Towards European hydrogen market design: Perspectives from transmission system operators

Despite hydrogen being central to Europe’s decarbonisation strategy, only a small share of renewable hydrogen projects have reached final investment decision. A key barrier is uncertainty about how future hydrogen markets will be designed and operated, particularly under Renewable Fuels of Non-Biological Origin requirements. This study investigates the extent to which future hydrogen market design can be adapted from existing natural gas markets, and the challenges it must address. The analysis was based on a survey on future hydrogen market design targeting European gas transmission system operators, the stakeholder group responsible for operating the network and implementing the Network Codes. The survey provided an assessment of mechanism transferability and identified challenges for the early development of the hydrogen market. Core market design principles and trading frameworks are broadly transferable from natural gas markets, such as entry-exit systems and virtual trading points. Capacity allocation requires targeted adaptation to improve coupling with electricity markets. Tariffs require adaptation through intertemporal cost allocation, distributing infrastructure costs over time to protect early adopters. Balancing regimes should be revisited to reflect hydrogen’s physical characteristics and different linepack flexibility uses. Key challenges for early hydrogen markets include: temporal mismatches between variable renewable supply and expected relatively stable industrial demand, limited operational flexibility due to scarce storage and reduced pipeline linepack, fragmented regional hydrogen clusters, and regulatory uncertainty affecting long-term investment decisions. These findings provide empirical input to the hydrogen Network Codes and offer guidance to policymakers designing hydrogen market frameworks.