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The German government has laid down the use cases it envisions for the deployment of hydrogen in Germany in its National Hydrogen Strategy (Nationale Wasserstoffstrategie – “NWS”). The NWS was first published in June 2020 (BT-Drs. 19/20636) and again in July 2023 in an updated version (BT-Drs. BT-Drs. 20/7910 | English version). It is intended to create a coherent framework for the production, transport, consumption and further use of hydrogen and its derivatives including ammonia, methanol or synthetic fuels (together “hydrogen products”) in Germany, as well as for innovation and investments in the hydrogen sector.
The 2023 update mainly focusses on the necessary actions to enable the supply of Germany’s expected additional hydrogen needs of 40-75 TWh in 2030 on top of the 55 TWh currently covered by (grey) hydrogen from fossil sources which shall also be converted to climate friendlier sources in the future.
According to the NWS 2023 direct financial support shall only be made available to producers of green hydrogen products. However, on the demand side, the German government plans to also promote blue (natural gas), turquoise (methane pyrolysis) and orange (waste) hydrogen deploying CCS-technologies and meeting life-cycle emissions savings which are comparable with those of the EU’s Taxonomy Regulation (EU) 2020/852 and any other (also future) EU rules demanding higher emission savings. The extent to which carbon capture technologies will be deployed on a larger scale in Germany is still unclear, as the regulatory framework is incomplete and public debate is only just gaining momentum.
According to the NWS, the German government expects hydrogen and its derivatives to be used in particular in the industrial sector by 2030. Hydrogen-based technologies are seen as a suitable transformation option for those industrial sectors where they replace fossil fuels such as natural gas, crude oil or coal which are otherwise hard to abate. Regarding the of supply of heat hydrogen is expected to be used mainly in high-temperature applications where the use of electricity is not possible or too expensive, esp. in steel production and parts of the chemical industry.
The NWS identifies hydrogen products as an important building block for sustainable climate-friendly mobility, complementing the use of electricity. The German government envisions a use case for hydrogen and electricity based “e-fuels” especially in aviation and shipping and for special purposes, e.g., in the military. The use of e-fuels in road traffic will probably be limited to (heavy) duty vehicles and is currently under further scrutiny.
NWS announces a “National Port Strategy” examining the development of a port infrastructure for the refuelling of ships with hydrogen and its derivatives. Additionally, it contains a plan for the development of an overall strategy for the hydrogen transformation of shipping within the framework of a “National Action Plan for Climate-Friendly Shipping” to come including a technology-neutral funding framework for demonstration projects for alternative propulsion systems and fuels based on hydrogen technologies.
However, the aviation and shipping sectors so far still depend on liquid and gaseous fuels, as emission-free and low-emission driven solutions are not expected to reach the market until 2030 or even later.
Germany is planning to phase-out power generation from fossil fuels to become climate neutral by 2045.
The NWS refers to hydrogen power plants to step in and provide balancing services as a last resort where more efficient flexibility options or storage are not available. It assumes an increase of the annual hydrogen demand in the conversion sector (electricity and heat grids) from currently 0 TWh to around 80–100 TWh in 2045.
Already now, new investments in gas-fired power plants must ensure that they can be converted to operate with hydrogen at a later date at low additional cost (so-called “H2 readiness”): This relates to CHP plants with an electrical output of at least 10 MW that are approved from July 2023 on as well as biomethane plants if they want to receive support under the Renewable Energies Act (Erneuerbare-Energien-Gesetz “EEG”) in effect as of 1 January 2023.
In August 2023, the German Federal Ministry of Economic Affairs and Climate Protection (BMWK) presented outlines for its future power plant strategy (Kraftwerksstrategie). It described Germany’s back-up system for electricity supply on the way to an electricity supply mostly based on renewable energy sources. In the long run, power plants fuelled with renewable fuels (such as green hydrogen) are to secure electricity supply times with little wind and sun.
To this end, the BMWK planned to hold tenders for new gas fired power plants that will either run on renewable hydrogen from the start or from a later point in time. In February 2024, the government declared that it would start with tenders for new hydrogen-ready gas-fired power plant capacity of up to four times 2.5 GW. These plants would need to be fully converted to hydrogen between 2035 and 2040 and are to be set up in locations where they are useful to the system.
The NWS expects the use of hydrogen for heating single buildings to play a subordinated role as it can be assumed that the demand for hydrogen in the industry and transportation sectors will probably remain constant even with relatively high or rising prices, while in many buildings, the demand for hydrogen will remain low. However, hydrogen can be a necessary technology option in buildings that are not connected to a heating network and in which heat pumps cannot be operated efficiently, if there are large hydrogen consumers in the neighbourhood anyway and a sufficient hydrogen supply is available at low prices.
However, in principle, German legislation also allows for the use of renewable and low-carbon hydrogen products for heating in the newly introduced German Building Energy Act (Gebäudeenergiegesetz) and the German Heat Planning Act (Wärmeplanungsgesetz). For more information see part 5 below and our blogplost.
The updated strategy doubles the envisaged amount of domestically produced hydrogen products from 5 to 10 GW by 2030.
Currently, German gas storages are still connected to the natural gas network and needed to ensure the security of gas supply, especially in the winter months. In the future, cavern storages which allow for quicker changing between injection and withdrawal are likely to play a role in the hydrogen market. In the long term, pore storage facilities with longer injection and withdrawal periods might also play a role to cover hydrogen need over the winter period. First conversion projects have already commenced.
For the time being, hydrogen is mostly traded on the basis of long-term bilateral agreements.
To accompany the developing market for renewable hydrogen, the European Energy Exchange (EEX) introduced the “HYDRIX” index for green hydrogen in May 2023. The index is based on voluntary contributions of market participants and reflects the weekly prices in EUR/MWh for green hydrogen delivered to the German market. In addition, EEX is to provide a platform for the sale of the green hydrogen products to be delivered to Germany under the import auctions conducted under the German H2Global funding (see part 4 below) by way of auctions for standardised products with one-year delivery periods.
Besides the market-based HYDRIX index, E-Bridge Consulting GmbH publishes a cost-based spot price index for hydrogen, the “hydex”. Hydex is based on short-term electricity, gas and EUA quotations without capital costs and is calculated for green hydrogen as well as blue and grey hydrogen.
The German government considers that, in the long term, hydrogen and the electricity required for hydrogen should be financed by the sector that consumes the hydrogen. To promote the establishment of a fully functioning market for hydrogen products, Germany has introduced various incentives, support measures and regulatory support aiming at supporting hydrogen across the whole value chain:
Mid-2023 over 50 German projects had received an IPCEI (Important Project of Common European Interest) status under the funding rounds H2Tech, H2Infra and Hy2Use with a funding budget of more than EUR 19 billion. In addition, 15 projects were notified under EU state aid rules in the field of hydrogen use. This includes electrolyser projects with a total installed capacity of 2.5GW to be realised by the end of 2027.
The BMWK has published an overview of funding opportunities for hydrogen projects on a dedicated website.
The state-funded H2Global auctions aim at making green hydrogen available on the German market by bridging the gap between import and offtake prices. To this end, the investment vehicle HINT.CO (the German incorporated entity Hydrogen Intermediary Company GmbH) holds tenders for imports of green hydrogen produced outside the EU and tenders for the re-sale of the imported hydrogen.
In 2022, HINT.CO published the first calls for tenders for the purchase of green ammonia (lot 1), green methanol (lot 2) and sustainable aviation fuels (e-SAF, lot 3) to be produced in non-EU countries and delivered to Germany over a ten-year period starting in 2027. To this end, it has received funding worth EUR 900 billion from the German state via the H2Global foundation which was founded to accelerate the emergence of supply and demand markets for green hydrogen and Power-to-X (PtX) products in Europe and globally. A second import auction worth EUR 3.5 billion has been envisaged.
As a next step, HINT.CO will start auctions for selling the quantities purchased to interested buyers for delivery periods of five years.
HINT.CO thus serves to bridge the price and time gap between producers and off-takers in the emerging market for hydrogen products and to provide the necessary investment security to unlock large-scale investments.
The H2Global funding mechanism has drawn much interest from the industry. Hopes are high that both the agreements for the purchase and sale of the hydrogen products which HINT.CO has put up for negotiation as well as the price signals from the auctions can serve as blue-prints for the evolving green industry worldwide.
Germany is planning to support industrial decarbonisation projects in the form of project-related grants using the carbon contracts for difference model (CCfD). Integrating renewable hydrogen in the industrial process is seen as one of the main use cases which can apply for a CCfD. The CCfD scheme will include state support over a span of 15 years for covering the cost difference between: (i) the actual cost (OPEX and CAPEX) of avoiding emissions by using decarbonisation technologies, expressed as a contractually agreed CO2 price per avoided amount of greenhouse gas emissions, and (ii) prices according to the emissions trading system. As the enterprises will also have to pay less under the EU ETS after the retrofitting, they might – also depending on the development of the CO2-prices – in some years not be eligible for support but be obliged to pay the difference to the strike price to the relevant German authority.
A related “Support scheme for the promotion of climate protection agreements” – (Förderrichtlinie Klimaschutzverträge – “FRL KSV”) has been published by the BMWK in June 2023. In general, all applicants/projects will have to fulfil certain general requirements:
Further requirements may be set out for each new funding round.
Enterprises have been invited to submit project outlines in a preparatory procedure which precedes the actual first bidding procedure. Only enterprises which handed in project outlines for the preparatory procedure will be allowed to submit bids. The details of the scope of the first bidding procedure are yet to be published. They will be determined on the basis of the outlines submitted.
In line with the requirements of the EU Renewable Energy Directive (EU) 2018/2001 (RED II) German distributors of fossil transport and jet fuels are obliged to reduce the overall GHG emissions of their fuel mix by a certain percentage. For example, in 2023, the GHG emissions of a distributor’s fossil transport fuels overall fuel mix must be 8% below the GHG emissions of the same amount of purely fossil fuels. Until 2030, this percentage is going to rise to 25%, cf. Sec. 37a of the German Federal Immission Control Act (Bundesimmissionsschutzgesetz – “BImSchG”).
Similarly, distributors of jet fuels will in future have to ensure a minimum share of renewable fuels of non-biological origins (RFNBOs) replacing their jet fuel. Starting in 2026, the minimum share will be 0.5% which will rise to 1% in 2028 and 2% in 2030.
For the time being, the German rules are unfortunately overly restrictive as to what counts as an RFNBO for the purpose of GHG emission reduction e.g., an electrolyser may in general only draw renewable electricity from a generator directly connected to it. However, the German government is currently preparing legislation to bring German law in line with the definition of RFNBOs as determined under a delegated regulation complementing the EU RED II (“RED II DA I”, for more detail see EU part 5). The German government has presented a revision of the 37th German Federal Immission Control Ordinance (37. Bundesimmissionsschutzverordnung “37. BImSchV”). With regard to the definition of when electricity can be regarded as renewable, the 37. BImSchV will reflect the provisions of the RED II DA I, including the transitional regime. It admits the use of both electricity accompanied by an guarantee of origin (GoO) for electricity (as long as it is cancelled for the production of the RFNBO) and electricity without a GoO, effectively allowing the use of electricity benefitting from support under the EEG for the production of an RFNBO. In addition, in its current draft form, 37. BImSchV introduces a multiplier of three for the use of RFNBOs for emission reduction, which will make the use of RFNBOs more valuable compared to other emission reduction options. The revamp of the ordinance also introduces rules for certification of RFNBOs which will be similar to those already implemented for biofuels and will also rely on the use of approved voluntary schemes under the EU RED (not yet existent for RFNBOs).
For the time being, the revised 37. BImSchV will only be directly applicable to the obligations of distributors of road transport and aviation fuels to reduce the GHG emissions of their fuel mix and as such, it mirrors the requirements of the EU RED II. However, with the wider scope of the latest amendment of the EU RED II (so-called EU RED III which is to be transposed into national legislation by 2026), the use of RFNBOs will become relevant to other sectors than the transport sector requiring either another revision of the 37. BImSchV or the introduction of additional regulation. Besides, German legislation already refers to the 37. BImSchV for the use of RFNBOs outside the transport sector, e.g., Sec. 93 EEG empowers the government to refer to the 37. BImSchV for the definition of “green hydrogen” instead of developing a separate definition for the purposes of the EEG.
If taken from the public network, electricity is normally subject to network fees and certain surcharges. If used for the production of hydrogen, exemptions and reductions can apply:
The German government has passed several laws to promote the production of green hydrogen through tenders. In each case, however, implementing regulations are still lacking. This affects the planned support to be tendered for
Rules for tenders for hydrogen-ready gas fired power plants announced in the German government’s power plant strategy have not yet been introduced and are subject to further discussions with the EU Commission under EU state aid rules.
Germany is aiming to significantly expand its hydrogen refuelling stations by 2030, with 86 filling stations currently available for light-duty vehicles and 300 expected to be available by 2030; 200 of these for heavy-duty vehicles. Expansion is being funded with EUR 70 million from the private investment fund Hy24 and EUR 6 million from the German Federal Ministry of Transport (BMDV) as part of the “National Innovation Programme for Hydrogen and Fuel Cell Technology” (NIP). Hydrogen is also expected to play a role in shipping and aviation, though emission-free solutions are not expected until 2030 or later.
The BMWK has announced plans to examine port infrastructure for ships and develop an overall strategy for hydrogen transformation of shipping within a German National Action Plan.
Germany has begun to adapt and enhance the existing legal framework to accommodate hydrogen, albeit some legislation – mostly executing ordinances – has yet to be implemented. Fields of legislative activity (other than already described above) regard the following:
German legislation contains different definitions for renewable (“green”) and other types of hydrogen (or its derivatives). For example,
In January 2023, the new German Guarantees of Origin Register Act (Herkunftsnachweisregistergesetz – “HkNRG”) was introduced. It lays the legal foundation for introducing a system of GoOs for renewable and low-carbon gases and hydrogen as well as their use for heating and cooling in Germany, as envisaged by RED II.
In January 2024, the German government presented its draft for an implementing ordinance (Gas-Wärme-Kälte-Herkunftsnachweisregister-Verordnung – “GWKHV”). According to the draft, renewable or low-carbon gas GoOs may be issued for a producer of such gases, be transferred and cancelled when delivered to a final consumer. Where electricity from renewable sources has been used to produce the gas, a renewable gas GoO can be issued, provided that
GoOs for low-carbon hydrogen will be issued for hydrogen based on natural gas, non-biogenic waste and residual materials, or landfill, mine or sewage gas fulfilling either the requirements of GHG emission reduction under the EU RED II DA or the sustainability requirements of the EU Taxonomy Climate Delegated Act .
Pure hydrogen networks have not been subject to network regulation in the past, except for distribution (not transmission) networks for hydrogen that also meets the definition of “biogas”. This is the case if the hydrogen has been produced by electrolysis using predominantly renewable energy sources (in practice, at least 80%). The admixture of hydrogen classifying as biogas and other hydrogen produced by water electrolysis is regulated both on distribution and transmission level.
Beyond this, transmitting or distributing hydrogen was previously only covered by the EnWG if the hydrogen supplemented natural gas in a natural gas network. Such hydrogen feed-in must comply with the requirements of the regulations of the German Technical and Scientific Association for Gas and Water (Deutscher Verein des Gas- und Wasserfaches e.V. – “DVGW”). Due to quality sensitive consumers, particularly natural gas fuel stations, the potential for feeding a hydrogen share into natural gas grids is currently very limited. According to BNetzA, hydrogen may in fact only account for 10%, which may not be exceeded anywhere in the entire network. Various tests, however, are currently being carried out, exploring the possibility of higher hydrogen shares of up to 20% and 30% in real network operation.
On 27 July 2021, legislation for a transitional regulation of hydrogen networks that is part of the EnWG entered into force. The new regulation only applies to those operators that opt to be subject to this regulation the main features of which will be as follows:
As Germany aims to develop a starter network for hydrogen with a total length of 1,800 km by 2027/28, an additional set of rules is currently being introduced for the so-called hydrogen core network (Wasserstoffkernnetz). The hydrogen core network is to be composed of projects that have either received IPCEI or PCI (Project of Common Interest) status, are part of the European Hydrogen Backbone Initiative, projects of a supra-regional nature to create a hydrogen network covering the whole of Germany, projects that improve the import possibilities of hydrogen or the integration of hydrogen electrolysers, or projects that interconnect existing hydrogen pipeline structures with those that meet one of the previous requirements.
Regarding the development of the starter network, Sec. 28r EnWG obliges the gas transmission system operators (TSOs) to submit a plan for the hydrogen core network
In July 2023, the German gas TSOs published a first vision for a hydrogen core network by 2032 which covered 11,200 km. In the meantime, it has been replaced in November 2023 by an optimized version covering around 9,700 km:
(source: Hydrogen Core Network - FNB Gas (fnb-gas.de))
Regarding financing of the starter grid, the German government proposed dedicated rules in November 2023 (3. EnWGÄndG). For the hydrogen starter grid, the German government plans to introduce a concept with the goal of decentralised entrepreneurial ownership, decentralised entrepreneurial opportunity and risk bearing and subsidiary state backing for certain major risks.
Under this concept, the hydrogen network is in principle to be financed by network charges levied on the connected customers using a uniform national network fee (so-called “postage stamp”).
However, in order not to overburden the initially few hydrogen users with the high capital and operating costs of the network construction phase, an amortisation account is to be introduced, on which the initial costs incurred are partly booked and then gradually passed on to an ever larger group of hydrogen network users.
In the event that the market ramp-up does not succeed or is less successful than currently expected, the German government plans to introduce a certain level of state backing should the balance on the amortisation account not balance out or networks or pipelines can no longer be operated economically due to the loss of anchor customers (stranded investments).
For the immediate construction of the hydrogen production, transport, storage, and import infrastructure, legal provisions for simplification and acceleration are being examined, and regulatory obstacles are being removed.
Therefore, the German government wants to issue a new Hydrogen Acceleration Act (Wasserstoffbeschleunigungsgesetz) to accelerate planning and permitting of the production of hydrogen as well as the associated infrastructure.
The German government has already updated the LNG Acceleration Act (LNG-Beschleunigungsgesetz – “LNGG”) in July 2023. Existing regulations for a future climate-friendly reuse of land-based LNG terminals are being specified. The goal of the German government is to make the LNG infrastructure usable for future hydrogen infrastructure and prevent so-called “stranded investments”.
Furthermore, to shorten the approval process for the expansion of decentralized hydrogen production and its derivatives, an adjustment of the 4th German Federal Immission Control Ordinance (Vierte Verordnung zur Durchführung des Bundes-Immissionsschutzgesetzes – “4. BImSchV”) is being examined after a change in the European legal framework.
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