German #hydrogen core network approved by regulator Bundesnetzagentur. How does that fit to recent cancellations & delays in hydrogen projects?
✅ 𝐓𝐡𝐞 𝐚𝐩𝐩𝐫𝐨𝐯𝐞𝐝 𝐡𝐲𝐝𝐫𝐨𝐠𝐞𝐧 𝐜𝐨𝐫𝐞 𝐧𝐞𝐭𝐰𝐨𝐫𝐤
Last week BNetzA approved the core network. It will connect large H2 production, storage and (industry & power plant) consumption sites. With a length of 9,040 km at estimated cost of €18.9 billion, BNetzA confirmed most of the TSO‘s application (9,666 km), but also found that some pipelines are not required. Further key facts in the graph below.
⁉ 𝐇𝐲𝐝𝐫𝐨𝐠𝐞𝐧 𝐜𝐨𝐫𝐞 𝐧𝐞𝐭𝐰𝐨𝐫𝐤 𝐝𝐞𝐬𝐩𝐢𝐭𝐞 𝐫𝐞𝐜𝐞𝐧𝐭 𝐛𝐚𝐝 𝐇2 𝐧𝐞𝐰𝐬?
How does approving a nationwide H2 network fit to recent bad news on H2, such as Equinor & RWE cancelling the pipeline to import low-carbon H2 from Norway, or thyssenkrupp re-considering its #greensteel project despite €2 bn government support?
There is indeed substantial uncertainty about future H2 supply & demand, and many early-adopting projects are facing significant commercial challenges. Development of supply & demand will largely depend
on political decisions as well as technology and cost evolution. But we
know with some certainty that H2 will be needed at least to decarbonise
‚hard-to-abate‘ sectors and for long-term energy storage. Building a nationwide hydrogen core network provides an important contribution to overcome the 🐔 & 🥚 challenge of ramping up the hydrogen economy.
And it comes at relatively low cost, as building new H2 pipelines (€3.5 mn/km) and particularly repurposing gas pipelines to H2 (€0.6 mn/km) is rather cheap. Compared e.g. to building electricity transmission cables (€14 mn/km for only a fraction of the energy transport capacity). Or compared to throwing renewable energy away for a lack of transport infrastructure, as is happening as part of German redispatch with annual cost of €5 billion and more.
🤑 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐧𝐠 𝐬𝐜𝐡𝐞𝐦𝐞
So just logical that the government introduces a risk-sharing mechanism that socialises part of the market risk, state-aid approved by European Commission (€3 bn). It consists of:
🔹 Capping of initial network tariffs at a level below annual cost to
incentivise network during market ramp-up.
🔹'Liquidity payments' during the ramp-up topping up revenues to cover cost, incl. a return on equity of 6.69% (until 2027). Payments are booked in an 'amortisation account' and have to be paid back once revenues exceed cost.
🔹 A state guarantee in case the H2 market does never ramp-up and the amortisation account cannot be balanced by 2055 (graph below).
🔹Loans to finance the amortisation account provided by development bank KfW at its own refinancing cost, below market rates.
⏩ 𝐖𝐚𝐲 𝐟𝐨𝐫𝐰𝐚𝐫𝐝
Now let‘s see how projects will evolve. Note: For > 25% of the projects there is no TSO willing to commit to the investment yet. So still uncertain whether the financing mechanism leads to a balanced risk vs return ratio for these projects…
