House of Representatives informed about cost estimate for hydrogen network
The development of the hydrogen infrastructure is crucial for decarbonising industry. Towards the end of last year, Hynetwork presented a draft version of its new roll-out plan for the hydrogen network to market participants for consultation purposes. After considering the proposed changes to the roll-out plan, Hynetwork updated the investment costs for the hydrogen network and earlier this month we informed the Minister about the results. Although the roll-out plan has yet to be finalised, it is clear that, as with other energy infrastructure, the investment costs are increasing.
Combined with the slower than expected development of the market, the increased investment challenge could lead to higher tariffs for early users of the hydrogen network. For the development of the hydrogen value chain, it is important that users have long-term certainty about the charges for using the transmission network. Given the combination of increased costs and delayed market development, solutions need to be worked out to provide more clarity on the consequences for the tariffs of future users. At Hynetwork, we see a number of solutions that we would like to develop further together with the Ministry of Climate Policy and Green Growth.
Cost update based on consultation version of roll-out plan
On 10 December 2024, Hynetwork submitted the consultation version of the new roll-out plan to relevant market participants. One thing that has emerged from this consultation version of the plan is that Hynetwork will not be able to reuse as much of the existing pipeline as previously expected and therefore will need to install more new pipeline. The costs of materials and staffing have also risen sharply, and additional sustainability requirements, such as those relating to nitrogen and water management, also bring with them additional costs. The result is that the investment costs of implementing the roll-out plan as presented for consultation purposes (as well as a limited number of network expansions) – based on the current early phase of development – are estimated to be €3.8 billion.
Tariffs for the early users
It is expected that Dutch regulator ACM will regulate the tariffs for hydrogen transmission for the period from 2031 to 2033. Until such time that these tariffs are regulated, the tariff as specified in the contract awarded to Hynetwork will be in effect. From the moment that the tariffs are regulated, the tariff will depend on the number of users of the transmission network (and, accordingly, on how the market develops), the costs of the network, and the implementation of tariff regulation by ACM.
In the latest edition of the Climate and Energy Outlook that PBL Netherlands Environmental Assessment Agency published late last year, PBL foresees, based on the resources now allocated, hundreds of megawatts of electrolysis capacity being installed by 2030. In combination with policy on the agenda, this is 1.2 to 1.5 GW. This is a big difference compared to the 4 GW assumed when Hynetwork was awarded the grant to build the hydrogen network.
Without solutions, the way the market is developing at present in combination with the increase in costs could lead to a significant increase in the transmission tariff when regulated tariffs first come into effect.
Need for stable, predictable tariffs for hydrogen transmission
Users of the hydrogen network need to be sure of affordable, predictable, stable transmission tariffs. After all, these parties must make investment decisions in which the transmission tariffs play a role. Hynetwork sees various solutions that can ease the need for increased tariffs. These potential solutions can and should often be applied concurrently:
- Market development and measures to stimulate use of the network. Given that network users share the costs relating to operating the network, increased use of the network leads to more affordable tariffs.
- Additional financial support from the government.
- Designing ACM’s future tariff regulation mechanism in such a way that this moderates the increase in the transmission tariff at the start.
- Arranging the financing and setting the tariffs similar to how this is arranged for the German hydrogen network. In Germany, the regulator will be applying an inter-temporal cost allocation mechanism that reduces tariffs for early users and then keeps these as stable and predictable as possible. The German example requires cooperation between the government, regulator and TSO.
Hynetwork is more than willing to further develop possible solutions in consultation with the Ministry of Climate Policy and Green Growth and will continue to work on the realisation of the network in the meantime.
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