Hydrogen pipeline network would cost customers 87% more to use than existing gas grid: study
Fee increase would be partly due to rollover capex costs from repurposed gas pipes
Extending Germany’s “core” hydrogen network beyond industrial customers to serve homes and small businesses could end up being hugely costly for end users — even before the actual cost of hydrogen is factored in, a new study backed by gas industry players has revealed.
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And at least part of this significantly higher cost would be due to the need to amortise the residual, historic capital costs incurred from existing fossil gas pipelines that have been repurposed to carry hydrogen.
It found that the weighted average fees across all customer groups in Germany would be around €0.018 ($0.0195) per kWh) by 2045, when adjusted for inflation — around 87% higher than users pay to use the existing gas network today.
Today, fees to use the gas network in Germany account for around 18% of customers’ bills, in addition to the cost of fuel, environmental levies and other taxes.
Households would see rises of 83-88%, while industrial users would see the smallest increases — which still come in at around 49-74%.
The EWI figures, which are based on weighted average cost of capital (WACC — broadly, the cost of borrowing to finance the build-out) of 5.39-6.32%, become even starker when adjusted to reflect different interest-rate scenarios.
If interest rates rise by 2.25 percentage points, which is not inconceivable given recent economic turmoil across the globe, the cost of using the network would skyrocket by 120% on average, with households and small business seeing fee rises of up to 138% and 187% respectively.
On the other hand, if interest rates fall by 2.25 percentage points, the rise would be dampened. However, it would still yield an increase in fees of up to 40% on average.
Demand risk
But in the event of lower-than-expected demand — and fewer users — the cost burden would fall more heavily on those who did choose to connect, EWI warned.
“If demand in the building sector were lower than in the DVGW scenario... the hydrogen network tariffs of the remaining customers connected to the distribution grid would increase particularly sharply,” the research institute said.
This increase could be partially mitigated if portions of the distribution grid were not converted to carry hydrogen in response to poor demand, it added — but the transmission grid costs, which are already baked in as part of the core network planning, would remain.
In total, EWI estimates that it would cost €68.8bn to create the hydrogen network envisaged by DGVW, with the vast majority of this (€47bn) coming from the conversion of the distribution network.
This implies that the 9,700km core network would cost €21.8bn — €2bn more than the figure mooted by Germany’s economics and climate affairs minister Robert Habeck at the project’s launch in November last year.
Gas network amortisation
This is partly why the costs associated with extending the core network to the distribution pipes would be so high — DGVW envisages repurposing 80% of the existing gas network, compared to just 14% of the transmission network (which would be used for the core network).