PROJECTS BY HYXCHANGE
01-03-2022 – 01-07-2023
Spot market simulation (H2SMS)
The exploration study of the formation of a hydrogen exchange commissioned by the Dutch Ministry of Economic Affairs and Climate Policy (2020) concluded that the Netherlands is very well positioned for development of an exchange-based hydrogen trading platform.
The Netherlands has a unique position with vast potential for green hydrogen production from offshore wind, the landing of seaborne hydrogen imports, a solid industrial base with large hydrogen subsystems, and, of course, the unique natural gas- and industrial feedstock infrastructure as a gateway to industrial clusters in the Northwestern European hinterland. The Netherlands also has a track record when it comes to energy exchanges as the designer of the system of market coupling of the European electricity exchanges, and the creation of Europe’s leading gas market at the TTF.
The exploratory study sketches a timeline for platform development and roll-out. The timetable aligns with the currently envisioned completion of hydrogen backbone by 2026 and beyond, preceded by development of regional systems. Regional hydrogen grids at harbour regions are expected to be operational at an earlier stage. From the onset they require establishment and development of hydrogen spot markets and/or an “into pipe” market for seaborne imports.
As follow-up to the exploratory hydrogen exchange report, the key topics for a hydrogen exchange were discussed with market parties. Based on this, four preliminary products were selected for further development. Development of these products is related.
- Certificate product, being a precondition for all other products.
- Spot market product: needed, due to intermittent output profile of electrolyzers. Start by doing a market simulation, to be launched at sea port locations.
- Products for hydrogen grid balancing and storage. To be included in the Spot market simulation.
- Index product: this provides a value to the certificate product.
The study seeks to establish a robust blueprint for a hydrogen exchange in the Netherlands that enables a gradual build-up of a hydrogen exchange covering an expanding geographical market catalysing the envisioned hydrogen system development.
The project will detail an institutional framework for a hydrogen exchange in terms of stakeholder roles, responsibilities and powers for the system operator (system management & operation, transport, quality conversion, balancing mechanism), the market operator (clearing & settlement, counterparty risk management), and market participants (hydrogen production, storage, conversion and deployment). Market efficiency, integrity and robustness of exchange-based hydrogen trading is assessed through extensive market simulations, conducted in close cooperation with partners in the HyXchange initiative and future market participants, building a shared view and confidence in the next steps towards exchanges-based hydrogen trading. The study is composed of two parts, first a dispatch simulation and second a game simulation.
- First, we will explore optimal hydrogen spot market dynamics for a gradually expanding system covering green/blue hydrogen production, pipeline transport, storage and seaborne imports. For this we aim to expand on the existing utilities of TNO’s I-ELGAS model, that calculates optimal (least-cost) market allocation and associated market prices for coupled nodal markets for hydrogen, electricity and methane..
- Second, we will conduct a series of virtual market simulations with market participants using the TNO’s EYE model to assess the impact of bid behaviour and uncertainty. The simulation will both take place within the two regional hubs Port of Rotterdam and North Sea Ports, and at a national level (where it will interact with the broader NW-European energy market and utilise the Gasunie backbone).
Expected outcome: The project charts operational design for a hydrogen exchange in terms of market processes such as nominations, allocation, settlement and reconciliation in context of the hydrogen, electricity and natural gas system and associated geographical – and temporal scope, like temporal granularity, trading periods, gate closure and delivery periods, along with associated product specifications in alignment with coupled power and natural gas markets.
Send download link to:
The objective of the HyXchange GO (certificate)-pilot was to test with real companies and realistic assets whether hydrogen Guarantees of Origin certificates are ready for implementation in the Netherlands.
Existing hydrogen (H2) value chains are organised around a relatively small number of large scale producers of (petro)chemicals. Many of these are large scale H2 consumers, which typically have their own on-site H2 supply or have close links with specialised industrial gas suppliers on premises or close-by, who produce large volumes of H2 typically from fossil sources.
Driven by the energy transition, new H2 applications are emerging in industry, mobility, power and the built environment, which are changing these historic value chains. Next to an increasing variety in demand, also the upstream market variety is increasing, with ambitious plans for H2 supply from renewable sources (e.g. wind and solar power with water electrolysis) as well as decarbonised H2 sources. The transition comes with changes to the current market operation, as the market for H2 will develop from its current bilateral trade mode, more and more into a market in which H2 can be traded freely between multiple suppliers and consumers. HyXchange aims to facilitate that development by setting up a commodity exchange, similar to those existing for natural gas and electricity.
An important difference between commodity markets and the future H2 market is the expectation that a large part of the emerging hydrogen demand will be driven by compliance targets. These compliance targets can either be mandatory, derived from EU or Dutch policies, such as the EU Renewable Energy Directive or the Wet Milieubeheer, or can be voluntary as set by companies’ corporate social responsibility (CSR) strategy.
Companies are expected to pay premium prices for H2 that has the specific environmental attributes that allows them to meet their compliance targets. These H2 attributes could be a low greenhouse gas footprint, or production via renewable electricity. In fact, it is the premium value linked to specific H2 attributes that is the main driver for the current development of new clean H2 supply chains.
For the market to recognise and verify such environmental attributes, certification is a proven approach. Guarantees of Origin (GO) certificates for instance, allow markets to verify the production origin of H2, while other types of certificates allow markets to verify whether the H2 meets eligibility requirements from mandatory policy targets.
The HyXchange GO pilot resulted in several general learnings as summarised in the report. Overall the pilot has been successful and no issues have been encountered in GO issuance or the processes. From the pilot learnings, two points of attention have been identified.
Point of attention 1: Clarifying GO definitions
During the pilot, we identified that additional clarification is needed on the definition of the GO data fields, as listed in Figure 7 to ensure they are interpreted correctly. None of these points of improvements present barriers to the implementation of GOs in the Netherlands.
Point of attention 2: Electricity and H2 metering & verification
The HyXchange GO pilot accepted H2 production data from participants without independent, third-party verification. In some cases, the data was simulated based on expected performance of assets to be developed in the future. For real issuance of GOs, only production from existing assets can be accepted. It is important that the data provided to issue these GOs will be verified by an independent body.
H2 metering and verification
We identified two aspects where such independent verification will be necessary:
1. Measurement and verification of the H2 production data, at least on a monthly basis. Typically this is done by an independent metering company.
2. Verification of the plant setup to classify the type of hydrogen produced from the feedstocks used and the greenhouse gas footprint of the H2. Typically such verification is done by an independent (certification) auditor.
At this point, guidance on how such companies or activities would be accredited is still lacking. It is also still unclear how and at what specifications the H2 will need to be metered. We expect that the Ministry of Economic Affairs and Climate will need to develop such guidance over the course of next months, prior to implementation of the GO to HBE route.
Electricity metering and verification
Currently renewable electricity that is not connected to a grid does not receive renewable electricity GOs from CertiQ. Without such electricity GOs, no H2 GOs can be issued for that renewable electricity. This will be an issue especially for integrated renewable power and hydrogen producers with a direct connection. A solution could be for CertiQ to issue electricity GOs for non-grid connected production, or for Vertogas to issue renewable H2 GOs based on other proof of renewable electricity production, e.g. via an audit report. In the latter solution, attention should be paid to potential risks of double counting the renewable electricity.
Pilot Report September 2022
Latest update Certication Committee February 2023
Send download link to:
Send download link to:
A Hydrogen Exchange for the Climate
This study explores the possibilities for a hydrogen exchange, partly based on the previous experience of the establishment of the electricity exchange and the gas exchange.
Several preconditions apply to a hydrogen exchange, partly based on previous experience with the establishment of the electricity exchange and the gas exchange. It requires a developed market with enough different suppliers and demanders, as well as a physical trading point or energy infrastructure where market participants can find each other to exchange surpluses and deficits. One difference is that, at the time, the electricity and natural gas exchanges were created by liberalising an existing situation where the market and the infrastructure were in place beforehand. In the case of hydrogen, both the market and the infrastructure have yet to be largely built up. It takes time (approx. 6 – 10 years) to realise the necessary hydrogen infrastructure and also to bring the climate-neutral hydrogen production up to the required level. The hydrogen exchange must therefore be built up in phases, with the exchange growing along with the market.
In the final situation, several options are possible as trading points: new hydrogen hubs in the making or announced; the existing hydrogen pipelines of the industry; future landing hubs for hydrogen imports; storage facilities for hydrogen; and the announced hydrogen “backbone” of the Gasunie (by converting part of the gas infrastructure). Ultimately, the hydrogen backbone will be the most decisive element since all other infrastructures will be connected to it. This backbone can also serve a variety of market participants. This is a favourable situation for an exchange with added value.
In terms of volatility and temporal dynamics, the hydrogen market is expected to be half-way between the electricity market and the gas market. This creates added value for the economic optimisation process and for optimising the dynamic matching of supply and demand. This will reduce costs, especially if this is an exchange that works for all market participants across the network, without barriers.
The Netherlands has a unique starting position due to its cost-efficient approach to sustainable energy, its location, which is perfect both for offshore wind and the landing of hydrogen imports, the role that Dutch industry plays in hydrogen, and, of course, the unique gas infrastructure that will be converted and used for the transport of hydrogen. The Netherlands also has a track record when it comes to energy exchanges: as the designer of the system of market coupling of the European electricity exchanges, and, of course, the creation of Europe’s leading gas market at the TTF.
In this regard, it is recommended to take an appropriate initiative. Such an initiative should be structural, aimed at the launch, development and expansion of the exchange initiative as it grows with the development of the Hydrogen Market as a whole.
Three elements can be distinguished
1. Forerunners of the exchange initiative also paving the way for the market: a system for guarantees
of origin and the trade therein.
2. Regional physical markets in the start-up phase based on the hydrogen infrastructure at one or more port locations.
3. The final hydrogen market on the hydrogen “backbone” around a virtual trading point, over a network with a postage stamp tariff with international connections to other countries
In order to set this up in a coherent manner, it would be best to set up an initiative group. Such an initiative group would then deal with the main preconditions and condition-setting activities such as the initial design of a hydrogen price index and the criteria of a system of guarantees of origin. Such an approach has already yielded positive results: at the start of the electricity and gas exchanges and also in the international context with European market coupling of the electricity markets. This experience can be used for the establishment of the hydrogen exchange.
Send download link to:
Get In Touch
Get In Touch