Revamping Europe’s Energy Landscape: Targeting 45% Renewable Energy

According to the Renewable Energy Directive III, the EU region aims to achieve a binding target of at least 42.5% by 2030, with an additional indicative target of 2.5%, raising it to 45%.

Over the past decade, the EU has implemented various policy frameworks for renewable energy, with multiple revisions of the Renewable Energy Directive.

• In 2009, the EU adopted the Renewable Energy Directive (RED), setting a goal for renewable energy to constitute at least 20% of the EU’s final energy consumption by 2020. In 2018, the RED underwent a significant revision (RED II), aiming for a renewable energy share of at least 32% by 2030.
• In July 2021, the European Commission introduced the Fit for 55 package, outlining 12 proactive measures across energy, industry, transportation, and construction, committing to reducing greenhouse gas emissions by 55% by the end of 2030 compared to 1990 levels. This comprehensive proposal aims to align EU policies with the climate targets agreed upon by the Council and the European Parliament.
• In March 2023, after tripartite negotiations between the EU Parliament, Council, and the Committee on Industry, Research, and Energy, a provisional agreement on RED III was reached. This agreement establishes a binding target of at least 42.5% by 2030 and an additional indicative target of 2.5%, raising it to 45%. In September of the same year, the latest version of RED III was approved, marking the first inclusion of aviation and maritime transport within its scope. The revision was inspired by the EU’s Fit for 55 plan.

Even in RED II, sustainability and emission standards were integrated, requiring industries such as transportation, forestry, heating/cooling, and electricity to adhere to these standards to qualify for public financial support. These ambitious and binding targets indicate that industries like transportation will explore innovative methods utilizing renewable energy.

Apart from providing funding and incentives for clean energy, the EU has implemented fiscal measures to discourage the continued use of fossil fuels. Enterprises failing to take appropriate measures to curb carbon emissions may face significant financial penalties.

“Renewable Energy Directive” Redefines Hydrogen

The European Union (EU) is at the forefront of the green energy sector. However, the industry lacks a standardized definition for “low-carbon hydrogen” and whether it includes green, blue, or pink/purple hydrogen. In July 2023, two authorization acts required by the EU’s “Renewable Energy Directive” officially came into effect, aiming to address this ambiguity.

The new legislation brings clarity to the hydrogen sector. It specifies that hydrogen produced through electrolysis can be considered under climate-neutral/fully renewable conditions. Additionally, the regulation outlines criteria for facilities producing pink or purple hydrogen to be regarded as partially renewable energy.

According to available information, the first authorization act, “Authorization Act on EU RFNBO,” defines the conditions under which hydrogen, hydrogen-based fuels, or other energy carriers can be considered non-biological renewable fuels (RFNBO). Electrolyzer cells producing hydrogen must be connected to new renewable energy electricity production, ensuring that the production of renewable hydrogen encourages renewable energy integration. The second authorization act, “Authorization Act on the Minimum Threshold of Greenhouse Gas Emissions for Circular Carbon Fuels,” provides a method to calculate the lifecycle greenhouse gas emissions of RFNBO. This method considers the entire lifecycle emissions of the fuel and clarifies how to calculate the greenhouse gas emissions of renewable hydrogen and its derivatives.

Funding for Green Energy Products

With the continuous improvement of the European clean energy regulatory framework, public funds from governments or public institutions offer extensive support for green energy projects, including hydrogen initiatives. In the EU, any stakeholder interested in planned projects can obtain grants, though only a few projects permit funding for individuals. Public funds primarily come from two sources:

• Funds provided by the EU’s long-term budget for the period 2021-2027.
• National funds provided by funding agencies in EU member states.

Both EU budget and national funding programs allocate funds through planned projects, each with key objectives and related eligibility criteria. For example, the Connecting Europe Facility (CEF) supports energy infrastructure projects connecting two or more EU countries. The Innovation Fund, operating at the EU level rather than individual countries, is another funding program supporting innovative low-carbon technologies, encouraging companies to scale up the use of such products during the pre-commercialization phase of renewable hydrogen.

Currently, more attention is being given to funding for hydrogen projects. In the first half of 2023, the Innovation Fund allocated over €3.6 billion to 41 large-scale green low-carbon projects in the EU, covering sectors such as cement, steel, advanced biofuels, sustainable aviation fuels, wind, and solar energy. An additional €4 billion in grants was provided to projects of varying scales by the end of 2023.

Of particular note, in March 2023, the European Hydrogen Bank was established to expedite investments in hydrogen projects. Subsequently, the European Commission disclosed the terms and conditions for the pilot auction of the European Hydrogen Bank on November 23, 2023. These terms and conditions provide prospective bidders with information on the financial design of the auction and compliance bidding requirements.

The dedicated budget for the first round of hydrogen auctions is €800 million, provided by the Innovation Fund to support the production of renewable hydrogen in Europe. The selected projects will receive subsidies based on fixed premiums per kilogram of hydrogen produced through a bidding process. The subsidy agreements, once signed, require the projects to commence renewable hydrogen production within five years, with a maximum duration of ten years.

Interestingly, additional funding from the Innovation Fund will adopt an auction model (different from the current proposal submission system). The experience gained from the pilot auction of the European Hydrogen Bank is expected to significantly benefit bidders participating in future auction activities organized by the Innovation Fund.

What does RED III mean for the energy industry? It is anticipated that funding for renewable energy and carbon capture projects will further increase, leading to an uptick in technology patents supporting the energy transition.