Germany Outlines Plan to Subsidize Gas-to-Hydrogen Shift

The German government has agreed on plans to subsidize gas power plants that can switch to hydrogen, which will be produced with renewable energy.

A hydrogen electrolysis plant called 'REFHYNE', one of the world's first green hydrogen plants, during a launch event at Shell's Rhineland refinery in Wesseling, near Cologne, Germany, on July 2, 2021. Thilo Schmuelgen/Reuters

The German government has agreed to plans for subsidizing gas power plants capable of switching to hydrogen, the economy ministry announced on Feb. 5. This move is part of efforts to support intermittent renewable energy and accelerate the transition to low-carbon generation.

The announcement comes in response to pressure from the industry, which has been waiting for details since the government promised the strategy last year. Germany counts on hydrogen to help the country transition away from gas and coal.

The tender process for the four gas plants with a total capacity of up to 10 gigawatts (GW) will take place soon, the ministry said, without being more specific.

The ministry said hydrogen transition plans should be drawn up by 2032 to enable the plants to be fully switched to hydrogen between 2035 and 2040.

Georg Stamatelopoulos, a board member of energy company EnBW, said that although the agreement is an important step, the 10 GW goal is too low to ensure an accelerated exit from coal-fired power by 2030. He said that a swift tender process is key, given that such projects take six to eight years.

German energy group RWE says it plans to take part in the tenders.

The German government will discuss whether gas capacity beyond the planned 10 gigawatts is needed, a spokesperson for the economy ministry said on Feb. 5.

The government also will subsidize power plants running exclusively on hydrogen with a capacity of up to 500 megawatts for energy research purposes, the ministry said, without providing financial details.

Berlin said on Feb. 5 that a new design for the electricity market, introducing a market-based capacity mechanism, is to be agreed upon by the middle of this year and operational by 2028.

More Details Needed

German environmental group Deutsche Umwelthilfe said the agreement, including the financing and tender design, remains vague and may lead to gas power plants being built that won’t be converted to hydrogen.

Last year, Germany agreed with the European Commission to tender 8.8 GW of new hydrogen plants, in addition to up to another 15 GW that will initially run on natural gas. These will be connected to the hydrogen grid by 2035 at the latest. However, Berlin and Brussels have disagreed on how the gas plants would be subsidized.

Germany’s power plant strategy was supposed to be ready last year. A constitutional court ruling that vetoed 60 billion euros ($64.5 billion) of debt earmarked for climate projects forced the government to rethink its budget.

The planned plants will be crucial for Berlin to convince the eastern producers of brown coal, the most polluting kind, to phase out their coal-fired stations earlier than the official 2038 deadline. This should help Germany reach its greenhouse gas emission targets more quickly.

According to a commercial guide from the U.S. Department of Commerce, Germany plans to reduce its greenhouse gas emissions by 55 percent by 2030, compared with 1990 levels. However, the country managed to cut only 2 percent of its emissions in 2022, putting that climate target at risk, the department estimated.

Yet Germany is on track to achieve its goal of obtaining 80 percent of its energy from renewables by 2030, according to the guide.

Green Hydrogen

A hydrogen liquefaction plant at a chemical park near Leuna, Germany, on May 16, 2022. Jens Schlueter/AFP via Getty Images

In 2022, hydrogen accounted for less than 2 percent of Europe’s energy consumption, with 96 percent of it produced using natural gas, resulting in significant amounts of CO2 emissions, according to the European Commission.

The European Union (EU) is promoting the production of renewable hydrogen, also known as green hydrogen, to achieve its goal of reducing CO2 emissions. The EU requires that green hydrogen be produced through the electrolysis of water using electricity from renewable sources, ensuring that no greenhouse gases are emitted during its production.

In 2022, the European Commission introduced the European Hydrogen Bank to attract private investments in renewable hydrogen. The bank is not a physical institution but a financing instrument run by the commission.

The EU allocated a budget of 800 million euros ($860 million) to be auctioned among hydrogen project developers within the EU, which is intended to reduce the cost gap between green hydrogen and hydrogen produced using fossil fuels. The bidder that submits the lowest-cost project will be awarded a grant as a fixed premium in euros per kg of certified green hydrogen for up to 10 years.

The pilot auction was opened in November 2023 and will close in February.

The bank also offers its auctioning platform as the “auction-as-a-service” scheme for EU governments to finance green hydrogen projects on their territories. Last November, Germany became the first EU country to participate in the service and made 350 million euros ($377 million) available from its national budget for hydrogen production in Germany.

Germany’s Energy Sources

Juergen Guldner, a vice president at BMW in charge of the carmaker's hydrogen car program, fuels a hydrogen fuel-cell prototype SUV in Munich on Sept. 3, 2021. Nick Carey/Reuters

Germany is the largest energy consumer in Europe, and as of 2022, more than 75 percent of its primary energy consumption came from fossil fuel sources, 17.2 percent from renewables, and 3.2 percent from nuclear energy, according to the U.S. Department of Commerce.

Domestic energy production, however, covered only 16 percent of total consumption in 2023, with 42.3 percent of it produced from renewable energy sources, the department said in its commercial guide.

Germany phased out its nuclear power production a year ago and continues to promote renewable energy. In 2022, the country needed to increase its energy generation from coal because of the energy crisis mainly caused by Russia’s war against Ukraine, according to the Department of Commerce.

It’s estimated that domestic production won’t meet the demand for hydrogen and that Germany will need to import about two-thirds of its consumption by 2050, according to the guide. The country plans to import green hydrogen from other EU members and other continents.

Germany is participating in a joint venture with Italy and Austria to build a pipeline that will transport low-cost renewable hydrogen produced in North Africa to Europe. The project, known as the SoutH2 Corridor, has been approved by the EU and is expected to be completed by 2030.

Reuters contributed to this report.