Germany’s national strategy for the crude oil of the future: hydrogen

Germany's federal government has made hydrogen the cornerstone of the country’s energy policy reform. This is because hydrogen:

• is an additional source of 'green' energy if generated using electrolysis powered by renewable energy;
• is a key industrial raw material, which paves the way for the electricity generation and industrial sectors to interconnect (provided the hydrogen is generated using electricity from a renewable source);
• can be a substitute for other gaseous sources of energy, primarily natural gas, in industrial processes; and
• can, like natural gas, be stored and withdrawn.

The government’s aspirations for this source of energy are encapsulated in its national hydrogen strategy (in German), which was published on 10 June 2020.

Aiming to make Germany a world leader in hydrogen-generation technology, the strategy represents the first major milestone on the path to the targeted promotion of hydrogen. It also means that Germany has become a pioneer among the member states of the EU (which recently consulted on its own hydrogen strategy).

Germany’s strategy takes a cross-sectoral approach. It contains measures on promoting supply and demand for hydrogen, and for developing the required transportation infrastructure for the gas. 

The strategy has 38 measures, including the following:

• Until 2030 a substantial part of the hydrogen used in Germany is to be CO2-free hydrogen. Up to 5GW of electrolysis power is to be generated to enable its production. Then until 2035 (or 2040 at the latest), a further 5GW are to be added. Electrolysis capacity is to be increased by, among other things, a reform of the state-ordered electricity price components and the establishment of a CO2 pricing mechanism.
• Electrolysers are to be promoted, although details of this support are not yet available.
• The framework conditions for generating electricity in offshore wind farms are to be advanced further, for instance by additional tendering processes for relevant projects.
• Hydrogen demand is to be increased, mainly in the transport and industrial sectors, but also, in the medium term, the heating market. €3.6bn in financial assistance has been earmarked for investments in hydrogen-powered vehicles. A further €3.4bn is to be used to develop refuelling infrastructure.
• The use of hydrogen technologies in industrial production is to be promoted using funds earmarked for the decarbonisation of industry.
• Recommendations for developing hydrogen transportation infrastructure are to be devised in co-operation with gas transmission system operators, in particular by reallocating existing gas pipelines.
• Measures to promote research, education and innovation include boosting existing research programmes, and pooling existing and new research initiatives.

The sheer breadth of measures in the strategy means raises a wealth of legal issues concerning their implementation, including in the following areas:

• German Energy Industry Act (EnWG) rules for gas traders and gas supply network operators also apply, in some cases, to 'gas' and 'biogas'. For the purposes of the EnWG, this can also mean hydrogen that has been produced via hydroelectrolysis using renewable energy. However, given that some provisions of the EnWG are more precise in their reference to 'natural gas', for instance those that relate to transmission system operators, it is not clear to what extent the provisions also apply to operators of hydrogen pipelines and hydrogen distribution networks (eg regarding the unbundling rules under sections 4a et seqq. EnWG).
• Art.1(2) of Directive 2009/73/EC states that the directive applies to natural gas, biogas, gas from biomass and 'other types of gas', meaning that its provisions on regulating network access, network charges and unbundling also apply to hydrogen. The wording of the EU gas network access regulation is less clear because this regulation does not have a similarly broad definition of the term 'gas'.
• Financial assistance for buying hydrogen-powered vehicles and establishing the necessary refuelling infrastructure raises questions under EU state aid law.
• When it comes to promoting electricity generation at sea, the planning and regulatory rules of the German Electricity Generation at Sea Act (WindSeeG) will likely be amended to allow for additional tendering processes for constructing and operating offshore wind farms.
• There is a question under competition and merger control law on the extent to which R&D co-operation between competitors is permitted.
• According to current estimates, the demand for hydrogen in Germany will reach around 700TWh in 2050. Roughly 900TWh of electricity will be needed to produce this volume of hydrogen. With net electricity generation in Germany being roughly 600TWh in 2018, it seems that considerable quantities of hydrogen will need to be imported. This raises questions ranging from the legitimacy of long-term importing agreements under competition law to the regulation of the infrastructure for transporting the gas into the EU.

We will keep you posted!