Germany risks massively overbuilding its hydrogen infrastructure – report
Clean Energy Wire
The German government’s strategy to expand hydrogen infrastructure is oversized and could lead to additional costs for taxpayers of about 45 billion euros, according to a report by think tank Institute for Energy Economics and Financial Analysis (IEEFA). The report stated that hydrogen demand in Germany is unlikely to reach official projections. The hydrogen demand projections on which the government’s strategy is based are overly optimistic, as electrification and cheaper energy sources are likely to limit demand for hydrogen, the report said.
“This matters because Germany is financing its hydrogen network on the assumption that demand will grow quickly enough for users to repay the costs over time,” said IEEFA sustainable finance analyst Alasdair Docherty in a press release. “If that demand fails to materialise, taxpayers will be on the hook.”
The think tank explained that a state-backed credit facility known as the amortisation account supports the hydrogen core network in Germany. "The facility absorbs early revenue shortfalls with the expectation that balances will be repaid over time through transport fees." That means costs can gradually be recovered if hydrogen demand grows as regulators plan. If not, then the burden shifts to taxpayers. "The state is legally obligated to cover at least 76 percent of any unrecovered balance by 2055," said the report.
Pipeline costs make up the biggest share of projected public spending, said the report. Additionally, low hydrogen demand would increase spending on hydrogen-ready power plants, and extend reliance on liquefied natural gas (LNG) infrastructure related to the use of so-called 'blue' hydrogen. That is hydrogen produced from fossil gas, where the carbon is captured and stored.
The report calculated that the difference from a fast to a limited hydrogen expansion scenario amounts to approximately 45 billion euros of additional public funding, which translates to a rough 1,000 euros per German taxpayer.
The IEEFA recommends that the government should align its hydrogen strategy more with actual supply and demand data. “It is better to recognise infrastructure risk early than to justify an oversized network by artificially propping up demand at indefinite taxpayer expense,” Docherty said.
In the fight against climate change, hydrogen made with renewable electricity is increasingly seen as a silver bullet for sectors with particularly stubborn emissions, such as heavy industry and aviation. Germany has set out to become a global leader in the associated hydrogen technologies, and the government has penned a National Hydrogen Strategy to fulfil these ambitions.
However, Germany is failing on its targets to expand the hydrogen economy, with both supply and demand remaining well below expectations. Despite billions in subsidies, the government so far has not achieved the goals set out in its hydrogen strategy – and is unlikely to do so in the near future, the Federal Court of Auditors said in a special report assessing progress and challenges in establishing a hydrogen economy in the country.