Background

On 26 July 2023, the German government announced an update of their national hydrogen strategy only three years after the initial publication.

The original hydrogen strategy was rolled out in 2020 setting production goals in line with 2030 climate targets, while also providing a framework for stakeholders in the hydrogen sector to plan their activities.

In the meantime, the Russian invasion of Ukraine created an additional impetus for energy security with hydrogen set to play an even larger role heading towards 2030 in the new update.

It should be noted that the strategy involves the deployment of both green and grey hydrogen – the 2020 strategy suggested the current consumption of 55 TWh of hydrogen. The bulk of this was produced via steam methane reforming (grey hydrogen, with associated emissions) with only 7% of this coming from electrolysis (where associated emissions depend on grid mix).

The 2022 Easter Package included an acceleration of solar and wind capacity installation in the country; this is expected to power the increase in domestic green hydrogen production.

Germany is planning to implement a variety of schemes to reach the new 10 GW green electrolyser target. Among them is a tender for a designated 1 GW offshore wind site in the North Sea.

In addition, 500 MW of electrolyser capacity is to be tendered each year starting in 2023 until 2028 (3 GW total) for system-friendly projects that link electrolysis with the electricity grid, storage and transport infrastructure to promote flexibility and limit power grid expansion needs. Details for both types of tenders are yet to be revealed.

Also detailed in the strategy update is the use of Important Projects of Common European Interest (IPCEI), signalling collaboration with other member states to achieve these German hydrogen ambitions for 2030.

Germany is also set to adopt articles 27 and 28 of the RED II directive into national legislation which is expected to incentivise at least 2 GW of electrolyser projects in the transport sector (for the replacement of grey hydrogen with green in refineries that produce various fuels for vehicles including e-fuels).

With respect to targets on the demand side, the intent is to commission 4.4 GW of ‘hydrogen sprinter’ power plants. This is already detailed in EEG 2023 Section 28e, with the tenders to take place between 2023 and 2026 for the construction of 4.4 GW capacity able to convert pure hydrogen (or ammonia) feed to electricity.

A further 4.4 GW of power generation capacity is expected to be tendered between 2023 and 2028 for ‘hybrid plants’, essentially facilities which can generate hydrogen or electricity depending on temporal demand. The tender plan for hybrid plants is also in the EEG (Section 28d).

Market impact

Renewable gas market. The sharp increase in production targets for green hydrogen reflects the large demand for hydrogen in Germany, as well as the REPowerEU plan to replace Russian natural gas (of which Germany was the main importer) via alternative arrangements including renewable energy substitutes.

The REPowerEU plan released in 2022 has green hydrogen demand for 2030 at 20 megatonnes or around 660 TWh. Half of this demand is expected to be met by imports so while the EU is expected to be a net importer, even at the new revised production targets Germany is expected to be even more reliant on international supply to meet domestic demand.

This presents opportunities for European suppliers – while Germany is in the process of establishing extra-EU contracts for hydrogen supply via H2global, EU suppliers will have easier access via the single market.

However, they will need to navigate the schemes in place to ensure hydrogen production is renewable, where electricity GOs and PPAs need to be carefully considered.

Power GO market. Given the variety of schemes that Germany is planning to employ to reach the new 10 GW electrolyser target and the lack of details as to the conditions of these schemes, it is hard to make a concise assumption related to the use of Guarantees of Origin (GOs) as means of certifying green hydrogen production.

The European Commission has been firm in its position that GOs will not play a significant role in certifying renewable hydrogen given the production pathways identified in the RFNBO Delegated Acts. Certification schemes will instead play a greater role such as CertifHy.

For Germany’s 1 GW offshore wind electrolyser project, GOs will most likely not be necessary as smart metering systems can be used to document RES-E consumption.

In the cases of 3 GW system-based electrolyser projects as well as the 2 GW projects in the transport sector related to the adoption of RED II criteria, the use of PPAs seems to be the most likely way to prove the renewable origin.

As PPAs typically come with bundled GOs, an increased volume of PPAs and thus GOs will be reflected in the AIB statistics. However, as these are not tradable on the market, they would have no real effect on GO prices.

Nevertheless, the strategy refers to the adoption of a GO register act which may define the use of GOs for green hydrogen on a national level. The strategy also talks about the lack of criteria for the usage of blue hydrogen on a European level, specifically when it comes to defining captured CO2. Germany will be advocating for uniform criteria for GHG emissions threshold for the use of blue hydrogen.

As the country releases more details over the coming months, a fuller picture will emerge, including regarding IPCIE projects (2.5 GW) and indirect measures that are expected to release 1.3 GW of new electrolysers.