A new Power-to-X strategy is to contribute to the green transition and accelerate the development within Power-to-X by way of objectives, a new subsidy model, and changes in the power infrastructure.

On 15 March 2022, a broad political agreement was made on the development and promotion of hydrogen and green fuels - a Power-to-X (“PtX”) strategy. The agreement aims at developing an electrolysis capacity of 4-6 GW before 2030. The PtX strategy will thereby become a significant part of the more long-term objective - to make Denmark climate neutral by 2050. The strategy attaches importance to the fact that PtX can contribute to an integrated and flexible energy system where PtX is integrated in the energy system so that it supports and supplements existing energy sectors such as power, gas and district heating.

About PtX technology

PtX technology makes it possible to produce fuels and chemicals which can replace fossil products in a number of heavily adjustable sectors, e.g. shipping, aviation, agriculture, parts of the industry, and parts of the heavy road transport. We already see a number of PtX initiatives within offshore, transport and the utility sector.

Important elements in the strategy

The PtX strategy contains a number of central objectives and desires from the politicians. The most essential are:

  • The objective of 4-6 GW electrolysis capacity in 2030
  • A new subsidy model implemented by way of PtX tender procedures
  • Proposal for new options within the power infrastructure
  • Establishment of a Danish hydrogen infrastructure and a PtX task force

PtX tender procedures - how are subsidies granted?

The PtX strategy contains a new subsidy model consisting of a subsidy scheme of DKK 1.25 billion. The funds are to be used for a public tender procedure for hydrogen production and better framework conditions for the producers. The PtX tender procedure is expected to be implemented as follows:

  • Market-based tender procedure - aiming at the cheapest and largest hydrogen production for the budget.
  • The winners of the tender are found by choosing the lowest bids on price supplements until the budget is empty.
  • The subsidy is granted as operational subsidy and paid per produced volume of green hydrogen.
  • Only hydrogen production produced from renewable energy sources and complying the EU requirements for documentation of green PtX fuels are entitled to receive a subsidy.
  • The subsidy model is based on a fixed price supplement.
  • The subsidy is provided for a 10-year period, and all funds (DKK 1.25 billion) are expected to be granted in one tender round.
  • Security mechanisms are implemented to ensure that the tender procedure does not result in a very modest hydrogen production and capacity due to high bidding prices.

New options within the power infrastructure

The strategy addresses a number of desired options within the power infrastructure, including direct lines, geographically differentiated consumption tariffs and local collective tariffing. The purpose is i.a. to provide better possibilities for installing power lines directly from wind and solar parks to PtX plants and for lower tariffs to major power consumers - e.g. PtX producers. Consequently, the proposal involves an exemption from the general rule that all transport and distribution of power must take place through the collective grid. The exemption will not exempt the participants from payment of VAT and charges, including electricity charges. If the power is used for a process, the electricity charge may be reimbursed, except for DKK 0.004 per kW.

Establishment of a Danish hydrogen infrastructure

According to the strategy, it is also an important prioritisation that the two gas infrastructure companies, Energinet and Evida, are able to own and operate hydrogen infrastructure and that a dialogue is initiated with Germany and Denmark’s other neighbouring countries concerning the establishment of a hydrogen infrastructure. The establishment of such hydrogen infrastructure may promote the export. Later this year, the Danish government is expected to present an energy and utility proposal, including a proposal to regulate the Danish hydrogen infrastructure as to ownership, financing, operation, etc.

PtX task force

The Ministry of Climate, Energy and Utilities will set up a PtX task force. The objective of the task force is to identify and administer obstacles in terms of regulation and legislation in relation to the establishment of a new Danish utility sector for PtX and to strengthen the framework conditions within production, transport and use of hydrogen and PtX products in Denmark. DKK 57 million is reserved for the task force in the period from 2022 to 2026.

No proposal concerning special price adjustment for surplus heat

The agreement does not propose a special price adjustment for the use of surplus heat from PtX plants. Under the current regulation, surplus heat from PtX plants which are used for district heating may be sold at a price equivalent to the price cap of renewable energy sources. In 2022, the price cap is DKK 77 per GJ.

Our expectations

We monitor the development within PtX closely across the various industries and sectors where PtX is expected to have an impact. With this new PtX strategy, the development of PtX is supported further - both within the private and the public sector. We expect that additional initiatives will be introduced both nationally and at EU level which will put more focus on the area.

For more information on the PtX strategy (in Danish): Udvikling og fremme af brint og grønne brændstoffer.

Contacts

Søren Hornbæk Svendsen

Partner

Line Markert

Partner (L)

René Frisdahl Jensen

Partner (L)

Renée van Naerssen

Attorney

Mads Herdichek Langfeldt

Assistant Attorney