Germany sets EUR 3 billion to subsidize hydrogen pipeline projects

Germany has prepared a EUR 3 billion mechanism, and received approval from the European Commission, to support the construction of the Hydrogen Core Network of long-distance transmission pipelines and associated infrastructure. The aid will take the form of state guarantees allowing operators to obtain more favorable loans to cover initial losses.

The European Commission has approved, under the European Union’s state aid rules, a German scheme of an estimated EUR 3 billion to support the construction of the Hydrogen Core Network or HCN. The measure will contribute to the achievement of the objectives of the EU Hydrogen Strategy and Fit-for-55 package, by enabling the creation of hydrogen transmission infrastructure that is needed to foster the use of renewable hydrogen in industry and transport by 2030, the announcement reads.

The HCN will be the backbone of long-distance transport pipelines for hydrogen in Germany and part of the European hydrogen backbone connecting several member states, according to the commissioners. Necessary investments include repurposing existing gas pipelines and building new ones and compressor stations.

Aid to be provided in form of state guarantees

The construction and operation of the HCN are planned to be financed by hydrogen transmission system operators (TSOs), selected by the German federal network agency, Bundesnetzagentur. The aid is in the form of state guarantees that would allow a TSO to obtain more favorable loans to cover initial losses in the ramp-up phase.

At first, Germany expects only a small number of consumers to be using the network. It said tariffs would be lower than otherwise needed to cover relevant costs, to encourage its use.

Subsidies will be available both for repurposing old pipelines and building new ones and compressor stations

The loans will be provided by Germany’s KfW Development Bank at its own refinancing cost, below market rates. They will be paid back over a period ending in 2055, with reimbursements being progressively backloaded in line with an expected increase in hydrogen demand. The estimated aid amount corresponds to the additional financing costs that the TSOs would have had to bear.

Hydrogen Core Network is scheduled to be completed in 2032

The first major pipeline is expected to be operational in 2025, while the completion of the entire HCN is expected in 2032, the plan shows. The measure complements steps taken under the Important Project of Common European Interest (IPCEI) framework, specifically the IPCEI Hy2Infra, which the commission approved in February.

In July 2020, the commission published its EU Hydrogen Strategy, setting ambitious goals for clean hydrogen production and use, and launched the European Clean Hydrogen Alliance, bringing together the industry, civil society and public authorities.