National Hydrogen Strategy 2023

German government agrees to update the National Hydrogen Strategy.

After lengthy discussions, the German government presented the National Hydrogen Strategy (NHS) in June 2020, giving hydrogen a key role in transforming energy policy. The update adopted in July 2023 aligns the 2020 concept with current developments and builds on it.

Use of hydrogen where it makes sense

The update focused on the realisation that, to help promote decarbonisation, hydrogen needs to be developed primarily in areas where electrification would be impossible without disproportionate effort. In principle, using electricity directly is preferable to using hydrogen, as there are significantly lower conversion losses with electricity. However, there are areas where electrification is not currently or never will be possible. Hydrogen and its derivatives can also play a crucial role wherever there is a need to store and later reuse renewable electricity for which the grid has no equivalent demand at the time it is generated. 

In light of this, the German government expects hydrogen and its derivatives to play a key role in decarbonisation by 2030, particularly in industry, the energy sector and the transport sector. For an unspecified period of time, which is described as the "rapid ramp-up of the hydrogen market", low-carbon hydrogen, such as blue hydrogen produced from natural gas with carbon storage, will also play its part. It is intended to be a temporary solution to compensate for the initial lack of availability of green hydrogen. 

In total, there are four fields of action for the German government looking ahead to 2030.

Hydrogen should be available in sufficient quantities

A total hydrogen demand of 95 to 130 TWh is expected for 2030. Against this background, the NHS 2023 forecasts that the German electrolysis target will double from 5 GW (as stated in the NHS 2020) to at least 10 GW by 2030. It is expected that 50-70 % of the demand will have to be covered by imports. The demand for imports is expected to rise even further after 2030. The German government therefore believes that a long-term import strategy will be vital. This would focus in particular on international cooperation, the establishment of an EU-wide hydrogen network, suitable funding mechanisms such as the H2 Global programme and technological support for exporting countries. The importance of transport for importing hydrogen and its derivatives is emphasised here. While pipeline transport is likely to be the main focus for European hydrogen imports, sea imports will be the means of choice in most cases for more distant production sites and for the transport of hydrogen derivatives.

The hydrogen infrastructure must be developed

According to current plans, an initial network of more than 1,800 kilometres of hydrogen pipelines will be established in Germany by 2028. To this end, existing gas pipelines will be converted and new hydrogen pipelines built. The national network will be supplemented by a Europe-wide network of around 4,500 kilometres, which will then connect the Member States with each other by 2030 to form a "European Hydrogen Backbone". There will also be pipeline connections to important production regions such as North Africa.

In addition to the transport pipelines, the construction of import terminals for sea transport will be accelerated. Section 5 (2) and (3) German LNG Acceleration Act (LNGG) already contains accompanying licensing law requirements which, with the aim of ensuring LNG systems are "H2-ready", make the approval of their continued operation as of 2044 dependent on the possibility of operating them with climate-neutral hydrogen and derivatives of it or converting them for the import of hydrogen derivatives such as ammonia and methanol. The NHS 2023 also emphasises the importance of developing an adequate storage infrastructure for hydrogen.

In line with the German government's concept, the German hydrogen network will be developed in two stages. The first stage consists of the "hydrogen core network", which is to be regulated as part of the upcoming amendment to the German Energy Act (EnWG) in section 28r German Act on the Amendment of Energy Industry Law to EU Requirements and Additions to Regulations on the Hydrogen Core Network . The transmission system operators already submitted a corresponding plan in July 2023. In the second stage, joint network development planning for gas and hydrogen is envisaged, which will be carried out every two years from 2025 onwards. 

In line with the German government's plan, a joint coordination centre for transmission system operators and regulated hydrogen network operators will be set up by 31 March 2024. The German government is also proposing that an entry/exit model be introduced for grid access for hydrogen like the one in place for gas. This would replace the current model of negotiated grid access as set out in section 28n German Energy Act (EnWG). As it is to be expected that the grid fees will initially be very high during the market ramp-up phase due to low volumes, relief options such as staggering the fees over a certain period will be evaluated.

Hydrogen is to be used in priority consumption sectors

In view of the lack of availability of (green) hydrogen and the prioritisation of decarbonising areas that cannot be reasonably electrified, the NHS 2023 defines consumption sectors in which hydrogen and its derivatives should be used as a priority by 2030.

The top priority is the industrial sector, where decarbonisation is only possible with hydrogen in certain applications (e.g. steel and chemicals). Hydrogen has therefore traditionally been used here (so far mainly grey hydrogen). The use of green hydrogen is to be promoted in these industries primarily by concluding climate protection contracts (compensation for the additional costs of building and operating climate-friendly plants).

In the electricity sector, the focus is on the short-term and seasonal storage function of renewable electricity and the possibility of reconverting it. To this end, the construction of gas-fired power plants that are "H2-ready", i.e. can be converted for the use of hydrogen and its derivatives, will be accelerated. In this context, tenders in accordance with section 28e German Renewable Energy Sources Act (EEG) 2023 are planned for "hydrogen sprinter power plants" that can convert hydrogen or ammonia into electricity.

In the transport sector, electrification is the main focus for road transport. The use of hydrogen is to be developed there as an additional option. The use of hydrogen-based e-fuels in particular is to be promoted in air and sea transport, which currently cannot be electrified or can only be electrified to a very limited extent.

The NHS 2023 rejects the use of hydrogen in the heating market, at least until 2030. There are sufficient substitution options available here.

The framework conditions must be improved

In line with legislative efforts in other areas, the NHS 2023 aims to simplify planning and approval procedures. Among other things, a hydrogen acceleration law is to be introduced for this purpose.

Furthermore, systems for certifying sustainability criteria for the various hydrogen products are to be introduced at an accelerated pace. This involves, for example, the sustainability criteria provided for in the Delegated Acts implementing the requirements from RED II or the further development of the certification registers.

The NHS 2023 also contains the relevant point that certification systems are of great importance not only for hydrogen itself, but also for carbon sources in the production of hydrogen derivatives.

Last but not least, blue hydrogen is also mentioned, with the NHS 2023 announcing the definition of certification criteria for this by setting a threshold value for the GHG emissions permitted in this respect. Regulations are to be drawn up for the CO2 discharged during the production of blue hydrogen.

NHS 2023 is largely welcomed as a step in the right direction

The reactions to the NHS 2023 have been largely positive, even if some points have been described as too vague and not far-reaching enough. By speeding up the development of domestic production while at the same time emphasising the importance of imports, focusing on the sectors that need to be decarbonised as a matter of priority and the interim use of blue hydrogen while at the same time committing to green hydrogen, the German government has obviously taken the right decisions that market participants and the scientific community expected of it. Now it is necessary to specify the objectives in more detail and introduce a suitable monitoring system to oversee the implementation of the necessary steps. In particular, the effect of the planned promotional measures should be critically reviewed in the interests of a stable market ramp-up.

The NHS 2023 has already addressed a number of measures to be implemented, e.g. in the area of simplified procedures, certification systems and funding instruments. However, there is certainly a need for further development in the urgently required import strategy that has been announced, the creation of a suitable and reliable regulatory environment at both national and EU level and the coordinated planning of the hydrogen infrastructure (transport pipelines, ports, terminals, storage facilities, etc.) for hydrogen and its derivatives, to name just a few aspects. With all of this, it is important to create an investment-friendly environment for hydrogen in Germany, but also in the EU, without further delay, otherwise hydrogen will not be able to exploit its advantages in decarbonisation in the EU.