Germany to Provide $3.2B in Guarantees for Hydrogen Grid Project

The European Commission has approved a EUR 3 billion ($3.2 billion) guarantee package proposed by Germany for the nationwide Hydrogen Core Network (HCN) project.

The transmission grid is planned to stretch 9,700 kilometers (6,027.3 miles) across domestic borders in Germany, about 60 percent of which would be repurposed existing natural gas pipelines. Seventeen other prospective hydrogen transmission network operators (TNOs) would contribute 710 km (441.2 miles) of the total length, according to project implementer FNB Gas e.V.

The first major pipeline in the network is expected to go online next year. The HCN is expected to be completed 2032.

The German state support will come in the form of guarantees for the TSOs, which would help them attract favorable loans to cover initial losses in the ramp-up phase of the project, the European Commission said in a statement.

“At first, Germany expects only a small number of consumers to be using the network, and the tariffs will be lower than otherwise needed to cover relevant costs, to encourage this use and facilitate the uptake of hydrogen”, the European Union executive arm explained.

The loans are to be provided by the KfW bank at its own, below-market-rate refinancing cost. Repayments are to be made through 2055, “with reimbursements being progressively backloaded in line with expected increase in hydrogen demand”, the Commission said.

“The estimated aid amount of €3 billion corresponds to the additional financing costs that the TSOs would have had to bear absent the State guarantee”.

Under EU state aid rules, the Commission decided that the assistance is “proportionate, as the level of the aid corresponds to the effective financing needs while safeguards limit the aid to the minimum”.

“The aid has an incentive effect, as the supported infrastructure would not be financially viable without the public support, in particular in view of the uncertainty about the prospects of the future market for hydrogen”, it added.

“The aid brings about positive effects which outweigh any potential distortion to competition and trade in the EU”.

Germany aims to reach 10 gigawatts of hydrogen electrolysis capacity by 2030, according to its National Hydrogen Strategy updated last year.

Margrethe Vestager, Commission executive vice president in charge of competition policy, commented, “The German scheme approved today will significantly contribute to the development of a European hydrogen market while minimizing any potential distortions to competition”.

The EU targets to achieve 10 million metric tons of hydrogen production capacity by 2030, as set out in its hydrogen strategy adopted 2020.

For funding at the regional level, the Commission announced April the first awards under the European Hydrogen Bank, which aims to scale up hydrogen production. Seven projects across Finland, Norway, Portugal and Spain were to receive a total of EUR 720 million ($771.9 million), according to a Commission press release April 30, 2024.

Later the Commission approved a EUR 1.4 billion ($1.5 billion) joint state aid package put forward by Estonia, France, Germany, Italy, the Netherlands, Slovakia and Spain under the IPCEI Hy2Move package for research and development projects on hydrogen technologies and applications.

The IPCEI Hy2Move package, the fourth Important Project of Common European Interest (IPCEI) on the hydrogen value chain, supports 11 companies for 13 innovative projects, according to a Commission statement May 28. The owners’ share of the investment was expected to be EUR 3.3 billion ($3.5 billion).

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