Identifying legal challenges in the Swedish hydrogen market

On 14 March this year, the Swedish Government presented the long-term objectives and guidelines for Swedish energy policy, and it is no surprise that the Government therein confirms the prediction that fossil-free hydrogen will play an important role in Sweden’s future energy system. The Government also confirms the view that fossil-free hydrogen is the best way to phase out fossil-fuels in the industrial sector, and an important factor to the energy transition for heavy traffic. What is perhaps more surprising is that the Government does not anticipate that any legislative changes will be necessary to enable and facilitate the deployment of fossil-free hydrogen production and infrastructure going forward.

A couple of weeks after the Government presented its report, the Swedish Energy Agency presented their interim report under its commission to coordinate the work with hydrogen in Sweden (a mandate issued by the Government in March last year). In contrast to the Government’s assessment, the Energy Agency identifies several regulatory roadblocks for hydrogen deployment and suggests that the Government issues a public inquiry to prepare a regulatory framework for the hydrogen market in Sweden.

The current development of the Swedish hydrogen market 

Looking at the current Swedish hydrogen market and the experts’ predictions for the future, we can note that both production and use of hydrogen is expected to increase significantly over the coming decades (180 Ktonnes 2024 compared to 2,376 Ktonnes 2050). In addition, both the production process and the areas of use will shift completely.  While hydrogen in Sweden is today produced by natural gas reforming (a process generating fossil emissions) and used in oil refining and the chemical industry, it is expected to in the future be produced primarily by electrolysis (a process, assuming the use of fossil-free electricity, generating no fossil emissions) and used mainly in steel and iron production, as fuel for heavy transports, in production of ammonia and fertilizers, and energy storage. 

There are ambitious plans for fossil-free hydrogen production and use from stakeholders in Sweden. There is currently a strong focus on the north part of Sweden and the development of green steel production. There are also several wind power producers and projectors that has expressed their plans to use some of the energy from the wind power plants to produce hydrogen by electrolysis (to be used for example to make fuel for heavy traffic). Moreover, we are seeing the development of hydrogen pipelines across Sweden being envisaged. However, for all these plans to become reality, a number of considerations must first be made and one of the most prominent and urgent needs is to develop a coherent regulatory framework for the Swedish hydrogen market.

The development of hydrogen by electrolysis

As the production of hydrogen by electrolysis relies on the availability of a huge amount of renewable electricity, the general concerns regarding the regulatory conditions and permission processes to establish new electricity production plants are highly relevant also from a hydrogen production perspective. Stakeholders in the Swedish energy market have for many years pushed for political action to simplify and speed up the environmental permit processes to enable the energy transition. The Government, that in recent years has acknowledged the need for simpler and faster environmental permit processes, issued in May 2023 a public inquiry for the purpose of identifying possible legislative changes to achieve simpler and faster environmental permit processes. The result of the inquiry is scheduled to be presented before end of this year. 

The concern regarding permit processing times is also of specific importance to the production of hydrogen by electrolysis, as this process in itself requires an environmental permit. On the European level, the European Parliament and the Council have just adopted a revision of the Industrial Emissions Directive (IED). Although electrolysis for production of hydrogen is kept in the scope of the Directive, the application threshold for such hydrogen production is raised to 50 tonnes (corresponding to about 1,650 MWh) per day. It is notable that an environmental permit is required for a production of 1,500 MWh hydrogen per year according to current Swedish legislation. The revised IED thus allows the Swedish threshold for permit requirement to be raised significantly. In all events should this be considered when developing a coherent regulatory framework for the Swedish hydrogen market, should the Government decide to take up such project.

Another important factor to account for in the planning of hydrogen production by electrolysis is the ability to connect the plant to the grid. Generally, a grid concession is required when constructing a power line. However, there are specific exemptions to this requirement, for example for power lines that are part of an internal network at a wind farm. However, there’s an important distinction: connecting an electrolyzer to the internal wind farm network does not fall under this exemption.  Including this in the scope of exempted power lines could open up for wind power producers to connect small size electrolyzers for the production of hydrogen directly at the wind farm sites when the electricity price is low. 

Transportation of hydrogen 

To enable a hydrogen market accessible to multiple actors, there are by some actors long term plans of developing hydrogen pipeline infrastructure in Sweden. According to the Energy Agency, it is today possible to obtain concession and operate hydrogen pipelines under the Swedish Pipeline Act 1978:160. Nevertheless, the Energy Agency remarks that the regulation is not developed with hydrogen pipelines in mind, and finds it necessary to establish an updated and a coherent regulatory framework for the Swedish hydrogen market which takes into account that the rules on concession must be clarified, the relevant actors’ roles and responsibilities must be determined, and that the safety regulations must be adopted to the new risk profile and public exposure posed by the development of hydrogen infrastructure. 

New provisions on concession for hydrogen pipeline infrastructure

Given that hydrogen pipelines require access to land and pose safety risks, the Energy Agency considers it reasonable that hydrogen pipeline infrastructure, and possibly also other hydrogen facilities, are subject to concession. Similar to the provisions on natural gas pipelines and electricity pipelines, the Energy Agency proposes that the rules on concession for hydrogen pipeline infrastructure (and other hydrogen facilities) are separated from the Swedish Pipeline Act and instead established in a separate act on hydrogen.

Roles and responsibilities on the Swedish hydrogen market

The roles and responsibilities of different actors on the Swedish hydrogen market will to a large extent be determined by the EU Gas Market Package, projected to enter into force this year, and is expected to reflect the roles defined in the EU frameworks on electricity and natural gas. 

The Energy Agency is also deliberating on the need of a state transmission system operator and a system operator authority, which is not directly addressed by the EU Gas Market Package. The Energy Agency highlights that it is not common on the European energy markets to appoint an authority as system operator and concludes that such an approach should be avoided. However, whether a state-owned system operator is needed must be finally determined in light of the EU Gas Market Package. 

The safety framework

The shifting risk profile and increasing public exposure requires a thorough review of the current safety framework. Such an analysis is currently being conducted by the Swedish Civil Contingencies Agency, however, some gaps have already been identified. For instance, the Energy Agency emphasizes in its interim report that there is a particular need to adjust and development the regulations of the Swedish Act 2010:1011 on Flammable and Explosive Goods, the Swedish Act 2003:778 on Protection Against Accidents and the Swedish Act 1999:381 on Measures to Prevent and Limit the Consequences of Major Chemical Accidents.

Final remarks 

As demonstrated above, the Swedish hydrogen market is currently under development and the Energy Agency's proposal is still at an interim level. Considering the regulatory complexities that apply to the hydrogen market, we are in favor of the Energy Agency’s recommendation of developing a coherent legal framework specifically designed for the hydrogen market. We expect to see clearer legislative proposals from the Government following a public inquiry and are monitoring the developments closely. Please reach out if you have any questions, we are keen to discuss this topic further with you. 

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