Hydrogen law and regulation in Poland

1. CURRENT STATE OF HYDROGEN PROJECTS IN POLAND

Hydrogen has been recognised as having a key role in the Polish energy transformation. There is significant opportunity for the development of hydrogen projects in all relevant sectors, such as industry, electricity and heat generation, as well as for energy system management and in transport. The relevant stakeholders’ plans are ambitious and apply to a range of sectors, however, as discussed below, as well as facing technical barriers they are also confronted with an underdeveloped legal framework and lack of clear financial support mechanisms.

Poland currently has a substantial hydrogen market and Poland is the fifth largest producer of hydrogen worldwide. It produces 14% of all hydrogen produced in Europe, which is used predominantly in industrial processes. Currently, hydrogen is primarily used in the petrochemical processes or as a side product generated in the processing industry. Grupa Azoty S.A. (“Azoty”) – the largest chemical consortium in Poland – is currently the biggest producer of hydrogen in Poland. Azoty uses hydrogen in various chemical processes. Grey hydrogen is also generated by PKN ORLEN S.A. (“PKN ORLEN”) – the biggest player in the Polish fuel market – for production processes and as a side product in the process of chlorine generation for the production of polyvinyl chloride.

As at mid-2020, the development of dedicated hydrogen projects in Poland is limited, though there are hydrogen generation, transportation and storage projects in planning stages as described below. For future projects, most of the planned decarbonised hydrogen projects expect to use hydrogen for transport and in electricity grid management (by storing surplus energy generated by renewable projects in the form of hydrogen).

Energy & Industry

Polskie Górnictwo Naftowe i Gazownictwo S.A. (“PGNiG”) - the leader in the Polish natural gas market - plans to introduce hydrogen as a blend into the gas network for commercial sale to customers, particularly in the heat sector but also, in the future, alongside other associated services. Moreover, the company is planning to develop hydrogen energy storage. The company is also seeking to develop Power-2-Gas technology, however PGNiG needs the introduction of regulatory solutions which would allow it to operate this kind of project. Currently, the company is at a stage of conducting research on the proportion of hydrogen that may be blended in the existing gas network. PGNiG’s testing gas network is scheduled to start operation in 2022.

Grupa LOTOS S.A. (“LOTOS”) – a member of Hydrogen Europe and a leading oil company in Poland, which, together with Azoty, is responsible for half of hydrogen production in Poland – is developing a hydrogen purification project. The “Pure H2” project is aimed at developing a hydrogen cleaning and distribution installation which would produce low greenhouse gas emissions. In addition, LOTOS’ “Project Hestor” is developing onshore hydrogen storage for use in industrial processes. LOTOS has also established an electrolysis research and development project in conjunction with Polskie Sieci Elektroenergetyczne S.A. (“PSE”), the Polish Transmission System Operator, to produce green hydrogen for use in its refining processes. Whereas GAZ-SYSTEM S.A. (“Gaz-System”) – the Polish Gas Transmission System Operator and a member of Hydrogen Europe since 2019 - considers the future use of hydrogen via its injection into the gas network and its storage.

There are also plans for changes in relation to decarbonisation. One example is the activity of Tauron Polska Energia S.A. (“Tauron”), which supplies electricity to over 5.6 million customers per year and is the largest distributor of electricity in Poland. Tauron set up a pilot project in the Łaziska hard coal-fired power plant concerning production of green hydrogen from renewable energy.

One of the areas of development of Jastrzębska Spółka Węglowa S.A. (“JSW”) - the largest producer of high-quality coking coal in Poland and the largest commercial group of coking plants in the EU – has been the separation and purification of hydrogen from coal gas using pressure swing adsorption (“PSA”) technology.

Transportation

Hydrogen for transport is a cornerstone of Poland’s hydrogen economy. There is wide ranging interest within the Polish industry around the development of hydrogen transportation infrastructure, such as refuelling stations for hydrogen fuelled vehicles. One example is PKN ORLEN’s focus on developing hydrogen generation and distribution installations of hydrogen fuel for this purpose. Furthermore, state funding is available to encourage individuals to purchase hydrogen fuelled vehicles. The Strategy of Sustainable Development of Transport for 2030 predicts that low emission transport, including technologies such as hydrogen, will be key in addressing the negative impacts on the environment.

A number of local companies have begun developing hydrogen refuelling stations. These include the state-owned energy companies PKN ORLEN, PGNiG and LOTOS, who are planning to develop a network of hydrogen vehicle refuelling stations by 2021. PKN ORLEN’s first refuelling station for hydrogen-fuelled vehicles shall be open in 2021.

PKN ORLEN is also planning to develop a hydrogen hub, with hydrogen generation installations located in Włocławek, in 2021, and in Płock at a future date. PKN ORLEN has signed a Letter of Intent (“LOI”) with Pojazdy Szynowe PESA Bydgoszcz S.A. – the largest manufacturer of railway vehicles in Poland - for the construction of a hydrogen fuelled train. Furthermore, PKP Cargo S.A. - the largest rail freight operator in Poland and the second in the EU - has also signed a LOI with JSW concerning joint initiatives for the commercial use of the hydrogen as a fuel.

In relation to buses, Solaris Bus & Coach S.A. – one of the leading European bus manufacturers - is currently producing a fleet of hydrogen fuelled buses.

Energy System Management

   The outcome of the joint project of LOTOS and PSE will serve to ensure the stability of the National Power Grid since there are plans to increase the share of the renewable energy sources in the Polish energy mix.

2. MARKET PROSPECTS FOR HYDROGEN 

The potential of hydrogen to enhance the economy is recognised in Poland. There is a huge interest in this technology; Polish authorities are convinced that Poland could be one of the leading countries in this area and could be a transit country for the mixture of natural gas and hydrogen in the future. This enthusiasm is reflected in various strategic documents for the sector where hydrogen is considered. The use of hydrogen in transportation as a fuel and as a technology for energy storage are currently the main areas of growth in Poland.

Hydrogen technology is still at the early stages of development in Poland. There remains a lot of scope for M&A activity and investment opportunities that are also open for private investors and funds. To date, however, no significant activity of this type has taken place and companies involved in this market are predominantly state-owned. However, the private sector is becoming increasingly involved in this area. One example is a recent acquisition of an electrolyser by Zespół Elektrowni Pątnów-Adamów-Konin S.A. – a private owned complex of four thermal power plants - for the purpose of generating hydrogen from renewable sources. Furthermore, in June 2020, Polenergia S.A. – the largest Polish private energy group – signed an LOI with Siemens Energy sp. z o.o. and Siemens Gas and Power GmbH & Co. KG concerning the introduction of solutions which shall make it possible to produce and use hydrogen in the Polish market.

Since many commercial banks are starting to opt out of financing carbon intensive, fossil fuel energy projects, their attention is likely to turn to providing debt financing to stakeholders investing in new, low carbon technologies, such as hydrogen projects. This will be important given that the infrastructure needed for the development of low carbon hydrogen projects is likely to involve significant capital expenditure (e.g. new pipelines, electrolysers etc.).

Low carbon hydrogen production is currently expensive compared to the production of hydrogen from coal or methane gas, having not yet benefitted from the price reductions seen across certain, more mature low carbon technologies. Developers, therefore, will often need financial assistance beyond their own equity investment to support hydrogen projects. However, smaller developers are not always able to satisfy the conditions attached to bank financing. State support may, therefore, have a crucial role in funding hydrogen projects at least initially and particularly for smaller developers.

While there is some government support in research and development (discussed in more detail, below), more government engagement is required in order to develop this technology, especially in more capital-intensive areas, such as infrastructure. This is because a significant part of the Polish gas infrastructure is old, and consequently not suitable for the purpose of transporting hydrogen. One of possible solutions being considered is the use of green bonds as financial instruments targeted for low carbon projects, such as those involving hydrogen. Despite the fact that Poland is one of the most active issuers of these bonds, there are still no plans concerning this method of financing for hydrogen technology.

3. CHALLENGES FACING HYDROGEN PROJECTS IN POLAND

Legal framework

Regulatory shortcomings, for example in the transport and generation sectors, are a barrier to hydrogen development in Poland. There are still no specific provisions concerning technical conditions or localisation outside industrial areas.

Financial support and incentives

The Polish government has established a well-financed Low Emission Transportation Fund, which supports matters connected with the generation and use of alternative fuels in general, which would include hydrogen. However, plans concerning its replacement are currently advancing; its crucial role in this respect would be transferred to the National Fund for Environmental Protection and Water Management. Nevertheless, a designated hydrogen support scheme is still needed.

There remains a need for more engagement of public and private funds in the development of the hydrogen sector generally, not just with regards to transportation. To date, companies developing hydrogen projects have utilised their own funds or have benefitted from EU financial support.

Research and education

The National Centre for Research and Development supports the research and development into hydrogen storage projects. The Low Emission Transportation Fund also provides financial support for research and education in respect of alternative fuels. However, awareness of hydrogen and understanding its applications amongst the general public is low.

The Hydrogen Development Technology Programme is a government level policy designed to consider new areas for use of hydrogen in energy, transportation and the natural gas network.

Gaz-System is currently conducting a programme, “HYready”, which is aimed at analysing the possibility of the injection of hydrogen into the network. The company is seeking to transport hydrogen, together with natural gas or via a dedicated network, and is also considering hydrogen injection into underground storage.

PGNiG is conducting a project “ELIZA”, which is aimed at providing technology for generation of hydrogen from renewable energy sources.

4. REGULATION OF HYDROGEN 

Specific legislation/regulation

Currently, there is no dedicated hydrogen law in Poland. Existing provisions of the Polish legal framework primarily capture hydrogen in transportation, although this area is also not well covered. According to the draft Poland’s Energy Policy for 2040, the legal framework for hydrogen will be enacted in 2021 and, pursuant to the latest announcements of representatives of the Ministry of the Climate, a dedicated Act on hydrogen is scheduled to be published in 2021. Poland’s Hydrogen Strategy shall be presented still in 2020.

Policy and government programmes

As previously mentioned, there are a number of government initiatives such as  the National Centre for Research and Development, the Low Emission Transportation Fund, as well as the Hydrogen Technology Development Programme that has formulated the National Energy and Climate Plan 2021-2030.

Primary legislation

Hydrogen legislation in Poland is fragmented. There is no dedicated act for hydrogen in the Polish legal framework. Thus, the stakeholders are forced to follow general rules arising from the Polish system of energy law, which are currently not always suitable for the development of the hydrogen technology.

However, to the extent that it is technically possible to transport hydrogen via the gas network, hydrogen could be treated as a gaseous fuel under the definition provided by the Energy Law Act. Thus, general provisions for gaseous fuels are applicable in this respect. Nevertheless, there are currently no direct provisions concerning hydrogen’s injection into a gas system or a storage system.

Recently, the Ministry of the Climate has proposed an amendment to the Act on the Fuel Quality Monitoring and Scrutinising System. The draft legislation classifies hydrogen within the definition of fuels under this Act and outlined its use for transportation. Furthermore, the Act deals with the quality of such hydrogen. Under this Act, the minister responsible for energy matters was authorised to issue the regulation, which provides in detail the quality conditions for hydrogen and for collecting samples of it for control purposes.

Generation

A licence for the generation of gaseous fuels is not required by the Energy Law Act. It is worth mentioning that there is a general requirement to obtain a licence in order to generate electricity from hydrogen.

Connection and distribution

Pursuant to the Energy Law Act, there is a requirement to arrange a connection agreement to the gas network and the Distribution System Operator (“DSO”) is responsible for providing conditions concerning connection to the grid. Activity of DSOs is also regulated, in particular a relevant licence is required alongside a number of other regulatory requirements.

Transportation

The Act on Electromobility and Alternative Fuels deals with the use of hydrogen and liquid biofuels in transportation. It sets out rules for the development and operation of infrastructure and relevant disclosure requirements concerning alternative fuels and applies in particular to hydrogen. This act also provides a framework for refuelling stations for hydrogen-fuelled zero-emission buses.

Financing

The Act on Bio-components and Liquid Bio-fuels sets out the operating principles for the Low Emission Transportation Fund, which provides support for hydrogen transportation projects, amongst other alternative fuel projects.

Permitting process

The Building Law and the Act on Spatial Planning and Land Development are fundamental in determining where and how hydrogen installations can be constructed. They are also crucial in the permitting process of planned projects as they determine aspects connected with occupancy and security, since hydrogen is considered as a flammable and explosive gas.

Secondary legislation and other legal documents

Relevant secondary legislation includes the Minister of Energy’s Regulation on the granting of support by the Low Emission Transportation Fund for the acquisition of new, hydrogen fuelled vehicles by natural persons for non-business purposes. However, stakeholders claim that there are still issues related to the lack of support for vehicles which are leased or rented long-term.

The Regulation of the Minister of Energy has detailed rules for shaping and calculating tariffs and settlements in gas trading and is vital for matters associated with tariffs.

Another regulation worth mentioning here is the Regulation of the Minister of the Economy on the detailed conditions for the functioning of the gas system. This Regulation governs, inter alia, the detailed conditions related to the transport, distribution and storage of gaseous fuels and the quality parameters of such gaseous fuels.

The draft of Poland’s Energy Policy for 2040 and the National Energy and Climate Plan 2021-2030 each recognise the key role that hydrogen will play in the Polish energy mix and the need to develop hydrogen technology.

Regulation of hazardous activities

The Act on Protecting the Environment (together with its secondary legislation), is key in Poland as it concerns environmental protections, in particular for the scope of the integrated permit, which is a required and crucial permit for hydrogen generation installations. This Act is also important as it regulates other permits, such as emission permits.

The Act on Preventing Environmental Damage and the Remediation of Environmental Damage deals with liability and subsequent remediation for damage caused by, inter alia, installations for which an integrated permit is required. According to the Regulation of the Council of Ministers on projects that may significantly affect the environment, the installations required for hydrogen storage would qualify as such installations under this Act.

The Act on Providing Information on the Environment and its Protection, Public Participation in Environmental Protection, and on Environmental Impact Assessments concerns the carrying out of environmental impact assessments and includes an obligation to conduct such assessments in particular with respect to planned hydrogen generation projects. For this reason, it is vital for the development phase of hydrogen projects. Moreover, this Act is a guarantee of the participation in the proceedings concerning the issuance of the integrated permit for hydrogen generation installation. Installations that generate gases, such as hydrogen, are treated as potentially materially polluting installations under the regulation published by the Minister of the Environment.

Transport, import and export of hydrogen

Since there are no dedicated regulatory solutions for hydrogen under the existing legal framework in Poland, the provisions applicable for gaseous fuels should be taken into account in this respect. There is a general obligation to obtain a licence for the business activity of the distribution of gaseous fuels, however, the distribution of gaseous fuels in the network with a capacity below 1 MJ/s is not subject to the licensing requirement. Specific rules related to transport of dangerous goods apply to the road and railway transportation. The Regulation of the Ministry of Health on the method of marking places, pipelines, containers and tanks for storing or containing hazardous substances or hazardous mixtures would also apply to the transportation and storage of hydrogen. 

5. REGULATORY BODIES 

Since there are no hydrogen-specific provisions, the general provisions concerning the investment process and exploitation of industrial installations and devices apply to hydrogen.

The most important regulatory bodies are:

  • The President of the Energy Regulatory Authority which governs the licensing of gaseous fuel storage and its distribution, and tariffs related to the gaseous fuel market; and 
  • Local authorities that governs spatial planning and the building process, which are vital areas for the installation of electricity generators and refuelling stations, among other things.

6. UPCOMING DEVELOPMENTS

By the end of 2020, the Ministry of the Climate intends to publish the Polish Hydrogen Strategy for 2030, with perspective until 2040. It will be a key strategic document for the development of hydrogen in Poland. The aim of this strategy is to build hydrogen installations with a total capacity of 2-4 GW. 

An LOI was signed by the Ministry of the Climate and 17 other entities, in 2020, concerning the establishment of cooperation for the purpose of building a hydrogen economy and conclusion of a hydrogen sector deal. Signatories include leading Polish companies, energy and transportation organisations, such as Gaz-System, PGNiG, Azoty, Tauron, JSW, PKN ORLEN, and LOTOS. The signatories of this LOI declared to cooperate in the research and development of hydrogen. 

Furthermore, there are also plans to use the Baltic Pipe Project (a gas pipeline that is under construction connecting the Norwegian, Danish and Polish markets) in order to transport hydrogen and other gases. 

An Inter-Departmental Team for Hydrogen Economy has been recently been established by the Polish government.

The Act on Electromobility and Alternative Fuels obliges local governments to invest in hydrogen fuelled public transport. Effective from 2028, a certain percentage of the public transport must be made up of zero-emission buses. With the first zero-emission buses already in the testing phase, local governments are placing orders for the buses and they are expected to start driving on Polish roads soon. 

Portrait of Piotr Ciolkowski
Piotr Ciolkowski
Partner
Warsaw
Michal Padamczyk