German court deals blow to hydrogen hopes

“The ruling is indeed a big shock, but the objective of being carbon-neutral by 2045 continues to stand, the general need to be more environmentally friendly in the way we use energy continues to stand, so that is a problem that will necessarily have to be resolved in time.”

The plan for hydrogen, enshrined in the National Hydrogen Strategy, puts Germany’s demand for the fuel and its derivatives by 2030 at between 95 and 130 terawatt hours (TWh), equivalent to 3 million to 4.5 million tonnes a year. The estimate was increased in the latest version of the strategy following Russia’s invasion of Ukraine, which accelerated Germany’s efforts to cut back on gas.

The steel and chemical industries will account for the bulk of the expected demand in 2030 because the absence of viable alternatives for them to decarbonise means they have priority for hydrogen supplies, think tank Agora Energiewende says.

But Germany’s capacity to produce green hydrogen is limited, meaning imports are expected to account for more than half of the 2030 total and increase in share after that.

Agora expects the near-term focus to be on hydrogen delivered by pipeline from Norway and North Africa, which can provide the fuel much more cheaply than further afield ship-based supplies from Australia, South America or elsewhere.

But the loss of the funding – deemed by the constitutional court as incompatible with borrowing limits enshrined in the basic law because it was diverted from emergency pandemic response funding – has raised huge uncertainty over how programs and initiatives will be financed in the midst of Germany’s broader budget crisis.

Scaling up the hydrogen industry is one of the specified tasks of the Climate and Transformation Fund, which had been budgeted at €177.5 billion of funding from 2023 to 2026. Programs in the now-weakened fund that have big question marks over their future funding include the Germany Energy Agency’s hydrogen co-ordination office, and the H2 Global initiative, the mechanism that is critical to close the gap between the cost of hydrogen supply and the prices buyers are prepared to pay.

The fate of H2 Global’s initiatives, including tenders for the import of green ammonia into Europe and for subsequent tenders for green methanol and sustainable aviation fuel, remain unclear. While the €60 billion eliminated from the fund is over a period of several years, the impact is expected to be felt as early as January in the absence of a rapid solution.

“Hydrogen has such high relevance that they are looking for alternative funding, and they will find it, but it’s a matter of time,” says one official.

“I think it will happen, but later probably. I would not expect the government changes their strategy and the programs, but the question is if there are delays, what impact that will have, especially for projects waiting for final investment decisions?”

Discussion around how the funding hole will be filled has raised tensions within the three-party coalition in the government led by Chancellor Olaf Scholz over how to finance the transition to net zero emissions, according to Clean Energy Wire, an independent news service.

It says that while some are pushing for more subsidies, others are calling for stricter market-based instruments such as carbon pricing. Spending cuts, higher taxes or an increase in the national carbon price are all in the mix.

‘Hydrogen-ready’

Meanwhile, plans for the infrastructure needed to underpin a switch to hydrogen are well under way. LNG import terminals that were rushed into construction following’s Russia’s invasion of Ukraine are being set up as “hydrogen-ready”, while the federal government unveiled plans in June for a hydrogen transportation grid that would involve an initial 9700 kilometres of pipelines by 2032.

The hydrogen “kernnetz”, or core grid, will connect hydrogen import sites with the major demand centres and will be established using both converted gas pipelines and new lines. The investment will be covered by the gas transmission companies, but importantly backed by long-term government guarantees.

As to the prospects for hydrogen or green ammonia imports from as far afield as Australia, industry players such as Storengy are more optimistic than some, with Mercer emphasising the need for diversified supplies to avoid Germany falling into the same trap as it did with its reliance on Russian gas.

“Once it is on the ship we are pretty convinced it will come from multiple places: South America, South Africa, Australia, the Arabian Peninsula – wherever we have a lot of sun and some wind,” he says.

The writer is visiting Germany on a research trip hosted by the German Federal Foreign Office in co-operation with the National Press Club of Australia.