D4a.2 Further exploration of balancing options and system design

Within the energy transition, hydrogen is gradually taking on a recognised role as a system-level energy carrier, which is now materialising in the first regional hydrogen networks across the Netherlands. Current developments show that these first hydrogen grid initiatives are predominantly organised as project-based systems, in which balancing is arranged through case-specific, bilateral solutions. While this approach fits the initial phase of market development, it raises structural challenges as the system scales: fragmented arrangements can limit market accessibility for new entrants, obscure cost structures, and create uncertainties and lock-ins that can delay investment decisions and inhibit broader market deployment. From a policy and system perspective, this creates a clear rationale to take a coordinated approach to balancing. This raises the question of how balancing should evolve from a project-specific activity to a more structured system that both facilitates market development and relieves individual projects, while preserving flexibility and enabling future scaling and integration. This report presents the second phase of the HyDelta programme research on balancing regional hydrogen distribution grids. Where phase 1 established the conceptual foundation by defining balancing functionalities, grid archetypes, roles, and key knowledge gaps, this phase takes the next step by further exploring these gaps and further substantiating the framework with technical aspects and market perspectives. This report adds insight into how current initiatives and market parties view balancing in practice, which flexibility options and balancing instruments appear feasible, how response-time requirements shape the design of balancing regimes, and what changes when regional grids become coupled to the national hydrogen system. In the short term, the development of balancing regimes must match the reality of the first regional hydrogen projects. Most initiatives are still organised around bi- or multilateral arrangements between a limited number of parties, and project-specific solutions rather than fully regulated open-access grids. In this stage, balancing is expected to depend primarily on portfolio balancing by trading parties, heavily dependent on the flexibility of connected assets, and a careful matching of supply and demand profiles. Hybrid set-ups at industrial offtakers, adjustable feed-in assets, and decentralized storage can provide important flexibility, while if a public DSO will be assigned for hydrogen distribution,[1] it has a safeguarding role and should intervene only when system integrity is at risk. Additionally, for many regional grids in the short term, required response times will be very short, meaning that automation, fast monitoring, and clearly defined escalation procedures are essential. In the longer term, the transition from stand-alone regional grids to coupling with the national hydrogen network creates new possibilities for balancing. A larger system can provide access to broader flexibility, greater liquidity, and potentially more standardised market arrangements. At the same time, a system coupling introduces new design choices around portfolio balancing coordination, cost allocation, operational responsibilities, hydrogen quality requirements, and data exchange between customers, DSO and TSO. Three approaches are explored: pressure-controlled balancing, separate portfolio balancing regimes, and a central portfolio balancing regime. Based on current insights, the report points to separate balancing regimes as the most practical starting point for many regional grids, while keeping open the possibility of moving towards a more centralised regime over time. The main conclusion is that a harmonised balancing design for hydrogen distribution grids is possible, but that its practical implementation must reflect the phased development of the market. In early grids, balancing will depend much more on flexible portfolios, contractual arrangements, and the physical responsiveness of connected assets than on sophisticated market mechanisms. DSOs must be able to monitor the system continuously and apply escalation measures when needed, but they are not expected to solve routine balancing through technical intervention alone. Over time, standardisation of roles, interfaces, data exchange, and balancing principles becomes increasingly important, especially if regional grids are to scale up and connect smoothly to the national system. Important knowledge gaps and challenges remain. These include uncertainty about the future regulatory framework and the legal boundaries of DSO intervention and flexibility procurement; limited insight into the required back-office, organisational setup, and costs of balancing arrangements; uncertainty about which market parties will take on trading and balancing roles in practice; and the need for further validation of response times, operational requirements, and feasible balancing arrangements across a wider variety of grid configurations. In addition, future decisions on system coupling will require clearer shared perspectives from DSOs, the TSO, regulators, and market parties on the desired long-term end-state of hydrogen balancing. This ultimately leads to several recommendations for the parties involved: 1. Balancing should be addressed jointly and early in regional hydrogen projects, with DSOs, trading parties, and connected parties developing a shared understanding of roles, flexibility needs, and contractual arrangements. 2. Near-term balancing regimes should remain practical and scalable, relying on bilateral and portfolio-based solutions while avoiding design choices that block future standardisation. 3. Market parties should prepare early for balancing responsibilities by developing realistic portfolio strategies, securing contractual access to flexibility, and making clear arrangements on nominations, deviations, and emergency response. 4. Trading parties should focus on building portfolios that combine sufficient low-cost flexibility with predictable supply and demand profiles, so that balancing can be managed commercially before DSO intervention becomes necessary. 5. Regulators and policymakers should provide timely clarity on roles, responsibilities, and access rules, so that market parties can invest and participate with greater confidence while local solutions can still evolve towards a coherent wider hydrogen balancing framework over time. The key next step is to develop a shared roadmap for hydrogen balancing, in which DSOs, TSO, market parties, and policymakers jointly define the transition towards a more standardised and scalable balancing framework. Active participation of all stakeholders is essential, with both market parties and policymakers contributing to and aligning around this roadmap. A coordinated approach will reduce uncertainty and provide a clear pathway for regulation, investment and system integration. [1] Note that at time of publication no public DSO was officially assigned (yet) for hydrogen distribution. The archetypes used in this study assume that hydrogen distribution grids will be operated by a public DSO.