Energy

S H E A R M A N & S T E R L I N G L L P | 3 5 USE OF RENEWABLE ELECTRICITY By way of example, RED II sets out the following requirements in relation to the source of renewable electricity used to power the electrolyzer if the green hydrogen project is to be compatible with the rules on RFNBOs for the transport sector: • it must come into operation after, or at the same time as, the RFNBO facility; • it must be classified as "additional" renewable electricity capacity; • it is either directly connected with the RFNBO facility (i.e., not through a grid connection), or is connected through the grid but can demonstrate (amongst) other things that there is a temporal and geographical correlation between the electricity produced by the relevant power source and the electricity consumed by the green hydrogen project. The logic behind these restrictions is to prevent a green hydrogen project's significant demand for electricity being satisfied through the diversion of renewable power from existing customer demand elsewhere in the network. The European Commission is developing two delegated acts to provide further clarity on some of these issues. These delegated acts will cover: • the methodology for calculating the required GHG emissions savings that must be achieved for RFNBOs; and • the sustainability criteria that must be met if the electricity supplied to an electrolyzer is obtained from a grid connection (rather than through a dedicated connection with renewable electricity generation assets). However, the application of these rules is likely to be project- and market-specific, because measuring whether these sustainability requirements have been met will in large part depend on the nature of the electricity market in which the green hydrogen project operates. Some of the commercial consequences of these requirements for the structuring of green hydrogen projects are as follows. CONTINUED >

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