ on which many Dutch households relied prior to the emergence of natural gas for lighting, cooking, and heating was largely composed of hydrogen.⁷ In the 1960s, over a number of years, the Netherlands transitioned from heating with town gas and coal to heating with natural gas. This energy transition was prompted by the discovery of natural gas at Slochteren in the north of the Netherlands in 1959, at a depth of over 2.5 kilometres.⁸

The aims of this chapter are to analyse the instruments that regulate the integration of hydrogen into the Dutch heating market and to identify gaps and sources of uncertainty for certain stakeholders. This analysis is important because a sub-optimally designed regulatory structure can obstruct the transition to a low-carbon heating network.⁹ The analysis is anchored in the broader context of EU policy. The key EU initiative that shaped our discussion is the so-called Hydrogen and Decarbonised Gas Markets Package (HDGMP),¹⁰ which was introduced on 15 December 2021. This legislative package is the cornerstone of the EU strategy for reducing fossil-fuel dependency, which entails promoting the use of hydrogen and other renewable gases. By situating the Dutch experience within this broader EU framework, the chapter provides a comprehensive analysis of the manner in which hydrogen is being integrated into the heating markets and the implications of this development for the future of sustainable energy.

20.2 The Case for Hydrogen Regulation in the Heating Market

The heating of buildings and industrial enterprises accounts for more than 50 per cent of final energy consumption globally, as well as for a third of energy-related CO₂ emissions.¹¹ Hydrogen could change the heating sector by providing a clean and sustainable alternative to fossil fuels such as natural gas and coal.¹² The realisation of this possibility may be critical for the attainment of the 2050 climate-neutrality objective that the EU has set for itself. The European Commission is pursuing this opportunity actively by promoting a robust value chain for hydrogen and renewable gases across Europe.¹³ However, there is a conspicuous gap between the ambitions of the Commission and reality – hydrogen presently accounts for less than 2 per cent of European energy consumption, and its use is largely restricted to industrial sectors such as chemical manufacturing and fertiliser production.¹⁴

Understanding the role of hydrogen in the heating markets, therefore, could be crucial for the long-term sustainability goals of the EU.¹⁵ As far as built environments are concerned, hydrogen has numerous alternatives. These include heat pumps, solar thermal collectors, and district heating systems that use waste heat, as well as thermal energy storage and geothermal energy solutions. However, when the deployment of these alternatives is not feasible or when energy must be stored, hydrogen re-emerges as a viable option.¹⁶ In the European Union, Member States are divided on the question of whether hydrogen should be used within the heating sector. Several Member States, such as France and Germany, argue that hydrogen is not a viable alternative for the heating sector and heat pumps are a better alternative.¹⁷ They argue that, inter alia, the ‘most efficient use of energy carriers doctrine’ of the EU should be applied, according to which scarce energy carriers should be used in the most efficient way.¹⁸ Hydrogen is still very scarce and, according to these governments, needs to be prioritised in its usage to decarbonise heavy industry, cement, steel, and so on. The Netherlands is taking a different path, as discussed further below.

Given the essential role of governments in catalysing the energy transition, the importance of a sound legal framework cannot be overstated.¹⁹ The theorem by economist Ronald Coase, which describes the link between property rights and transaction costs, is highly relevant in this context.²⁰ A well-structured legal framework could minimise transaction costs by clearly defining the roles, responsibilities, rights, and obligations of all relevant stakeholders. By reducing inefficiency, such a legal framework could facilitate the expeditious realisation of a wide assortment of policy objectives, thereby contributing to a smoother and more successful transition.²¹ In countries such as the Netherlands, this theoretical conjecture is already being tested empirically, as will be discussed below.

The Dutch government has accumulated considerable technical expertise, and it has established localised hydrogen supply chains.²² For example, the HyWay27 report described the conditions under which a national hydrogen transport network that uses existing gas pipelines could be developed.²³ However, the extant legislation, most notably the Dutch Gas Act (Gaswet), is inadequate for the demands of this project.²⁴ This finding, among many others, emerged from the Progress Policy Agenda Cabinet Vision on Hydrogen of the Dutch government. That document prompted many to call for legal reform as a matter of urgency.²⁵ The Netherlands Authority for Consumers and Markets (Autoriteit Consument & Markt; ACM) formulated a provisional framework as a response to those calls, which it called the ‘Temporary Guidelines for Hydrogen Pilots: Regulatory Forbearance for Network Operator Involvement in Hydrogen Pilot Projects in Built Environments’ (Tijdelijk kader waterstofpilots: Gedoogbeleid voor betrokkenheid van netbeheerders bij pilots met waterstof in de gebouwde omgeving).²⁶ This framework, which is provisional, serves a dual purpose: it enables network operators to participate in hydrogen pilot projects as well as laying an empirical groundwork for the future refinement of the relevant regulatory norms.²⁷

The Netherlands has initiated a series of pilot projects across various municipalities.²⁸ Diverse stakeholders are engaged in those projects, including network operators and energy providers.²⁹ For instance, the Lochem pilot involves twelve residences whose occupants are engaged as co-initiators. It adopted a temporary model whereby tube trailers are used to deliver hydrogen.³⁰ A project in Wagenborgen includes 50–60 residences; the occupants can avail themselves of an individual opt-in mechanism. An electrolyser that is situated on farmland is used to produce hydrogen.³¹ The Hoogeveen pilot, which is a part of the broader Green Deal initiative, connects 100 newbuilds and 100 terraced houses to a hydrogen-based heating system. Hydrogen will initially be supplied via tube trailers, but a shift to electrolyser-based production is planned. The intention is to continue supplying hydrogen via the existing gas network after the trial.³² The Stad aan ‘t Haringvliet pilot is another Green Deal venture. It is designed to supply approximately 600 homes with hydrogen through the gas network. Older homes are its primary target. The objective is to transition permanently to hydrogen, and the launch of the project is scheduled for 2025.³³

In the Netherlands, these initiatives are embedded into an overarching narrative.³⁴ They catalyse dialogue about the rules and regulations that will govern the conditions under which various stakeholders – both public and private – will be allowed to participate in the hydrogen market.³⁵ Those rules and regulations will also delineate the rights and obligations of end users. Numerous questions have emerged from this debate.³⁶ Some of those questions revolve around the conditions that will govern eligibility to engage in activities such as production, electrolysis, transport, underground storage, and the establishment and management of import or export terminals.³⁷ The answers to others might emphasise the need to ensure that access to these services will be both wide and equitable.³⁸

Market regulation is indispensable for the management of a complex and evolving ecosystem with many stakeholders.³⁹ Without a coherent and comprehensive regulatory framework, sector practice would become inconsistent, accountability would be curtailed, and market behaviour may well turn anti-competitive. These points are further emphasised by the critical roles and responsibilities that regulation assigns to the various parties that are involved in hydrogen production, distribution, and consumption. As noted previously, a non-existent or suboptimal regulatory system would obstruct the transition to a low-carbon economy. Instead, sector-specific regulation should ensure the competitiveness and fairness of the market, pave the way for innovation, and safeguard the interests of consumers. Effective regulation would also facilitate the mobilisation of capital by eliminating uncertainty. Since the deployment of hydrogen in the built environment is now at the experimental stage of its development, a flexible yet robust regulatory framework is needed urgently. After having showcased the fact that EU Member States have different opinions and views on hydrogen in the heating markets, it is now time to explore what EU legislation and policy has to say on the issue, before diving into the case study of the Netherlands, which has tentatively and cautiously embraced hydrogen in the heating market.

20.3 The EU Legal Framework

The EU legislator proposed the HDGMP to integrate hydrogen into the energy law acquis.⁴⁰ A central aim of the Package is to incorporate provisions on hydrogen into the Gas Directive,⁴¹ which governs the internal gas market and is set to be recast.⁴²

Many of the policy initiatives that preceded the HDGMP reflected an acute awareness of the importance of hydrogen for the heating market. For instance, the System Integration Strategy identified hydrogen as a means of decarbonising the heating sector when direct heating or electrification are not feasible or efficient as one of the three ‘complementary and mutually reinforcing concepts’.⁴³ The Hydrogen Strategy,⁴⁴ which was published alongside the System Integration Strategy, shifted the conversation towards industrial applications and mobility, rather than heating.⁴⁵ Yet it recognised that local hydrogen clusters, known as ‘Hydrogen Valleys’, which have dedicated hydrogen infrastructures, could provide heat for residential and commercial buildings.⁴⁶ One of the first funded Hydrogen Valleys is actually situated in the north of the Netherlands and consists of thirty-one public and private parties from six European countries.⁴⁷ Furthermore, the impact assessment report⁴⁸ stressed that the current regulatory framework for gas prioritises natural gas over alternatives such as biomethane and other gaseous fuels, including hydrogen.⁴⁹ It concluded that low-carbon hydrogen and low-carbon fuels generally have considerable untapped potential and that potential is poised to drive the evolution of transport infrastructure and influence future end-user behaviour.⁵⁰

The proposal for a recast Directive focuses on hydrogen infrastructure, quality of hydrogen, and hydrogen markets, but it does not directly address end users or heating. The explanatory memorandum accompanying this proposal underscores that developing infrastructure is essential for the successful exploitation of hydrogen’s end-use applications. Should such developments occur, various sectors would be decarbonised, the electricity system would become more flexible, and energy security would be bolstered due to the potential reduction of natural gas imports. It would also become possible to store and produce more electricity.⁵¹ Additionally, the memorandum recognises the link to the Energy Taxation Directive. This directive established a preferential minimum taxation level for renewable and low-carbon hydrogen fuels used for heating at €0.15/gigajoule (GJ), in contrast to €0.6/GJ for natural gas.⁵²

The energy-efficiency-first principle⁵³ is also emphasised in the context of the Energy Performance of Buildings Directive and the Energy Efficiency Directive. While these measures primarily address heating in general and not specifically the application of hydrogen, the explanatory memorandum does mention the benefits of delivering clean and safe hydrogen to end users.⁵⁴ Likewise, the sixth Recital to the Gas Directive, which is in force at present, indicates that the instrument in question is designed to harness the potential of new gases to accelerate the attainment of the climate objectives of the Union. The Directive also purports to create a regulatory framework that reflects the transitional role of fossil gas, the need to avoid lock-in, and the desirability of phasing out fossil gas ‘in all relevant industrial sectors and for heating purposes’.⁵⁵ Hydrogen is only mentioned indirectly.

When looking at the explanatory memorandum of the Proposal for a recast Regulation on gas markets and hydrogen, it also becomes apparent that the heating sector is not the central focus of EU law and policy. One reason for this is that, given the wildly diverging views of Member States on the question of hydrogen in heating markets, EU policy abstained from taking sides on this controversial issue. As with the explanatory memorandum to the recast Directive (with which there is significant overlap), end uses are predominantly discussed in the context of market fragmentation. This fragmentation is anticipated due to the increasing penetration of biomethane, hydrogen, and liquified natural gas (LNG) in the gas infrastructure.⁵⁶ Recital 43 to the Regulation acknowledges this point, which preserves the right of Member States to make decisions about blending while also providing for a Union-wide cap on it.

It can be concluded from the foregoing that EU legislation and policy, while directed at stimulating the end use of hydrogen, are somewhat general, especially in the context of the heating sector. The Member States thus enjoy considerable discretion. That there are no specific regulations on this matter is unsurprising – in most cases, end-use solutions are local in their effects, and their design depends significantly on the energy infrastructure and mix of the Member State in which they are being implemented. We will now turn to discuss how the Netherlands has used this margin of discretion.

20.4 The Interplay between Market Regulation and the Heating Markets

Dutch law regulates electricity, natural gas, and thermal energy, but generally not hydrogen.⁵⁷ Several market consultation exercises focused on the structure of the hydrogen market and on quality standards, but they are yet to yield specific results.⁵⁸ The insufficiency of the regulatory framework is becoming more apparent as pilot projects begin to integrate hydrogen into the built environment for heating purposes. The national energy regulator ACM highlighted this gap, most notably in its Signal 2021 report, in which it observed that the absence of regulation undermines consumer protection and that, at present, the participation of network operators in such projects proceeds in the absence of a legal basis.⁵⁹ The latter problem also affects hydrogen suppliers, appliance manufacturers, property owners, and lessees.

A critical step of the regulatory framework is the definition of ‘gas’ under the Gas Act, which is currently ambiguous regarding hydrogen. To elucidate, the Gas Act defines ‘gas’ in the following manner:

1. 1. Natural gas that, at a temperature of 15° Celsius and at a pressure of 1.01325 bar, exists in a gaseous state and mainly consists of methane or another substance that is equivalent to methane due to its properties, and

2. 2. A substance that

   • – is generated in a production facility that exclusively uses renewable energy sources or

   • – is generated in a hybrid production facility that uses both renewable and fossil energy sources and

   • – at a temperature of 15° Celsius and at a pressure of 1.01325 bar, exists in a gaseous state and mainly consists of methane or another substance that is equivalent to methane in terms of its properties, to the extent that it is possible and safe to transport this substance according to Chapter 2.⁶⁰

Hydrogen does not consist mainly of methane or an equivalent substance. Hydrogen and methane are chemically distinct and exhibit different properties, including energy content, flammability range, and density.⁶¹ Although hydrogen can be produced from renewable sources, say through the electrolysis of water, it is not explicitly mentioned as an equivalent to methane in the statute. Article 1.2 of the Gas Act provides a pathway for the inclusion of substances other than those that are mentioned specifically in Article 1.1, namely the issuance of a general administrative order (algemene maatregel van bestuur) that extends the application of the Act partially or wholly to other gaseous substances. So far this has not been enacted. In this context it is important to take stock of the current technical and safety limitations set by the Dutch government, as reflected in the Ministerial Decree on Gas Quality (Regeling gaskwaliteit), which limits hydrogen content in the natural gas network. This decree stipulates a maximum hydrogen content of 0.5 mol.-%⁶² in certain network areas, indicating a cautious approach towards integrating hydrogen into the natural gas system due to current technical and safety constraints.⁶³

In the context of market regulation, the Gas Act’s implications for hydrogen’s integration into the heating market are significant. One key aspect under the Gas Act is the regulation – or lack thereof – of networks and pipelines dedicated solely to hydrogen. Currently, in the Netherlands, the establishment and management of such hydrogen-specific networks are not regulated activities.⁶⁴ This absence of regulation suggests a potential area for development in the heating market, as entities other than traditional network companies and operators are at liberty to engage in such operations. This flexibility extends to the production and storage of hydrogen, subject to compliance with safety and environmental regulations.⁶⁵

Under the Gas Act, network operators (netbeheerders) are bound to tasks specifically assigned by law (as outlined in Article 10A(a), paragraph 1).⁶⁶ This legislative framework currently precludes them from directly engaging in hydrogen production. However, their role in relation to hydrogen, especially as a potential carrier for heat, raises critical questions in the context of the ongoing debate about potential market liberalisation in the Netherlands. If heat supply were to be subject to market liberalisation, the potential involvement of gas distribution system operators (DSOs) in handling hydrogen, including its use as a heat carrier, must be carefully examined.

This is particularly relevant considering EU regulations on horizontal unbundling, which mandate the separation of energy production and supply from network operations. Allowing gas DSOs to manage hydrogen, especially in the heating sector, could pose challenges to this regulatory principle. Conversely, network companies are allowed to partake in hydrogen-related activities to a limited extent, as provided by Article 10(d)(2)(e) of the Gas Act.⁶⁷ However, the extent of this participation and how it aligns with the broader regulatory framework, especially considering the potential liberalisation of the heating market, remains a complex and evolving issue.

The blending of hydrogen into the natural gas network, another critical aspect of the heating market, is subject to rigorous regulation, especially under the current limitations of the Gas Act regarding the use of pure hydrogen for heating. According to the technical standards set out in the first paragraph of Article 11 of the Gas Act and further detailed in the Ministerial Decree on Gas Quality, gases in the Dutch natural gas networks, including H-gas, G-gas, and L-gas, must meet specific criteria at various stages from intake to delivery in both regional and national networks.⁶⁸ A critical aspect of these regulations is the stipulation of permissible hydrogen content in the gas mixture. As set out above, for reasons of safety and in accordance with current technical capabilities, the regulation restricts the hydrogen content to a maximum of 0.5 mol.% in regional distribution networks and a significantly lower limit of 0.02 mol.% in national transmission networks. This approach indicates a cautious stance towards the integration of hydrogen, considering safety and technical considerations.

The current regulations are thus tailored to a network that is built primarily for fossil fuels, and they limit the possibility of adaptations to emerging alternatives such as hydrogen. However, policymakers have the legal ability to temporarily relax these restrictions to promote sustainable energy.⁶⁹ There are (at least) three avenues that could be taken.

First, the Dutch authorities could amend the rules on hydrogen blending in the natural gas network by updating the Ministerial Regulation on Gas Quality.⁷⁰ The extent of these changes would be limited by the technical parameters of the existing infrastructure, potentially necessitating alterations to accommodate higher hydrogen concentrations. At present, no specific rules require or encourage blending. Instituting such a mandate could stabilise the market for green hydrogen by generating consistent demand, which would benefit both producers and consumers. It is crucial for national policies of this nature to align with those set by other EU/European Economic Area Member States.

Second, Article 1(i) of the Gas Act permits delegated legislation to deviate from the existing regulations, provided that the deviations do not violate EU law. This article allows for experiments that contribute to advancements in decentralised production, transport, and/or supply of gas, particularly when the gas is produced locally using only renewable energy sources.⁷¹ The third paragraph of the article outlines the requirements for the delegated legislation. Such an administrative order must specify the permissible deviations from the Gas Act, identify the potential categories of affected consumers, stipulate the intended duration of the measure, define the success metrics, and clarify whether the duration of the measures can be modified. The fourth paragraph of the article covers accountability and oversight, mandating the responsible Minister to submit a report on the experiment’s efficacy and outcomes to the House of Representatives (Tweede Kamer der Staten-Generaal) no more than three months after its conclusion. This report should also convey the Minister’s stance on the potential continuation of the experiment.

However, a challenge with Article 1(i) of the Gas Act is that it can only be invoked if the experiment involves a substance that qualifies as a ‘gas’ under the Act. As noted in the preceding section, hydrogen does not fall under this classification. The applicability of the Act can be extended to hydrogen through an administrative order.⁷² While it might seem counterintuitive to expand the scope of the Act solely to introduce an exception to it by order, this move could eliminate some of the challenges network operators and network companies encounter when working with green hydrogen. Furthermore, this adaptable legal approach could pave the way for experimental projects, such as those involving the mandatory blending of large hydrogen volumes into natural gas.⁷³

By enabling experimental projects under Article 1(i) Gas Act, especially those focused on integrating hydrogen into the gas infrastructure, the heating sector could witness a significant shift towards sustainable energy sources. Such experiments could serve as catalysts for developing and refining technologies and practices necessary for the widespread use of hydrogen in heating. They would also provide valuable insights into the practicalities and efficiencies of hydrogen as a heating medium, helping to shape future regulations and market structures. Furthermore, successful experiments could pave the way for broader legislative changes, fostering an environment conducive to the adoption of hydrogen in residential and commercial heating systems.

The third avenue for reform involves assigning responsibilities to network operators temporarily by way of administrative order.⁷⁴ According to Article 10(b) of the Gas Act, the competent Minister has the authority to act in this fashion⁷⁵ when the following criteria are met: the temporary roles are related to the existing duties of the operator under the current legislation, they are crucial for the future oversight of the gas transportation network, and market provision is deficient. However, this expansion of roles must be carefully balanced with the principle of unbundling, as mandated by EU regulations. The increased involvement of network operators in hydrogen activities, particularly in areas traditionally handled by market entities, could potentially blur these lines.

None of these avenues has been followed yet, paving the way for the ACM to introduce Temporary Guidelines for Hydrogen Pilots. The ACM, sharing the legislators’ concerns, has also expressed dissatisfaction with the current regulatory framework’s inability to adequately address safety and consumer protection in pilot hydrogen-delivery projects.⁷⁶ At the same time, the ACM has taken the view that it is crucial that these operators gain hands-on experience in the distribution of hydrogen.⁷⁷

Recognising the criticality of these gaps, and the necessity for network operators to gain practical experience in hydrogen distribution, the ACM has taken a proactive stance. To circumvent the constraints posed by the existing Gas Act, the ACM has introduced the Temporary Guidelines for Hydrogen Pilots: Regulatory Forbearance for Network Operator Involvement in Hydrogen Pilot Projects in Built Environments.⁷⁸

This innovative approach represents a significant departure from the traditional enforcement of the Gas Act, as it allows network operators to engage in hydrogen distribution pilots under a provisional framework. In practice, this means that the ACM will not enforce the Gas Act against them as long as the pilot projects meet certain conditions. The Guidelines contain generic, consumer protection, and safety conditions. The generic conditions concern the purpose of the pilot, its scope and duration, and the roles and responsibilities of the entities that are involved in it. Many of these conditions were outlined in the 2021 Signal report, but the Temporary Guidelines also set a maximum timeframe for regulatory forbearance. The aim of a pilot should be to explore the use of hydrogen as a source of heat in built environments.⁷⁹ The role of the network operator must be confined to installing, managing, and maintaining a hydrogen distribution network, and it should not be involved in the production, trade, or delivery of hydrogen.⁸⁰ Each pilot must be designed to fulfil a clearly defined learning objective for the network operator, which must be communicated transparently to the market both during the project and upon its conclusion. Importantly, the scale of the project should be calibrated carefully so that it does not exceed what is necessary for the learning objective in question to be met. This regulatory forbearance is temporary – it is set to last until the role of the network operator is formalised, until the learning objectives of the project are met, or until it becomes evident that they are unfeasible. As for duration, a pilot project can run for up to five years from the date of the publication of the conditions. Those who organise such projects can choose to extend this period if new legislation that supports such extensions is introduced in the interim.⁸¹

The consumer protection rules for hydrogen are designed to mirror the standards that apply to natural gas under the Gas Act.⁸² The specifics are laid out in the Annex to the Guidelines, which covers matters as varied as civil law safeguards, analogies to the Gas Act, and hydrogen-specific provisions. The consumer protection standards that apply to natural gas are largely replicated.⁸³ The Annex also outlines various information-disclosure requirements, most of which originate from the Dutch Civil Code. The clauses from the Gas Act that are relevant to hydrogen include complaint procedures for network operators, the reporting of defects, energy cost estimates and invoices, and stipulations on the information that contracts and bills ought to contain.⁸⁴ There is also an obligation to supply at reasonable rates and under reasonable conditions, as well as to adopt certain policies for disconnection.⁸⁵ The following regulations also apply: the Decision on Invoices, Consumption, and Indicative Cost Overview for Energy (Besluit factuur, verbruiks- en indicatief kostenoverzicht energie), the Regulation on Consumers and Monitoring under the Electricity Act 1998 and the Gas Act (Regeling afnemers en monitoring Elektriciteitswet 1998 en Gaswet), the ACM Policy Rule on Billing Periods for Energy 2021 (ACM Beleidsregel factureringstermijnen energie 2021), and the Regulation on Disconnection Policy for Small Consumers of Electricity and Gas (Regeling afsluitbeleid voor kleinverbruikers van elektriciteit en gas). Finally, the Annex contains specific hydrogen-related obligations that apply universally, regardless of the identity of the parties that are involved in a hydrogen pilot. As far as contractual structure is concerned, the emphasis is on clarity and transparency.⁸⁶

The temporary framework places high importance on the security of hydrogen supply, ensuring it matches the reliability of natural gas. This includes provisions for scenarios such as supplier insolvency or supply interruptions, with measures to maintain sufficient supply even in extreme weather. The framework also addresses indoor installations, mandating that conversion, safety checks, and maintenance fall under the responsibility of the pilot organisers. This benefits consumers by eliminating conversion costs and guarantees a return to pre-pilot conditions at no charge if the pilot ends early. Financial aspects, such as costs and tariffs, are thoroughly regulated. Consumers must be fully informed about their financial obligations and the responsibilities of pilot participants before enrolment, ensuring financial predictability. Notably, the total cost for hydrogen-based heating should not surpass that of the nearest alternative.

Finally, the Ministry of Economic Affairs and Climate also established a temporary policy on hydrogen safety. Compliance with that policy is a prerequisite for the commencement of a pilot.⁸⁷ The State Supervision of Mines (Staatstoezicht op de Mijnen; SodM) is responsible for its enforcement. The safety provisions echo the commitments of the EU and the Netherlands to ensuring that new technologies are held to existing high standards.

The chapter concludes with a brief discussion of the new draft Energy Law, which, in the future, is expected to further address and potentially reshape the regulatory landscape for hydrogen in the Dutch heating market.

On 9 June 2023, a proposal for a law on energy markets and energy systems, the Energy Law, was submitted to the Dutch House of Representatives, where it is still pending.⁸⁸ Although the Energy Law was not declared controversial following the fall of Prime Minister Rutte’s cabinet, it has yet to be passed by the House of Representatives. In Dutch politics, when a cabinet (government) falls or resigns, it is customary for the parliament to determine which pending legislative matters are ‘controversial’. This implies that these matters are significant or contentious enough that they should not be decided by a caretaker government, but rather should wait until a new, fully mandated government is in place. In this specific case, the Energy Law was not labelled as controversial, which means that it could have been processed and potentially passed even by the caretaker government. However, despite not being declared controversial, the law has not yet progressed through the House of Representatives and timing is unclear.

The Dutch Energy Act (Energiewet) stands at a pivotal juncture, indicative of a broader legislative evolution in response to the changing energy landscape, particularly in the context of hydrogen gas. The Act, as it currently stands, represents an initial step in a more comprehensive regulatory overhaul, one that is poised to adapt in response to emerging European Union directives and market realities. As highlighted in the Explanatory Memorandum, the law is expected to undergo further amendments, particularly influenced by ongoing developments within the EU framework – discussed in Section 20.3 above.⁸⁹ The current iteration of the Energiewet adopts a policy-neutral stance towards all gas-related matters, hydrogen included, with the exception of aspects pertaining to consumer protection. This approach effectively places hydrogen under a similar regulatory umbrella as other gases, maintaining a status quo that is likely to be temporary. It underscores a transitional phase in policy, where hydrogen gas regulation is acknowledged but not yet distinctly or comprehensively addressed. Future revisions to the Energiewet are anticipated, contingent on the outcomes of the EU’s negotiations and the HDGMP’s directives. These revisions are expected to introduce a more specific and evolved framework for hydrogen, moving beyond the policy-neutral approach currently in place.

The proposed Energy Law contains several – comparatively insignificant – changes relevant to the regulation of hydrogen in heating markets. Firstly, the connection duty of the (national and regional) network operators for gas has been amended in this draft law compared to the Gas Act.⁹⁰ It has been clarified that the gas connection duty is less extensive than for electricity, and room has been created for further rules for the connection of producers of gas from renewable sources. One of the objectives is to provide more direction on how regional network operators for gas, in particular, weigh the need for expensive investments to accommodate the injection of gas from renewable sources. In addition, the national network operator for gas is, under conditions, obliged to take in and blend hydrogen gas as long as it is reasonably possible.⁹¹ Furthermore, the existing legal framework within which network companies also have room for actions and activities regarding other infrastructure than for electricity and gas has been tightened.⁹² It describes exactly which type of infrastructure it concerns: CO₂, hydrogen gas, gaseous substances from renewable sources other than gas (less than 75 per cent methane), heat, and cold. Network companies are allowed to build and manage such infrastructure, perform transportation, and conduct measurement activities. The reason for providing production and storage facilities for certain energy carriers is that the same as for electricity and gas: owning or making these facilities available without any conditions or restrictions can jeopardise the independence of system operators. Here too, the transitional law will provide a provision for existing activities under this name; for new activities, an Administrative Decree for the allocation of new actions and activities may offer a solution.

20.5 Concluding Remarks

As the world confronts the challenges of climate change and the pressing need for a low-carbon economy, hydrogen has surfaced as a promising alternative to fossil fuels, especially in sectors like heating. The Netherlands has been at the forefront, championing several initiatives and leading numerous discussions on specialised regulatory frameworks. This chapter provided an overview of the regulatory landscape in both the Netherlands and the EU. We highlighted significant gaps, underscored the need for sector-specific regulations, and discussed their implications for market participants.

The 2009 Gas Directive, albeit amended, presents a milestone development. However, its approach to hydrogen lacks depth and specificity. Both the updated European Green Deal and the Clean Energy Package underscore the importance of clean energy, but they do not fully provide for a hydrogen-specific regulatory guide. Positioned within the broader climate ambitions of the EU, the Netherlands has ventured into this nebulous domain. Currently, the Dutch Gas Act regulates the gas market, but it has not evolved to consider the rise of hydrogen. This regulatory void posed challenges and dissuaded network operators from engaging in pilot hydrogen projects.

Stepping into this, the ACM introduced a temporary framework. The current regulatory approach to integrating hydrogen into the Dutch heating market, as led by the ACM, involves Temporary Guidelines that permit network operators to distribute hydrogen with an emphasis on consumer protection. These guidelines are a provisional measure, offering valuable experience in handling hydrogen within the heating sector, yet they are not a comprehensive solution.

The draft Energy Law, still pending approval, has been met with some disappointment due to its limited scope concerning hydrogen-specific regulations, particularly for heating applications. While it proposes to merge the Electricity Act and the Gas Act, simplifying alignment with EU law, its current form does not significantly advance the regulatory framework for hydrogen in the heating market. However, it does lay a foundation that could be built upon in the future.

As for the long term, both the EU and the Netherlands find themselves in a transitional phase in which the absence of a hydrogen-specific regulatory framework necessitates temporary measures and adaptations to existing laws. Energy policy in the Netherlands is thus at a curious juncture – projects are being piloted while futureproof regulation is still being formulated. In summary, while challenges abound in both the Netherlands and the EU, concerted efforts are being made to weave hydrogen into the fabric of the energy systems of the future. That process appears to be guided by the principles of innovation, consumer protection, and safety.