Competition Issues in Hydrogen Markets

1. Introduction

Hydrogen markets are developing rapidly as governments and private companies invest in green hydrogen, blue hydrogen and other low-carbon hydrogen technologies. Hydrogen can be used in industry, transport, electricity generation and energy storage.

Because the market is still developing, competition law is important from the beginning. Competition issues may arise from market concentration, control of infrastructure, exclusive agreements, vertical integration, mergers, access to pipelines and terminals, and government support.

2. Meaning of Competition in Hydrogen Markets

Hydrogen production involves several stages:

Energy or feedstock → Hydrogen production → Processing → Storage → Transportation → Distribution → Final consumer

Different companies may participate at different stages. Competition law must therefore examine both individual markets and relationships between connected markets.

For example, a company controlling hydrogen production and a major transportation pipeline may have an economic advantage over independent producers.

3. Market Concentration

One major competition issue is market concentration.

Hydrogen production can require substantial capital, specialised technology, renewable electricity, water, storage facilities and transportation infrastructure. These requirements can create significant barriers to entry.

If only a small number of firms control hydrogen production or distribution, they may obtain substantial market power.

However, high concentration alone does not establish unlawful conduct. Authorities normally examine market definition, barriers to entry, customer alternatives and the actual competitive effects.

4. Vertical Integration

Vertical integration may occur when one company controls hydrogen production, transportation, storage and supply.

It can create legitimate efficiencies by improving coordination and reducing transaction costs. However, it may also create foreclosure risks.

For example, an integrated hydrogen producer might control a pipeline and make access more difficult or expensive for competing producers.

Competition authorities may therefore examine whether competitors have reasonable alternatives and whether access conditions are discriminatory.

5. Hydrogen Infrastructure as an Essential Facility

Hydrogen markets may depend on infrastructure such as:

pipelines;

storage caverns;

ports;

liquefaction facilities;

refuelling stations; and

specialised terminals.

Where infrastructure is difficult or uneconomic to duplicate, its owner may possess significant market power.

The Competition Commission of South Africa v Senwes Ltd case provides a useful comparative principle. The Constitutional Court examined exclusionary conduct involving an important storage facility and its effects on related markets. Although Senwes concerned grain rather than hydrogen, the reasoning is relevant by analogy to hydrogen infrastructure where control over an important facility can affect downstream competition.

6. Exclusive Agreements

Hydrogen producers may enter long-term supply contracts with industrial customers, transport companies or electricity producers.

Long-term contracts can provide investment certainty, which is particularly important in a new industry. However, very extensive exclusive arrangements could potentially prevent competing hydrogen suppliers from accessing important customers.

Competition authorities may therefore consider the duration, scope and market coverage of exclusivity.

7. Mergers and Acquisitions

As the hydrogen sector develops, companies may acquire competitors or businesses operating at different stages of the hydrogen supply chain.

A merger between a major hydrogen producer and a pipeline operator, for example, could create vertical competition concerns.

Authorities may consider:

market shares;

entry barriers;

control of infrastructure;

access to customers;

technological advantages;

potential efficiencies; and

the possibility of foreclosure.

The South African merger-control framework under the Competition Act 89 of 1998 is therefore relevant to hydrogen-sector transactions.

8. Competition and Government Subsidies

Hydrogen markets often receive government support because governments want to encourage decarbonisation and develop new industries.

Subsidies, tax incentives and preferential procurement can help create the market. However, poorly designed support may give one company an artificial competitive advantage or exclude smaller competitors.

Competition policy should therefore encourage support mechanisms that are transparent and accessible to qualifying market participants.

9. Hydrogen and Electricity Markets

Green hydrogen production depends heavily on electricity, particularly renewable electricity. This creates a connection between hydrogen and electricity markets.

A company controlling both renewable generation and hydrogen production may have an advantage over independent hydrogen producers.

Competition analysis may therefore need to consider whether electricity access, grid connection, renewable-power contracts or balancing services are being provided on discriminatory terms.

10. Case Law: Sasol Chemical Industries

Sasol Chemical Industries Ltd v Competition Commission is relevant to the economic analysis of market power and excessive pricing under South African competition law.

Although the case did not concern hydrogen, it demonstrates the importance of examining economic evidence when assessing pricing conduct by a dominant firm.

This reasoning may become relevant if a hydrogen supplier eventually obtains substantial market power and its pricing conduct is challenged.

11. Case Law: Telkom

Competition Commission v Telkom SA Ltd provides another useful comparative precedent concerning infrastructure and exclusionary conduct.

The case demonstrates why competition concerns can arise when an infrastructure owner also participates in downstream markets. The principle can be applied by analogy to hydrogen pipelines, storage systems and terminals.

12. Future Competition Challenges

As hydrogen markets develop, competition authorities may need to address:

hydrogen market definition;

interoperability standards;

access to pipelines;

certification systems;

green-hydrogen certification;

data sharing;

exclusive supply contracts;

mergers;

cross-border hydrogen trade; and

vertical integration.

International coordination may become particularly important because hydrogen can be transported across borders through pipelines, ships and specialised infrastructure.

13. Conclusion

Competition issues in hydrogen markets arise because the industry combines emerging technology with substantial infrastructure and investment requirements. Market concentration, vertical integration, infrastructure access, exclusive contracts and mergers may create competition concerns.

South African competition law, particularly the Competition Act 89 of 1998, can provide a framework for addressing these issues. Senwes, Sasol Chemical Industries, and Telkom provide useful comparative principles concerning infrastructure dependence, market power, pricing and exclusionary conduct.

The central objective should be to allow hydrogen markets to develop efficiently while ensuring that dominant firms do not use control over production, infrastructure or customers to unnecessarily restrict competition. Early attention to open access, transparent rules, competitive procurement and fair market participation can support a more competitive hydrogen economy.