Coalition collapse worries German hydrogen sector

Market: Hydrogen
08/11/24

Germany's hydrogen industry is concerned that the collapse of the country's coalition government this week could further delay the sector's progress.

Germany's ambitious plans for a clean hydrogen economy were already progressing more slowly than many had expected, and the collapse of the governing coalition comes at a time when the hydrogen sector is desperate for more clarity on key legislation.

Chancellor Olaf Scholz's Social Democratic Party and the Green Party plan to rule as a minority government for the time being, after the third partner, the pro-business Free Democratic Party, exited the coalition on the back of disputes over how to finance the 2025 budget and how to tackle Germany's economic downturn. Scholz intends to ask for a confidence vote on 15 January, which in turn could lead to elections in March 2025, six months ahead of schedule. This prospect of an early election has raised concerns about progress on key legislation, including on energy policy and more specifically hydrogen.

The coalition's end "has come at an inopportune time and is creating considerable uncertainty", German hydrogen industry association DWV said. "Political stagnation is looming" and delayed progress on key policies could "jeopardise the ramp-up of a hydrogen economy and potentially set its start back by months or years," it said.

Scholz said he will seek votes on urgent laws before Christmas "but failed to make a clear commitment to key projects for the hydrogen economy", DWV said.

The industry body listed several legislative initiatives planned or underway that need addressing. These include the so-called hydrogen acceleration act — which is designed to streamline permitting procedures for electrolysis plants, import terminals, storage facilities and other infrastructure — and the power plant strategy which involves the development of hydrogen-ready gas-fired power plants and for which first tenders are planned for the first half of 2025.

The industry is still waiting for a dedicated storage strategy which is long overdue and was most recently promised for "this autumn". And while Germany has until 21 May next year to transpose key rules from the EU's revised Renewable Energy Directive (RED III) into national law, industry participants have called for this to be done as soon as possible to provide certainty, especially around mandates for renewable hydrogen use in industry.

DWV also reiterated calls for the implementation of a certification system for renewable hydrogen and derivatives, having previously said that this will be critical to unlock support for producers through greenhouse gas emissions certificates.

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Persistent uncertainty over future budgets raises questions over subsidy mechanisms that are long overdue and which Berlin is counting on to reach its 10GW electrolyser capacity target for 2030.

This includes tenders for 3GW of so-called "system-serving electrolysis capacity", intended to provide flexibility in the wider electricity system. These were due to be launched last year and run steadily until 2029 for 500 MW/yr of capacity. The economy and climate protection ministry told Argus in late August that it was planning to consult on the tender framework this autumn, but it has yet to do so.

The DWV acknowledged that "the coalition, despite all the criticism, has also done a lot of good for the hydrogen ramp-up". Progress on the planned pipeline network, the carbon-contracts-for-difference scheme and the power plant plans has been made this year. But despite progress in some areas, Germany's 10GW electrolysis capacity is "far out of reach", according to David Hanel, head of public affairs in Germany for French hydrogen project developer Lhyfe.

The "current political crisis" offers opportunities for a reset, especially a "reality check" on the effectiveness of support measures that have been drawn up for the sector, including the European hydrogen bank, Hanel said.

A change in government following the election is highly likely. Polls show the conservative opposition sister parties CDU and CSU firmly in the lead, although with a projected 30-33pc share of votes they too would need coalition partners.

A change in power is unlikely to lead to a major shift in Germany's course on hydrogen. But it could be good news for proponents of "blue" hydrogen made from natural gas with carbon capture and utilisation or storage (CCUS) or "turquoise" gas-based hydrogen made via pyrolysis.

In a "discussion paper" on energy published earlier this week, the CDU/CSU called for a "fast, multi-coloured and broad" approach to hydrogen. In order to advance plans, barriers for domestic gas-based hydrogen production with abated emissions have to be removed, the parties said.

The incumbent coalition had stressed openness to imports and use of hydrogen from different sources, including gas-based pathways, but limited funding support for domestic production of renewable hydrogen.

A change in government could also mean that the recently-approved hydrogen network will be revised. The CDU/CSU has called for extensions to "cover all main economic regions," focusing specifically on the southern states of Baden-Wurttemberg and Bavaria.

By Stefan Krumpelmann

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