POWER-TO-X

German policy backlash threatens green hydrogen

The German government has set out its support for green hydrogen, including four hydrogen-ready plants totalling 10GW. But the sector will also face challenges amid criticisms from some in business that the country’s energy policies are “toxic”.

RICHARD HEAP

February 19, 2024

  • Germany to back four hydrogen-ready power plants totalling 10GW
  • But this is scaled back from a previously-announced 23.8GW plan
  • Green hydrogen may be caught in backlash to policies called “toxic”

 

This month, the German government announced it will provide €16bn to back the construction of four gas-fired power stations, totalling 10GW, that can be converted to run on hydrogen between 2035 and 2040.

These plants are likely to support the expansion of wind and solar capacity in Germany by improving the resilience of the country’s power grid. This will make it viable to expand wind capacity from 70GW and solar from 81.7GW at the end of 2023. Growing demand for green hydrogen is also likely to translate into more demand for power from wind and solar projects, which will be needed to operate the electrolysers that produce green hydrogen.

Funding for the plants will come from the country’s Climate & Transformation Fund and the tender is due to start soon, but with no date announced.

This follows other policies supportive of green hydrogen in Germany, such as the government’s commitment last July to double its target for installed green hydrogen production capacity in 2030 to 10GW. It was also the first member state in the European Union to support green hydrogen projects using the EU Innovation Fund, and made an extra €350m available in its national budget in December.

We look forward to discussing the expansion of green hydrogen in Germany at the next meeting of our Power-to-X Leadership Council, in Hamburg, on 10th April.

But we do not expect discussion to be wholly positive either. There are questions on whether the government can make good on these lofty promises as it is under pressure from businesses and opposition policies to justify its green energy policies. Green hydrogen could be caught in the backlash.

Scaled-back plans

The gas-to-hydrogen power plant programme has faced difficulties thus far.

For one, at 10GW headline capacity, it is 58% smaller than when it was first announced by the German government in August 2023. Initially, policymakers wanted to develop 15GW of gas-fired power plants that could be converted to hydrogen by 2035, with an additional 8.8GW of hydrogen-only plants.

There are also questions about the viability of green hydrogen production in Germany.

In 2023, the European Commission and Fraunhofer Institute argued in a joint report that producing green hydrogen in Germany was not financially viable in the long term given the country’s high power prices after the impact of Russia’s 2022 invasion of Ukraine on energy supplies. The report argued that France and Spain were better placed to make the fuel in a cost-effective way as they have better conditions for renewables and other low-carbon sources.

Green hydrogen is also becoming a divisive issue as Chancellor Olaf Scholz is facing criticism from businesses about the country’s energy policies. Siegfried Russwurm, head of the Federal Association of German Industry, was quoted in the Financial Times this month saying German energy policies were “toxic” for businesses. He said companies paid twice as much for electricity as their rivals in France, due to Germany’s moves away from nuclear and coal in the last decade.

Russwurm added businesses could not take investment decisions as “nobody can say with any certainty today what our energy supply will look like in seven years’ time” and, as a result, how expensive power will be. Green hydrogen will become cheaper, but it is still in its early days.

These challenges have been further exacerbated by the combination of higher interest rates and power prices since the war in Ukraine, which has hit German exports. They resulted in a 0.3% contraction in the German economy in 2023 and made it the world’s worst-performing major economy. Analysts predict that Germany is on track for growth of under 1%, which is below average in the 38 nations in the Organisation for Economic Co-operation & Development.

As a result of this lower growth, Scholz’s government was forced to fill a €17bn budget hole in December by agreeing to roll back environmental policies, including by cutting subsidies for solar power and electric vehicles, and raising new taxes. Right-wing political parties have argued this shows the folly of long-standing moves to embrace renewables in place of nuclear and coal.

This can only raise questions about German support for largely-untested green hydrogen technology – but there are supporters of new green hydrogen too.

Kerstin Andreae, chair of the German Association of Federal Energy & Water Industries, said the 10GW gas-to-hydrogen plants could be a “crucial building block for a path towards climate neutrality while maintaining supply and system security”. She said it was right to postpone the potential hydrogen-only plants in the initial tender because they are more costly, and said that policymakers should look to use a capacity mechanism to unlock investment in the sector.

This clarity is vital for investors. With German energy policies under fire, and questions about the country’s support for new technologies like green hydrogen, firms need all the clarity they can get.