Building sustainability into the national hydrogen strategy

Germany’s planned national hydrogen strategy will provide a roadmap for the market deployment of electrolysers. An electrolyser is an installation which uses electricity to initiate a substance conversion process (chemical reaction). But waiving renewable energy (RES) surcharges and fees for electrolysers – one option currently under discussion – is the wrong approach, says Christoph Heinemann from the Oeko-Institut. A more sensible way forward is to provide government support that incentivises the sustainable development of this technology.

There is no doubt that hydrogen and its derivatives will play a key role in achieving climate neutrality for Germany. This is quite clear from the current climate scenarios. In the long term, green hydrogen must be used, based on renewable energies. Blue hydrogen obtained from natural gas can serve as a transitional solution for a limited period at best.

In order to achieve an industrial-scale rollout of hydrogen technology in the next decades, a strategy to support its introduction must be developed. Two main challenges arise here: reducing the costs of electrolysis and ensuring that relevant applications and infrastructures are “hydrogen-ready”. Needless to say, financial support will be an integral part of the strategy.

It is important to bear in mind when developing this strategy, however, that hydrogen based on electrolysis is not necessarily climate-neutral.

The reason is this: under present conditions, most of the additional electricity needed to power electrolysers would be generated by ramping up fossil fuel-burning power plants. In future, this extra power must come from additional renewable sources. Hydrogen production must also be able to adapt flexibly to fluctuations in the feed-in of RES electricity. And another point to consider: the climate protection effects of hydrogen will largely depend on which fossil fuel it replaces.

Targeted government support, not blanket exemptions

The German Government is currently discussing possible funding mechanisms for inclusion in its strategy to support the introduction of hydrogen technologies. There is a long list of proposed options, ranging from investment promotion and partial reimbursement of electricity costs to quota models. The transposition of the EU’s Renewable Energy Directive could also be utilised to support the adoption of hydrogen technology.

Unconditional and selective waiving of renewable energy surcharges and fees for electricity consumption by electrolysers is the wrong approach, however, for three reasons:

1. Firstly, an exemption would not achieve the desired outcome. Electrolysers should use renewables-generated electricity, and their operators should help to fund the renewables expansion via the RES surcharge. They also make use of power networks and should therefore pay the appropriate grid access charges.

2. Secondly, an exemption for electrolysers would be implemented at the expense of other electricity users, mainly households and businesses. They do not benefit from green hydrogen but would still have to pay towards the financial support schemes for these installations.

3. Thirdly, selective privileging of electrolysis is neither appropriate nor expedient, given the many options of flexible loads available within an electricity system that should be treating everyone equally.

Regardless of which funding model is selected, a support scheme for hydrogen technologies should meet the following criteria:

• The power required to operate electrolysers should come from additional renewable energy installations, which must be constructed and the targets for renewables have to be increased accordingly. It should be borne in mind that purchasing certificates of origin for the required electricity will not make the hydrogen produced “green”.

• The electrolysers should respond flexibly to the feed-in of renewable energies. This is technically feasible for most types of installation. However, appropriate regulation must be in place to align electrolyser operations to wind and solar feed-in.

• The operation of electrolysers should not worsen electricity grid congestion. Otherwise, unnecessary increases in overall system costs can be expected. Electrolysers should therefore preferably be constructed at points in the system that give due regard to potential bottlenecks.

• The hydrogen produced should be steered into applications where no other or only limited options for achieving climate neutrality are expected. Financial support should therefore incentivise not only hydrogen production but also hydrogen readiness in these applications and infrastructures early on. The strategy supporting the introduction of hydrogen technologies should not delay efficiency measures, electrification and other climate solutions in other sectors.

With these criteria forming part of a funding strategy, it is possible to 1) safeguard the climate benefits of hydrogen; 2) guarantee stability for investors; and 3) facilitate the credible development of hydrogen as a viable option on the pathway towards climate neutrality. The next 10 years should be spent preparing the way for the long-term developments that are needed here.

Imported hydrogen

A climate neutrality strategy for German and Europe will require relevant scales of imports of hydrogen and its derivatives in the medium term. The criteria outlined above must therefore apply to imported hydrogen as well. Other criteria – e.g. on water resources and land use – will also have a role to play, along with achieving a balance of interests with the exporting countries’ climate strategies. A catalogue of comprehensive sustainability criteria for locally produced and imported hydrogen should therefore be a key element of the national hydrogen strategy.

This article was first published in Tagesspiegel BACKGROUND Energie & Klima on 16 December 2019.

Christoph Heinemann is a Senior Researcher in the Oeko-Institut’s Energy & Climate Division. His research topics include power system modelling and electricity-based fuels.