Renewable fuels of non-biogenic origin (RFNBOs) and the EU Renewable Energy Directive (RED): requirements and challenges*

The EU Renewable Energy Directive forms the regulatory framework for the use of renewable energies with the aim of reducing greenhouse gas emissions. It serves as a foundation and defines the long-term goals for the transition to a climate-neutral economy in Europe. It aims to promote the production of green hydrogen and other synthetic fuels in the EU and to ensure that these actually come from renewable sources. To this end, a delegated act on the classification of renewable fuels of non-biological origin (RFNBOs) defines strict criteria to ensure the sustainability and renewable energy content of these fuels.

RED: The foundation of the European energy transition
The Renewable Energy Directive, which came into force in 2018, obliges EU member states to cover at least 32 per cent of their energy needs from renewable sources by 2030. In addition to this target, the RED includes requirements to increase the share of renewable energy in the transport sector and promote the use of advanced fuels. The directive introduced the concept of renewable fuels of non-biogenic origin (RFNBOs) for the first time, including green hydrogen. It is considered a key technology for the decarbonisation of industry and transport.
 

The delegated act on RFNBOs
In order to ensure the sustainability of RFNBOs, the delegated act defines specific criteria for the electricity source used in the production of these fuels.
The key requirements include:

1. Additionality: The electricity used for the production of RFNBOs must come from new renewable energy plants that have not been subsidised by state support programmes. This is to ensure that the expansion of hydrogen production does not come at the expense of existing renewable capacities, but actually leads to an additional increase in capacity. However, this condition makes access to renewable electricity more difficult in regions where expansion is still low and makes hydrogen production considerably more expensive, as investments in new plants are required.
2. Temporal correlation: To ensure that RFNBOs are produced from actually available renewable electricity, a temporal correlation of green hydrogen production with electricity generation from renewable sources is required. A monthly match is required until 2030, but an hourly match will be required from then on. This requirement poses a significant technical challenge, as it requires hydrogen production to be synchronised with fluctuations in renewable energy production. Without suitable storage solutions, hydrogen production could therefore only be operated when there is a sufficient supply of renewable energy, which would have a major impact on the efficiency and cost-effectiveness of the plants.
3. Geographical correlation: It is necessary that both the electricity source and the hydrogen production plant are located within the same grid area or balancing group or are connected to each other by an interconnected grid. This requirement is aimed at avoiding the import of green electricity from distant regions. This can have a restrictive effect on the localisation of hydrogen production in certain regions. For projects in countries with a low share of renewable energy in the grid, this can make access to sufficient green electricity more difficult.
    

Extension and tightening of the RE regulations with the amendment of the RED in 2023
The amendment to the directive in 2023 will tighten existing provisions. It sets binding quotas for the use of RFNBOs in various sectors, particularly in industry and transport. The aim is to increase the demand for green hydrogen and accelerate the decarbonisation of the European economy.

The main regulations include:

1. Industrial use: RED III requires that 42 per cent of the hydrogen used in industry must come from RFNBOs by 2030. This share is to rise to 60 per cent by 2035. This poses major challenges for industries such as steel, chemical and cement production, which are heavily reliant on hydrogen. For them, switching to green hydrogen requires considerable investment in infrastructure, technologies and the expansion of renewable energies.
2. Transport sector: In the transport sector, the share of RFNBOs and advanced biofuels must be increased to at least 5.5 per cent by 2030. This means increasing the use of synthetic fuels from renewable sources, particularly in the heavy goods transport, aviation and shipping sectors. However, the cost of RFNBOs is currently significantly higher than fossil fuels, which could affect the competitiveness of companies that have to switch to them.
    

Requirements for Power Purchase Agreements (PPAs) for green hydrogen production
A key mechanism for securing the necessary renewable electricity for RFNBOs is the Power Purchase Agreement (PPA). These long-term supply contracts are intended to ensure a reliable supply of green electricity and must fulfil strict conditions in order to be recognised as the basis for RFNBO production:

1. Contractual relationship and intermediaries: The PPA can be concluded either directly or via intermediaries between the fuel producer and the operator of the renewable energy plant (although it is not yet legally certain whether the role of the intermediary is permitted). The intermediary may act as a contractual partner, but a direct link between the electricity producer and the fuel manufacturer must be ensured. This represents an additional bureaucratic hurdle and often requires complex contractual structures in order to fulfil the transparency and traceability requirements.
2. Extensive identification requirements: Detailed information must be included in the PPA to clearly verify the source of the renewable electricity. This includes the location of the plant, the capacity, the date of commissioning and the frequency of feed-in declarations. These requirements are intended to ensure that only electricity from the specified source is used and that the origin of the electricity used is transparent. At the same time, however, these requirements lead to a certain administrative burden.
3. Guarantees of origin (HKN): The amount of renewable electricity used for RFNBO production must be covered by corresponding guarantees of origin. These certificates must meet the requirements of Article 19 of Directive (EU) 2018/2001 and prove that the electricity actually comes from renewable sources. To prevent abuse, guarantees of origin must be cancelled before they expire, which is intended to ensure complete traceability.
    

Options for categorising electricity as fully renewable
The delegated act offers six options for categorising electricity for the production of RFNBOs as fully renewable:

Direct connection to renewable plant: The hydrogen production plant is directly connected to a renewable source, which enables automatic categorisation as renewable.

1. Additionality and correlation via PPA: Electricity is sourced via a PPA that ensures geographical proximity and timing. The source must have been commissioned in the last 36 months to be considered ‘additional’.
2. High proportion of renewable energy in the grid (>90%): Electricity from a grid with over 90 per cent renewable content is considered renewable.
3. Low emission intensity in the grid (<18 gCO₂eq/MJ): In regions with low grid emission intensity, grid electricity is recognised as renewable.
4. Consumption during periods of grid imbalance: Electricity used when there is overproduction in the grid or during periods of low grid load is recognised as renewable.
5. Storage and flexible use: The renewable character of the electricity can be ensured through storage, even if it is used at different times.

Criticisms and challenges of RED and the delegated act for RFNBOs - from the perspective of some industry representatives**
Although the RED and the delegated act set ambitious targets, there are several key points of criticism:

1. Bureaucracy and implementation effort: The requirements are complex and pose administrative hurdles, especially for smaller companies. This could slow down the widespread introduction of RFNBOs.
2. Cost-intensive scaling: The additionality and correlation requirements drive up production costs. This makes the market launch of green hydrogen more expensive and impairs its competitiveness.
3. Limited flexibility for existing capacities: The focus on new plants limits the use of existing capacity, especially in regions with excess renewable energy supply.
4. Investment uncertainty: The dynamics of the requirements for temporal and geographical correlation can create uncertainty and long-term investment planning in the RFNBO infrastructure.
   Higher energy costs for industry and consumers: The requirements for electricity procurement could lead to rising costs that are passed on to end consumers and industre.
   Demand for greater transparency in guarantees of origin: The origin and use of the renewable electricity used to produce RFNBOs must be clearly and fully traceable. This means that the information in the guarantee of origin (production source, age of the plant, time window of production) should be detailed and verifiable so that auditors or certification bodies can ensure the conformity of the electricity used with the RFNBO requirements. To this end, the Federal Environment Agency has published guidelines on the coupled supply of guarantees of origin in accordance with Section 30a HkRNDV, which take this into account.

Conclusion
The EU RE Directive and the delegated act for RFNBOs provide a clear but demanding and complex framework for the promotion of renewable fuels. While the strict requirements for power sources and PPAs offer high standards, they also lead to practical challenges. A more flexible approach that includes financial support and broader consideration of alternative technologies could improve the acceptability, feasibility and cost-effectiveness of the targets and support the EU's climate goals more effectively.
 

* Note: This text does not constitute legal or certification advice and is not a substitute for such advice. To ensure compliance with the criteria described, qualified legal advice and pre-qualification to ensure compliance with the requirements is recommended.
** This does not reflect the political position of Vattenfall, but the general perspective of the industry.

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