In July, Germany’s natural-gas transmission operators unveiled their plan for a 11,200km core hydrogen network of pipelines to connect industrial users, storage facilities and power plants across the country, having been requested to do so by the national government.
At the time, Berlin said it wanted the network to be funded entirely with private sector cash, but that it would consider “partial subsidies” as part of a more detailed proposal.
While that proposal is yet to arrive, the government has published an “interim report on a concept for the further development of the German hydrogen network” in a briefing for parliament (Bundestag), which sets out its latest thinking on the matter.
The nine-page document provides a summary of the current plans and the steps that have been taken so far, including interconnections with neighbouring countries and dealings with EU bodies.
But the paper also provides details of a funding “concept” that is “currently being examined with the aim of decentralised entrepreneurial ownership, decentralised entrepreneurial opportunities and subsidised state protection for certain major risks”.
The main points being considered are:
1) Time-shifted grid fees: The financing will eventually be borne by hydrogen users through network charges, but operators will receive funds in advance of the network’s operation.
2) An amortisation account: This is described as an “intertemporal smoothing of network charges”.
“In the first years of the hydrogen ramp-up, high capital and operating costs meet few users. In order to prevent uneconomically high network charges from arising as a result, part of the initial charges could be distributed to later users and thus limited to a marketable level during ramp-up,” the document explains.
“The underfunding that initially occurs in the amortisation account would require pre-financing, which serves to ensure the necessary liquidity for refinancing the initial shortfall in income through future payments.”
3) Uniform federal network fee: An identical grid fee for every network user across the country “would be transparent and simple for hydrogen users, increase planning security and avoid false incentives”.
However, this would require “a balancing mechanism between the TSOs [transmission system operators] that compensates for lower and higher revenues”, the government explains.
4) State protection: “In the event that the market ramp-up does not succeed or is less successful than currently expected (eg, due to future technological quantum leaps), supplementary and subsidised protection should be considered,” the document says, adding that this also may be required if anchor customers pull out, leading to stranded investments.
It explains: “The federal government is pursuing the most private-sector development of the hydrogen core network, and an appropriate division of opportunities and risks between network owners on the one hand and the state or network users on the other must be guaranteed, regardless of the design of any funding instruments.”
5) Direct grants: The government is also considering introducing network fees early on, but offsetting the “prohibitively high” costs in the ramp-up phase with direct grants to network users. In this way, “the actual network user burden corresponds to the desired uniform and marketable network fee”.
These grants could take the form of fixed-term Contracts for Difference, the document adds.
The briefing also explains that the original idea for the government to set up a centralized hydrogen network company for the planning, construction, operation and financing of the H2 core network has now been rejected.
“This option was shelved because implantation could lead to delays in the goal of rapid expansion of the hydrogen core network,” it says.