Draft hydrogen strategy 2.0 - planned measures for hydrogen ramp-up to 2030
Draft hydrogen strategy 2.0 - planned measures for hydrogen ramp-up to 2030
At the end of November 2022, the German Federal Ministry of Economics and Climate Protection (BMWK) presented the draft update of the National Hydrogen Strategy (2020). The draft, which is currently still being coordinated between the ministries, fleshes out the original target images, supports them with numerous implementation proposals and prioritizes them in terms of time.
The aim of the revised hydrogen strategy is to turn Germany into a leading international hydrogen market by 2030. The market ramp-up of hydrogen and derivatives is to be accelerated and the level of ambition for the development of a domestic hydrogen infrastructure significantly increased. As already agreed in the coalition agreement, 10 GW instead of the original 5 GW of electrolysis capacity is to be installed in Germany by 2030 - but so far only projects totaling 4.3 GW are planned by 2030.
In the long term, the focus is to be on green hydrogen. This is seen as "the only sustainable option in the long term" (p. 4). option" (p. 4). In contrast to the hydrogen strategy of 2020, the current version also supports the import of blue hydrogen from Norway, among other countries, for a transitional period. Blue hydrogen is seen as a necessary bridging technology to meet the increasing demand in Germany and to ensure an economical supply of green hydrogen (p.4).
Planned measures - What can we expect by 2030?
Generation and import - making sufficient (green) hydrogen available.
Strengthening domestic hydrogen production remains the focus of the hydrogen strategy. In order to stimulate the previously lacking readiness for expansion, the IPCEI funding budget in the federal budget is to be increased in 2023, thus enabling electrolysis projects of up to 2.2 GW. In addition, 500 MW per year are to be put out to tender for system-serving electrolysis projects onshore and offshore from 2023 to 2028. In the offshore sector, there is also to be a funding tender for hydrogen projects in connection with the procedure for tendering the SEN-1 area. There are also plans to increase the area for offshore hydrogen generation. The BMWK also includes under the promotion of generation from domestic electrolysis capacity the greenhouse gas avoidance quotas for fossil fuels established under the Renewable Energy Directive II (RED II). The quotas on the customer side are intended to stimulate investment on the producer side in a total of 2 GW of electrolysis capacity for applications in the transport sector (p. 7). In addition to strengthening domestic production of green hydrogen, measures are also planned for hydrogen imports. In addition to the (further) development of existing and new funding instruments (H2Global, IPCEI, etc.), the BMWK intends to present an import strategy by 2024 with a focus on pipeline and ship transport (also of blue hydrogen). (S. 8).
Transport and storage - development of infrastructure with state participation
With regard to hydrogen transport, the establishment of a hydrogen grid company with state participation is being considered. An initial network of 1,850 km in length (800 km of which will be new construction and 1,050 km by converting existing natural gas pipelines) is to be provided with financial resources in Germany by 2030 under the EU's "IPCEI Hydrogen" funding program. The hydrogen network company is to provide the remaining capital for the development of the hydrogen network and ensure accelerated implementation (p. 11f.). So far, gas grid operators have little incentive to convert their grids to hydrogen transmission, given strict unbundling rules in the draft EU gas package. If a state-owned hydrogen grid company were established, the conversion and construction of hydrogen grids would no longer be the responsibility of private-sector players, but would be under state control.
In the medium term, this means acquiring existing hydrogen pipelines and natural gas pipelines to be converted; in the long term, the expansion of the hydrogen network by 2030 is to be implemented in a cross-sector system development strategy. The draft NWS update states that the system development strategy includes "decisions on which use cases future energy infrastructures should be designed for." (S. 12). The BMWK sees these use cases primarily in the industrial sector, in aviation and shipping, and in the electricity sector (see "Hydrogen Applications" below). The approach of the cross-sectoral system development strategy suggests limiting hydrogen supply to sectors that cannot be directly electrified. As an alternative to piped transport of pure hydrogen, the LOHC transport and storage technology will be further researched and provided with IPCEI funding. In addition, the BMWK plans to present a hydrogen storage strategy in the next few years, which will address the retrofitting of existing gas storage facilities and the construction of new hydrogen storage facilities. The ministry sees large-scale hydrogen storage as relevant from the second half of the 1920s, when the quantities produced and demanded will be greater in the context of establishing a European hydrogen backbone, connections to neighboring countries in particular are to be created. This should create a well-developed network in Central Europe with connections to the potential generation centers in Scandinavia, Southern and Eastern Europe as well as to the import hubs in Western Europe (p. 13).
Import of green and blue hydrogen - paradigm shift
To meet the demand for hydrogen-based energy carriers, the non-European region is also to be opened up for hydrogen production. To this end, the BMWK intends to accelerate the development of import terminals on the German coast and, to this end, to present both a hydrogen acceleration law and a definition of the steps necessary to convert LNG terminals, i.e., to make them hydrogen-ready, before the end of this year (pp. 9 and 13).
In contrast to the hydrogen strategy of 2020, the current draft update also provides for the import and use of blue hydrogen in Germany (p. 8). Norway is currently positioning itself in Europe as a future supplier of blue hydrogen. Minister Habeck's delegation trip, which also included meetings with industry representatives, was dominated by these plans.
Blue hydrogen is produced on the basis of natural gas via the process of steam reforming, and the resulting CO2 is injected into the ground using "carbon capture and storage" processes. What role blue hydrogen can play in the energy transition is controversial within the study landscape because of its potentially high CO2 emissions. As a study by the Paul Scherer Institute shows, for example, blue hydrogen can only be considered as a climate-neutral bridging technology by definition if CO2 emissions are avoided along the entire production chain through a demonstrably high technology standard. In this regard, the BMWK announces in the draft that the German government will lobby at EU level this year for the establishment of a threshold value for greenhouse gas avoidance with regard to blue hydrogen (p. 20 f.).
Applications - restriction to key areas
According to the hydrogen strategy, future application areas for hydrogen and derivatives are the industrial sector, in particular the chemical and steel industries, the transport sector - here, however, only air and sea transport - and the electricity sector. In the latter sector, electrolysers are envisaged as system-serving stabilizers of the power grid. In addition, the BMWK envisages the construction of hydrogen-capable gas-fired power plants that will serve as reconversion options in the context of a future capacity market (p. 14 ff.). For the heat sector, the draft envisages only a very limited use of hydrogen. Here, it is to be used by means of electricity-led cogeneration plants in conjunction with heat storage facilities in neighborhoods with extensive heating networks and a connection to the hydrogen network. By using the waste process heat generated during electrolysis in the heat network, hydrogen production could also indirectly serve to supply heat (p. 18). What was already apparent from the approach of the cross-sectoral system development strategy for planning the future hydrogen network (see "Transport and storage" above) is confirmed by the BMWK's target picture in the area of hydrogen applications. Priority should be given to using the energy carrier only where there are "no alternative technical solutions for achieving climate neutrality" (p. 14).
In addition to the IPCEI for hydrogen, climate protection contracts (carbon contracts for difference) are seen as the key instrument for promoting the use of hydrogen in parts of industry (p. 14 f.). The BMWK has published an initial draft of this, which is currently being consolidated. Since the industrial sector is considered to be particularly emissions-intensive, greenhouse gas reductions should be achieved here as soon as possible. However, the current draft of the climate protection agreements only covers some parts of industry. To encourage the use of hydrogen and other climate-neutral alternatives, the additional costs incurred by a company when switching to climate-neutral processes are to be offset over 15 years. To support decarbonization efforts in industry, the BMWK also plans to present a carbon management strategy this year (p.15). This is to be adopted on the basis of the second evaluation report on the Carbon Dioxide Storage Act (KSpG) and a comprehensive stakeholder dialog involving civil society, science and industry. In particular, the strategy will clarify issues relating to the use of "carbon capture and storage" and "carbon capture and usage" processes. To date, those German states in which underground storage of previously captured CO2 ("carbon capture and storage") is a possibility have declared such storage inadmissible on the basis of the so-called Länder clause in the KspG. In the electricity sector, hydrogen is to be used for reverse power generation in times of high electricity demand with low electricity supply, as already described. In addition to "H2-ready" combined heat and power plants and gas-fired power plants, the draft provides for the tendering of so-called hydrogen sprinter power plants (according to § 28e EEG) for the conversion of hydrogen and ammonia into electricity to the extent of 4.4 GW in the next three years, as well as the same capacity of RE-hydrogen hybrid power plants (according to § 28d EEG) in the next five years. While the hydrogen sprinter power plants are intended to provide electricity from hydrogen quickly and flexibly in times of low electricity generation from renewable energies, the RE-hydrogen hybrid power plants function primarily as hydrogen-based electricity storage facilities (p. 15f.). The tenders for this are to start this year. At the European and international level, according to the draft, the German government would also like to advocate uniform sustainability standards and certification systems for both green and low-carbon hydrogen and its derivatives (p. 19f.).
Address generation ramp-up more strongly, prevent fossil role backwards
With the update of the National Hydrogen Strategy, a concretization and temporal prioritization of the target images, which were still very abstract in 2020, will take place. On the basis of this, it will be possible to measure the implementation success of the hydrogen strategy for each individual time period. This will make it easier to refine the targets. It remains to be seen whether the measures envisaged will be sufficient to achieve the expansion target of 10 GW of electrolysis capacity.
One major omission in this context is that the issue of approval procedures for electrolysers has not been addressed. Overly complex permitting procedures for electrolyzer projects are one of the major impediments to the green hydrogen ramp-up. To accelerate the implementation of electrolysis projects, a similar spirited approach to LNG terminals would be appropriate. Why the hydrogen acceleration law envisaged in the draft should only be applicable to corresponding hydrogen import terminals is not clear.
For the generation ramp-up, a holistic support strategy - as announced in the draft NWS update for this year - is also urgently needed. This could be designed according to the auction model, as it already exists today for non-European hydrogen imports with H2Global. The envisaged IPCEI funding, which can be used to support individual projects after they have gone through a lengthy approval process, is too small-scale for the development of a demand-covering hydrogen infrastructure.
Against the background of an impending shortage of green hydrogen, the temporary recourse to imported blue hydrogen is an understandable step in itself: Existing production plants for gray hydrogen, which could be upgraded relatively easily for the production of blue hydrogen, and the sufficient availability of natural gas as a feedstock could favor the hydrogen ramp-up. Blue hydrogen could thus facilitate the subsequent switch to electrolysis-based green hydrogen. However, the use of hydrogen is not an end in itself, but serves to integrate fluctuating renewable energies into the energy system and to use them as needed, and is thus an important building block for realizing the energy and climate turnaround. A clear regulatory framework would have to ensure that blue hydrogen does not generate additional CO2 emissions and that its use remains limited in time.
Cäcilia Gätsch, Regulatory Expert cruh21 and Benita Stalmann, Expert for Public Relations & Public Affairs cruh21