Competitiveness of hydrogen as key technology: strategies and measures for the German economy

Competitiveness of hydrogen as key technology: strategies and measures for the German economy

The transformation into a climate -neutral economy poses enormous challenges. Green hydrogen is considered a key technology and the decisive element of the energy transition. However, current analyzes show that the cost of hydrogen is still significantly higher than that of fossil fuels. Nevertheless, there are promising developments: by 2030, green hydrogen could already be competitive in certain areas of application if the right political framework is created. This requires extensive investments in production facilities, infrastructure and technological innovations, while at the same time European added value must be secured.

The current situation of the hydrogen economy

Experts referred to hydrogen as the central energy source of the future and as a “missing piece of puzzle of the energy transition”. It combines energy security, climate neutrality and competitiveness in a concept. The German federal government recognized this meaning and published the national hydrogen strategy (NWS) in June 2020. This strategy forms the foundation for the establishment of a hydrogen economy in Germany, in which green hydrogen generates, transported and finally used. Das Ziel ist ambitioniert: Bis 2030 sollen Erzeugungsanlagen für grünen Wasserstoff mit 10 Gigawatt Gesamtleistung, sowie die zugehörigen Kapazitäten zur erneuerbaren Energieerzeugung, aufgebaut werden.

Germany is planning a far-reaching hydrogen kernel network for the infrastructure. By 2027/28, a starting network with more than 1,800 kilometers is to be built and newly built hydrogen pipes, and around 4,500 kilometers are to be added across Europe. The long-term planning stipulates that the network should grow to 9,040 kilometers by 2032 and that important hydrogen locations in all federal states should combine: ports, generation locations and industrial centers. Bereits 2025 sollen die ersten 525 Kilometer des Netzes in Betrieb gehen, was den Hochlauf der Wasserstoffwirtschaft greifbarer macht.

Despite these ambitious plans, the hydrogen economy in Germany is still at the beginning. The current market stroke is slower than hoped. Producers, transport infrastructure and demand are insufficiently coordinated, which brakes the ride of the hydrogen economy. In addition, the costs for green hydrogen are currently significantly higher than for conventional energy sources.

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The cost factors and price gap in hydrogen

Die aktuelle Kostensituation stellt eine der größten Hürden für den Markthochlauf von grünem Wasserstoff dar. Studien gehen davon aus, dass im Jahr 2030 die Herstellungskosten für grünen Wasserstoff noch immer um den Faktor 2,3 höher ausfallen werden als bei konventionellen, fossilen Energieträgern. This price gap is a central problem for potential buyers and investors.

Various factors contribute to the high costs. On the production page, it is primarily the capital costs for electrolysers and the electricity costs for the electrolysis process. However, the costs for the electrolysers could fall significantly: from 660-1.050/KW in 2020 to $ 230-380/kW in 2030, as a report by McKinsey predicts on behalf of the hydrogen Council. In addition, there are transport and infrastructure costs as well as regulatory costs and taxes that also drive up the price.

The transport aspect should not be underestimated: For the transport from North Africa to West Germany, the costs are estimated at around USD 0.5/kg. In the case of longer distances via lake, the transport costs can increase due to the necessary conversion in liquid hydrogen or the connection to carrier fluids such as LOHC or ammonia to up to 2-3/kg.

Nevertheless, there are positive prospects for long -term price development. After 2035, the end customer prices for hydrogen could decrease and approach natural gas. The main drivers for this include the degression of the costs for hydrogen production and rising CO2 prices as part of emission trade. In 2045, the supply costs for hydrogen could then drop to around 11 to 15 ct/kWh. For comparison: Even if natural gas according to the design of the building energy law 2045 may no longer be used, the hypothetical end customer prices, in particular due to the increasing CO2 prices, would increase to 10 to 12 ct/kWh.

Political measures to promote competitiveness

In order to increase the competitiveness of green hydrogen, the German federal government has introduced various political instruments. The national hydrogen strategy forms the overarching framework and contains a total of 37 measures to support a market lift for hydrogen technologies and to establish the corresponding value chains. This includes, among other things, the creation of legal framework conditions that promote switching to renewable energies and green hydrogen and promote infrastructure expansion.

A crucial factor for the competitiveness of green hydrogen is the pricing of CO2 emissions. With a CO2 price of 100 euros/t CO2, significantly more applications for green hydrogen are competitive, including road and rail traffic, but also material use in refineries and steel production. Even with CO2 prices between 35 and 50 USD/T CO2, blue hydrogen (from natural gas with CO2 separation) reaches the pricing parity with gray hydrogen (from natural gas without CO2 separation).

In the next few years, Germany and the EU will promote green hydrogen production as well as the transformation of industry for climate -neutral production with several billion euros. The economic stimulus package of June 3, 2020 provides additional funds of 9 billion euros. These funding will flow into various programs such as the national innovation program hydrogen and fuel cell technology with up to 1.4 billion euros in the period 2016 to 2026 or the “Idea Competition hydrogen Republic of Germany”.

In addition, the Federal Ministry of Economic Affairs and Climate Protection (BMWK) has agreed with the European Commission on the regulatory framework for the promotion of hydrogen power plants. Three concepts for the tender for new systems were formulated: “Sprinter”, Hybrid and H₂-ready. The aim is to write down 8.8 GW on new power plants that are operated with hydrogen from the start and up to 15 GW of hydrogen power plants that can be operated temporarily with natural gas until 2035 until they are connected to the hydrogen network.

Technological innovations and cost reduction potential

The reduction in production costs for green hydrogen depends largely on technological innovations. In a white paper, Ramboll identifies various starting points for cost reductions in the area of ​​system planning, including scaling, modularization and the development of standardized solutions. The cost reduction should be used at stack, system and system level.

The market high run itself is an important factor for cutting costs. Rising production quantities can achieve scale effects that lead to lower unit costs. So far, investors and developers of technologies for power-to-X and green hydrogen assumed that the costs for the production and provision of hydrogen would decrease solely by expanding the electrolysis capacity and the increasing demand. However, these optimistic forecasts for reducing investments (Capex) have not yet occurred. An important reason for this is that the market stroke is slower than expected.

Another starting point for reducing costs is to improve the efficiency in electrolysis. Research and development plays a central role here. The Federal Government therefore specifically promotes basic research on green hydrogen, with a focus on material research, system studies and possible key technologies of the next and more generation.

Infrastructure expansion and logistics concepts

The establishment of a powerful hydrogen infrastructure is a basic requirement for the competitiveness of this energy source. The planned hydrogen kernel network is expected to grow to 9,040 kilometers by 2032, with around 40 percent of the lines being built and changing natural gas pipes for the other around 60 percent. The private sector is intended to bear the total costs of around 19 billion euros - with state support for the capping of network charges.

The “last mile” is a special challenge - the question of how smaller consumers who are not directly residents of the core network can receive a cable access to green hydrogen. In many cases, hydrogen isolation solutions that rely on their own generation capacities for hydrogen are currently being created, supplemented by the purchase and delivery of hydrogen via tank truck. These are functioning approaches for the initial phase of the hydrogen economy, but in the medium to long term, it must also be made possible for these island solutions to connect to the planned nuclear network.

In addition to transport via pipeline, there are other logistics concepts for hydrogen. A conversion into liquid hydrogen (LH2) or the connection to carrier fluids (LOHC or ammonia) is necessary for transport over long distances by ship. However, these procedures are associated with additional costs. If the final use can take place directly as LH2 or ammonia, the transport costs decrease significantly.

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Market mechanisms and incentives for customers

In order to stimulate the demand for green hydrogen, various market mechanisms and incentives are required for potential buyers. A central problem is currently that industry is hesitating to invest in hydrogen technologies because economic incentives are missing. A sustainable business case can make investments easier and create demand.

A promising approach is Carbon Contracts for Difference (CCFD), in which the state compensates for the difference between the current CO2 price and the actual CO2 avoidance costs of a climate-friendly project. Companies offer these instruments for long -term investments in climate -friendly technologies.

Other important incentive mechanisms are quotas for green hydrogen in certain sectors, tax advantages for hydrogen users and long -term acceptance contracts. The McKinsey report identifies 22 end applications for which hydrogen can represent the most competitive solution. This mainly includes applications in industry and traffic sectors.

International cooperation and import strategies

Germany will not be able to cover its hydrogen requirements solely by domestic production. Therefore, import strategies and international cooperation are of crucial importance. Federal Research Minister Bettina Stark-Watzinger emphasized that Germany could not cover the need for hydrogen alone and that an import strategy is therefore important as the next step.

According to a study by McKinsey, imported hydrogen could be competitive by 2030. Green hydrogen from Saudi Arabia is said to be in Rotterdam for USD 3.1/kg, even for $ 1.9/kg pipeline. These import paths could make an important contribution to covering German hydrogen requirements.

When designing import strategies, however, care must be taken to ensure that there is no critical dependency on individual delivery countries. If essential components or entire electrolysis systems from individual non-EU countries are obtained in the EU and Germany, there is a risk of such a dependency that could go hand in hand with the loss of value chains within the EU.

Securing European added value

In the course of the green hydrogen market stroke, hydrogen becomes an elementary energy source for a supply-safe renewable energy industry. Along with this, an enormous market for hydrogen technologies with up to 5.4 million new jobs in the European Union can develop. It is therefore important to create the prerequisites that European manufacturers can secure a leading market position in global competition.

One challenge is that competitors outside the EU can currently offer hydrogen technologies by up to 50 percent cheaper than European manufacturers. This is often possible through lower wage and energy costs or due to massive state funding mechanisms in connection with local market incentives. In order to secure European added value, the German Hydrogen Association (DWV) therefore calls for resilience criteria in public funding instruments of the European Union.

Federal Minister of Economics Robert Habeck emphasized that investments in hydrogen “invest in our future. In climate protection, in qualified jobs and energy supply security ”. The national hydrogen strategy sets the course for close cooperation with European and international partners.

Concrete recommendations for action for the economy

In order to accelerate the market high run of green hydrogen and to increase its competitiveness, specific measures on the part of the economy and politics are required. In its “Hyguide 2030”, the German Hydrogen Association (DWV) has developed a total of 85 measures to incorporate production, application and market-driven demand for green hydrogen products in the sectors of industry, chemistry, mobility, energy and heat.

A central recommendation is to accelerate the planning and approval process for hydrogen projects. Existing obstacles to the high run of the hydrogen market economy must be dismantled. Another important point is the combination of in -house production and strategic imports to ensure sufficient supply of green hydrogen.

For the transition phase, a technology-open approach should also be followed, which also enables the use of blue hydrogen (from natural gas with CO2 separation) as a temporary solution until green hydrogen is available in sufficient quantities and at competitive prices. The use of blue hydrogen will be indispensable until green hydrogen is competitive.

Another important measure is the coordination of all actors along the hydrogen value chain. Producers, network operators, consumers and politics have to work closely together and pull together together to accelerate the high run of the hydrogen economy.

Perspectives for the competitiveness of hydrogen

Hydrogen has the potential to become a central energy source in a climate -neutral economy. At the moment, however, the market stroke is still at the beginning, and the costs for green hydrogen are significantly higher than fossil alternatives. Nevertheless, there are promising developments that indicate increasing competitiveness in the coming years.

According to a study by McKinsey, hydrogen from EU-offshore wind energy as well as imported hydrogen could be competitive by 2030. After 2035, the end customer prices for hydrogen could decrease and approach natural gas. However, this positive development presupposes that the political framework is consistently geared towards the market lift of hydrogen and the necessary investments in production, infrastructure and applications are made.

The establishment of a hydrogen economy in Germany and Europe offers enormous opportunities for sustainable economic growth and the creation of jobs. At the same time, we face major challenges, especially in international competition. It is important to secure European added value and at the same time benefit from the advantages of a global hydrogen economy.

Green hydrogen will be available in sufficient quantities as early as 2030 if the Federal Government takes all options for the immediate run of the hydrogen market economy. Thanks to a clear strategic approach with concrete and verifiable targets, the federal government must focus on renewable energies and hydrogen produced from them. This creates planning security for all actors involved.

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