Berlin to present first European rules on hydrogen grid financing

1 year ago 102

Germany could soon become the first European country to put in place a policy framework for supporting investments in hydrogen infrastructure, in anticipation of EU regulations that are currently still in the making.

Hydrogen, a clean-burning fuel, is expected to play a crucial role in decarbonising hard-to-abate industries like steel and chemicals.

But while other fuels like oil and gas took decades to develop a dedicated storage and transport network, the nascent hydrogen industry has only a decade or so to put its infrastructure in place.

And with demand still low, private financing does not keep up with the pace of development desired by politicians. Banks are reluctant to offer favourable terms for the nascent industry, while early adopters are unable to bear the entire cost of investments on their own.

Risks related to amortisation have “so far inhibited private-sector investments in hydrogen networks,” reads a draft of changes proposed to the energy act, currently circulating in Berlin and seen by Euractiv.

Changes to the law offer two solutions for supporting investments: a Germany-wide grid fee jointly decided from 2025 by network operators and state guarantees.

“This [inhibited development] is to be countered by the financing concept with a subsidiary state guarantee,” the text explains. Few words for what entails a large-scale state subsidy for the development of Germany’s envisioned hydrogen pipeline “highways” of 11,200 kilometres.

Traditionally, infrastructure investments are recouped by charging grid fees for accessing the transport network. To kick-start the industry and make the investment worthwhile, the German government is looking to top up these fees in the early stages.

The law does not offer a cost estimate for the time being. How much German taxpayers will be asked to contribute to the hydrogen infrastructure will depend on the network regulator, the federal grid agency known as the Bundesnetzagentur.

“Things are moving forward,” said Klaus Müller, the agency’s president.

From 2025 to 2055, Müller will be empowered to create an “amortisation account” that will finance the government top-ups based on reported costs by gas grid operators – who are ready to build hydrogen pipelines but have been reluctant to do so without state guarantees.

The German government is expected to adopt the law in mid-November, paving the way for an independent assessment by the country’s network regulator.

Work in Brussels continues

In Brussels, meanwhile, EU lawmakers are busy negotiating the European policy framework for gas and hydrogen infrastructure.

Mid-October saw the third round of negotiations between EU countries and the European Parliament on the proposed “hydrogen and decarbonised gas market package” tabled by the Eurpoean Commission in December 2021.

However, few expect an agreement within the year. While gas pipelines were initially deployed as part of state-owned monopolies responsible for transport and retail activities, hydrogen pipelines are expected to emerge as private companies with separate entities in charge of retail and transport – so-called “ownership unbundling”.

Energy Commissioner Kadri Simson clearly insisted on setting up “very clear unbundling” rules when she tabled the gas and hydrogen package two years ago, mirroring EU legislation currently applied to gas markets.

However, the move proved unpopular with EU member states and the European Parliament, which both pushed for abolishing ownership unbundling rules in favour of greater regulatory flexibility during the last round of talks on the gas and hydrogen package.

“There is a pleasing proximity between the positions of the European Parliament and the Council” when it comes to vertical unbundling – where gas producers ship and sell their product all in one – said Jens Geier, a German social democrat who is the Parliament’s lead negotiator on the file.

Horizontal unbundling – competition at the same step of a value chain of hydrogen production – has proved more divisive, however.

“The Parliament insists that this does not create any barriers to investment and that more than unbundling under company law is not necessary,” Geier said, adding that “synergies should be able to be utilised”.

“Discussions will continue at a technical level until the final trialogue,” he added, suggesting this is likely to remain a key sticking point until the end.

Geier will also have to negotiate a framework for grid fees. Initially, the Commission proposed a 75% discount on fees and to eliminate cross-border tariffs entirely. Whether this will hold remains to be seen as industry is pushing to keep network tariffs at cross-border points.