Hydrogen in Spain

1. CURRENT STATE OF HYDROGEN PROJECTS IN SPAIN

Hydrogen has been recognised as having a key role in energy transition in Spain under the country’s National Energy and Climate Plan (“NECP”). Due to the country’s significant renewable energy resources, most notably solar and wind, and its ambitious plans to decarbonise the power, transport and industry sectors over the next 10-20 years, the contribution of hydrogen to these sectors is likely to increase. 

At present, Spain consumes approximately 500,000 tonnes of hydrogen a year, almost exclusively in industrial uses (70% in refineries and 25% in chemical industries), all of which is from fossil fuels. If Spain can switch consumption to become low-carbon, through the use of zero-emission transport and the integration of hydrogen in the power grid as a storage medium, this will not only assist with the flexibility and resiliency of its energy system but Spain will be in a stronger position to achieve its decarbonisation goals. 

There are large-scale pilot projects in their early stages in Spain. For example, the Power to Green Hydrogen project being launched in Mallorca by Enagás, the Technical Manager of Spain’s gas system, that will generate over 300 tonnes of hydrogen per year using solar PV electricity. The project aims to demonstrate hydrogen’s role in sustainable urban transport (trialled in 5-10 buses and 10 passenger vehicles), the feasibility of its injection into the gas grid, and its commercial application in hotels and municipal buildings. The project will be served by a dedicated pipeline transporting pure hydrogen. 

The ambitious renewable electricity targets set by NECP, for 2030 and beyond, mean that Spain can position itself as an exporter of green energy. As an example, the NECP has already identified a minimum of approximately 14TWh of curtailed green electricity that could be utilised to power electrolysers by 2030. The hydrogen generated could then be stored and exported or otherwise commercialised.

Energy & Industry

At present, the overwhelming majority of hydrogen in Spain is used for industrial purposes, mainly in refineries and chemical industries – all of which is “grey” hydrogen. With increasing pressure on these energy intensive industries to decarbonise their production processes in the short and medium term, many are turning to low-carbon hydrogen-based options. 

In June 2020, Spanish energy company, Repsol, announced plans to construct a plant for the production of e-fuels in the port of Bilbao. 1 https://elperiodicodelaenergia.com/repsol-construira-una-de-las-mayores-planta-de-combustibles-sinteticos-cero-emisiones-del-mundo-a-partir-de-hidrogeno-verde-en-petronor/  Located next to the Petronor refinery, the project will be one of the world’s largest plants to manufacture net zero emissions synthetic fuel, using CO2 captured from the refinery, as well as green hydrogen generated from renewable energy. The plant will be a partnership between Repsol and other companies, such as Enagás and Petronor.  

Transportation

In Madrid, a fleet of 12 cars (Toyota’s fuel cell electric vehicle (“FCEV”) Mirai) are expected to be rolled out, along with  a newly built refuelling station. Similar plans are in development at the Green Hysland project in Mallorca, where a fleet of 10 cars, 5-10 buses and new fuelling stations are expected. Both projects are due to be operational in early 2021. Additionally, Barcelona is in the process of acquiring a further 10 urban buses, while Madrid is considering similar plans for the near future. 

The H2Ports project in Valencia aims to deploy the first fuel cell-powered reach stacker and terminal tractor by 2021. This is the first step in the application of hydrogen in ports. 

The NECP contemplates the use of green hydrogen for clean transport alongside battery electric vehicles (“BEV”). In addition, in June 2020, 2 https://www.eleconomista.es/ecomotor/motor/noticias/10576693/05/20/El-Gobierno-aprobara-en-breve-un-plan-de-apoyo-al-sector-de-la-automocion.html  the Spanish Prime Minister announced support for the development of green hydrogen as part of a comprehensive plan for modernising the automotive industry in Spain, a sector responsible for 10% of national GDP.

In line with the EU Directive on the deployment of alternative fuels infrastructure (2014/94/EU),  Spain has called for the country-wide deployment of 20 publicly available hydrogen refuelling stations to support the deployment of fuel cell electric vehicles in the short term.

2. MARKET PROSPECTS FOR HYDROGEN 

The development of a hydrogen market in Spain is at an early stage but has significant room for growth. The Spanish government is in the process of launching a national hydrogen strategy; having sought input from stakeholders, the strategy was approved in early October 2020 and aims to boost clean hydrogen production in the country. 

Using the Hydrogen Council estimates and extrapolating these to Spain, the National Hydrogen Association estimates an annual turnover of €1.3 billion by 2030 in the sector, with an accumulated investment of €3.56 billion from both public and private sectors.

A Spanish hydrogen roadmap has yet to be designed, but is likely to focus on identifying which local and regional hubs will be suitable for green hydrogen production, taking into account the necessary demand, location of end users and investment risks. This roadmap may also help to identify the necessary elements along the value chain in order to help foster the growth of a national hydrogen industry. 

Due to the current, premium cost of green hydrogen, public grant-type funding will be necessary to help bridge the gap with respect to conventional or competing technologies. Early stage demonstration projects are seeking funding mainly at an EU level, although national agencies are increasingly keen to explore funding possibilities and are likely to develop these further. Furthermore, due to the fact that most of the activity has been related to research and development, few well developed companies or business units dedicated to hydrogen exist, and M&A activity has been insignificant to date. As the market develops and grows, this is likely to result in more commercial and business relationships and increased M&A activity.

3. CHALLENGES FACING HYDROGEN PROJECTS IN SPAIN

Political framework

While the NECP advocates for hydrogen to have a key role in Spain’s decarbonisation strategy, the country still lacks a dedicated hydrogen plan. Without this, investors are unsure about the long-term prospects of this technology and are less likely to invest in early stage projects. As of October 2020, a draft national roadmap has been approved following a public consultation process and shows the government’s willingness to support Spain’s energy transition in order to meet international carbon emission targets. All the same, a more comprehensive national strategy should go beyond recognising the complementary role of hydrogen as a necessary energy vector; rather, it should include specific objectives related to hydrogen uptake, particularly for application in the industrial and transport sectors, as well as necessary modifications to the current regulatory framework, financial incentives to bridge the cost gap, and a system for accounting for renewable gases (e.g. guarantees of origin).

Legal framework

Spain does not have a comprehensive legal framework specific for hydrogen technologies. Furthermore, hydrogen production from renewable sources is hindered due to the classification of electrolysis as an “energy use”, rather than an “energy conversion device”. This situation subjects electrolysers to connection charges,  as well as much  longer development times and environmental constraints, making green hydrogen a less competitive energy source. This uncertainty of regulation has deterred investment from the private sector, with any pilot projects being carried out in a purely experimental capacity. 

Similarly, clearer rules around hydrogen injection into the gas grid need to be developed.  

Securing end users and reducing costs 

The current cost premium for hydrogen technologies compared to conventional technologies remains an obstacle for market uptake in Spain. While developing hydrogen at scale remains a key lever for reducing costs, research and product development activities also need further support to enable this cost reduction. In order to make large demonstration projects on a commercial scale (i.e. multi-MW), end users must be identified and engaged with.  

Financial support for deployment

Due to the current cost premium, action is required by public agencies to help remove this barrier and enable hydrogen projects to be implemented in Spain. A funding programme should be put in place for this purpose, with ambitious but progressively decreasing levels of support as technology develops and costs are reduced, thereby incentivising early adopters. 

It has been estimated that, over the next decade, the cost of Spain’s hydrogen strategy will be approximately €8.9 billion, however it is expected that the majority of this funding will come from private investors. Nevertheless, the Spanish government has stated it will support such hydrogen projects that create jobs. 

Lack of awareness

Despite the recent surge of interest in hydrogen technologies, potential end users and the Spanish public in general are still largely unaware of their ability. More targeted communication on the benefits of hydrogen will be needed as, otherwise, time will need to be spent informing potential project partners about the technology, its status and prospects.   

4. REGULATION OF HYDROGEN 

Specific legislation/regulation

There is currently no specific legislation for hydrogen in Spain, though this may change following the announcement of a national hydrogen strategy. In terms of hydrogen production, it is considered the same as any other inorganic gas production facility and is subject to the same conditions regardless of size, which could hinder the development of small projects. 

In relation to the injection of hydrogen into the gas grid, the PD-01 protocol applies. This document provides the technical specifications for gas circulating inside the grid and makes reference to European standard UNE-EN 16726. At present, there is no specific limitation of hydrogen content by volume: it is assessed on a case by case basis. 

At national level, Ley del Suelo (the “Land Law”) establishes a basic regulation of land use. However, the 17 autonomous administrative regions in Spain, Comunidades Autónomas, have each developed different regimes of land use. As hydrogen production plants are considered to be facilities for the manufacture of chemical products and inorganic gases, such as hydrogen, the land use in each administrative region must permit this industrial activity.

Other regulations

There are no prohibitions against the use of land for hydrogen production, but there are for the storage of large quantities of hydrogen. If hydrogen stored is greater than 200,000 tonnes an Environmental Impact Assessment (“EIA”) is needed. 

As a general rule, local authorities are in charge of permitting projects. As such, whilst there may be few variations between installations from one part of the country to another as a practical matter, local permitting rules will need to be taken into account for each new project. It is likely that dedicated hydrogen production plants, linked directly to renewable energy installations, will be subject to similar requirements and will require an Environmental Impact Assessment. Furthermore, installations for the storage of pressurised hydrogen containers will likely require an ad hoc review by local permitting authorities. Such would normally be the case for refuelling stations where high-pressure buffer tanks (of up to 1000MPa) are required. 

With regard to the transportation of hydrogen by road, the European Agreement concerning the International Carriage of Dangerous Goods by Road (“ADR”) will apply. 

5. REGULATORY BODIES 

There is no specific regulatory body which is responsible for the regulation of hydrogen projects in Spain. Instead, a number of regulators exist who may have responsibilities depending on the activity in question. 3 For a more comprehensive list, see hylaw.eu   

Grant AuthorityPermit Requirement

Regional Government  

  • Administrative authorisation;
  • Environmental Impact Assessment;
  • Integrated Environmental Authorisation
Council
  • Construction Permit 
National Government
  • Grid Connection

6. UPCOMING DEVELOPMENTS 

In August 2020, the Ministry of Ecological Transition and Demographic Challenge begun a public consultation for a draft roadmap of hydrogen in Spain. The Minister for Energy and Environment announced, in October 2020, that the government had approved a hydrogen strategy under which Spain aims to have installed 4 GW-worth of electrolysers by 2030, reaching 300-600 MW by 2024. Publication of this roadmap will indicate the country’s comprehensive plans for hydrogen over the coming decades. 

Key projects that being implemented in Spain in the next 12 – 24 months include: 

  • Green Crane - a joint Spanish-Italian proposal for large-scale hydrogen production, led by transmission system operators (“TSO”) Enagás and Snam SpA. The hydrogen production hubs are located in areas that will be majorly affected by the energy transition, for example locations experiencing closures of coal mines and coal power plants.
  • The Power to Green Hydrogen project in Mallorca will install a production capacity of around 300 tonnes per year for a variety of uses, including transport (car fleet and urban buses), commercial heat and power. The project also aims to demonstrate the feasibility of injecting hydrogen into the gas grid. 
  • Hydrogen fuel cell urban buses in Barcelona and Madrid are expected to be rolled-out in the next few years.
  • A fleet of 12 Toyota Mirais will be deployed in Madrid, together with the first hydrogen refuelling station. This will be the first publicly available hydrogen refuelling station in Spain for refuelling at 700bar. 
  • The deployment of hydrogen technologies in handling equipment (a reach stacker and a terminal tractor) as part of the H2Ports project, in Valencia, will also advance the development of fuel cell solutions for port-related activities.
Ignacio Grangel
Ignacio Grangel
Partner
Madrid