Funding Hydrogen Investments in Germany

Hydrogen is the most common element in the universe. It has many advantages, for example it is a very good heat conductor and has a high energy density in relation to mass, making it possible to transport large amounts of energy over long distances.  Hydrogen also lends itself to many simple means of transportation, such as in tankers, trucks or by pipeline.

It also has a long shelf life and can be generated and utilised in a climate-neutral manner. For this reason, this element is increasingly becoming the focus of the energy industry and policy discussions.

So why has hydrogen not become a primary energy source in the energy turnaround? Currently, it is only a niche product and is only widely used in the chemical and petrochemical industry. We have examined how this can be changed and what needs to be done to achieve this in the white paper "Hydrogen ‑ Energy Source of a Climate-Neutral Economy?”. 

Among other things, the difficulties involved in the broader application of CO2-free hydrogen include the economic competitiveness compared to other sources of energy, as well as climate-neutral production. This can only be achieved if carbon emissions are captured and stored (blue hydrogen) or if hydrogen is produced with the help of renewable electricity (green hydrogen), which is less cost-effective.

Many experts are working on regulatory approaches for island grids, regional clusters, and interconnected grids in order to facilitate the entry into a hydrogen grid. For this purpose, we have developed a white paper that describes the regulations for the individual hydrogen grid development phases. In addition, the motives of the market players in the respective grid variants are listed and building blocks of an effective regulatory system are named.

Northern Germany is increasingly becoming a model region in terms of successful implementation of alternative energy. A real model region has developed here, which is increasingly becoming a role model.

With wind power, harbours and natural gas pipelines, northern Germany already offers favourable conditions for a networked hydrogen economy in areas such as logistics and transport. This illustration shows how well we are already positioned in this regard.

To further expand this network of alternative energy, the five northern German states have joined forces in the HY-5 initiative to strive for the creation of an integrated hydrogen region of the future. Audi opened a 6-megawatt electrolysis and methanation plant in Werlte in Emsland back in 2013. This uses green electricity to split water and use hydrogen as a source of energy. The hydrogen, together with CO2, is then turned into synthetic natural gas, which can be used to fuel cars, among other things.

There have also been successes in the rail industry. The world's first hydrogen fuel cell-powered train, Alstom's Coradia iLint, entered into regular service in 2018 running between Cuxhaven and Buxtehude.
Hydrogen production from fossil fuels is currently cheaper than from renewables, although renewable (green) hydrogen is likely to come out on top in the long term.

With cheap coal and natural gas readily available, grey hydrogen production costs can drop to around 1 USD/kg H2 in regions with low gas/coal prices such as the Middle East, Russia and North America, while in other regions such as Europe they are still well below 2 USD/kg H2.

Until at least 2030, the cost advantage of fossil fuels is likely to persist in most regions, and regulation of CO2 pricing will likely be necessary to encourage the development of green hydrogen. According to a 2020 study supported by KPMG, blue hydrogen will remain the most cost-effective low-carbon hydrogen technology until 2030 and will be competitive with unabated gas until 2040, mainly due to the carbon price. Without a carbon price, blue hydrogen cannot compete with natural gas due to the loss of efficiency in converting natural gas to hydrogen.

By 2035, the goal is to have a green hydrogen economy. In this regard, the question of price arises and how this can be made possible without going beyond the price scope.

Sources:

https://home.kpmg/de/de/home/themen/2020/03/wasserstoff-als-energietraeger.html

https://home.kpmg/de/de/home/themen/2021/02/regulierung-von-wasserstoffnetzen.html

https://klardenker.kpmg.de/h2-zukunftsbarometer-norddeutsche-wasserstoff-pioniere/

https://home.kpmg/xx/en/home/insights/2020/11/the-hydrogen-trajectory.html

https://home.kpmg/xx/en/home/insights/2021/01/geographic-hydrogen-hotspots.html