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Q&A: Germany's PtX Fund to ramp up in round 2

  • Spanish Market: E-fuels, Fertilizers, Hydrogen
  • 09/01/25

Germany's state-backed Power-to-X (PtX) Development Fund aims to help unlock investment decisions for a handful of mature renewable hydrogen and derivatives (power-to-X) projects in select countries, thereby advancing environmental and social development goals. Berlin picked Bavaria-based fund manager KGAL to control the €270mn ($279mn) purse, and it recently awarded its first €30mn to a €500mn Egyptian project that will produce 70,000 t/yr renewable ammonia.

Argus spoke with the fund's managing director Thomas Engelmann about lessons learned from the first round and hopes for round two, which opens 8 January – 5 March 2025. Edited highlights follow:

Which countries are eligible in round 2, how is that decided?

It is the mostly the same as round one — South Africa, Brazil, Morocco, Kenya, India, Egypt — plus Colombia as a new addition.

The German government selects the countries most suited for this instrument from more than 60 partner countries co-operating with the Federal Ministry for Economic Cooperation and Development (BMZ). Not all countries have the right ecological conditions. Participating countries ideally have a workforce that is prepared to support PtX, and some potential domestic offtakers in the country.

Why was Colombia added for this round?

Colombia has good conditions for renewables — its electricity mix is currently 65pc hydroelectric, 4pc solar, and 30pc fossil fuels. And it plans to add 3GW offshore wind in future via government-run auctions.

So Colombia should have among the cheapest PtX production. Costs in northern Colombia may reach €3.3/kg ($3.4/kg) in 2030 and €2.7/kg ($2.8/kg) by 2040, according to German research institute Fraunhofer ISE. The strong government support from Colombia also helps our goal of social transformation.

What size projects will the fund support?

We haven't set a minimum size, but ideally the total capital costs should be in the range of €100mn–500mn. That means €5bn 'white elephant' projects are probably not for us. We have up to €30mn available, which is definitely not enough to change the investment decision for a €5bn project.

What is the €30mn grant designed to do?

We bridge the gap to financial close, so our €30mn grant agreement supports the banks, supports the sponsors, acting like an airbag for the project to mitigate any kind of risks or uncertainties in the project. For us, it's non-refundable — in return we expect to see ecological and social transformation that comes from financial close and commercial operation.

What key ingredients do you look for in projects?

We are bound by EU state aid law, so we check very early in the process if projects are eligible. Project feasibility and technical readiness are important. We check the source of the renewable power. We check it's a profitable and reasonable business model.

Clearly, we are not seeking return on investment for the PtX Development Fund, but we need to check that the equity sponsors and debt partners see a project that is economically viable. We want projects that have secured land and will reach financial close in 6-12, maybe 15 months. If a project is further away, that doesn't mean it's a bad project, it's just not ready for the purposes of this instrument.

Each project must do a very intensive environmental and social impact assessment based on the lending standards of the World Bank via its International Finance Corporation (IFC). That is the minimum for eligibility before we consider its level of positive impact.

Regarding impact, we want greenhouse gas emission reduction or avoidance. We want replacement of fossil fuel resources, in particular coal. We want job creation in the country and a 'just transition'. It's interesting if a project is scalable, for example, if we help with a €200mn first phase that unlocks future phases for the partners even without us.

Are those criteria typical for many financiers?

Correct, so it's a huge plus for a project if our fund awards a grant, as it shows the overall concept of the project has been checked according to World Bank and IFC standards. Other banks coming later or in parallel to us know the project is sustainable, complies with renewable power additionality principles, does not conflict with local water uses, and its land is free from social or ecological conflicts.

Does the fund have rules on who the offtaker should be?

Ideally the project would have offtakers in the country to support our target of local value creation. But not all seven countries have the possibility to absorb 100pc of the product, and clearly, we need economically viable projects. In our first-round project, part of the ammonia stays in Egypt and part will go to Europe.

What lessons can developers take from round one?

We realised the name PtX Development Fund could be misinterpreted, as we often had to explain that we don't have development money available — our name just means we are supporting developing countries. Hopefully in round two, those projects will return with an extra year of maturity.

Second, we must clarify that the environmental and social impact assessment is of utmost importance. We very often had discussions with developers that said, "my local government is not interested in doing impact assessments on ecological or social impacts," but we, as the PtX Development Fund, cannot accept that.

On technology, the starting point must be electrolysis since this instrument aims to help bring it to market and lower its cost. Yes, e-fuels production needs some carbon molecules, but we don't want projects that are completely biomass with no electrolysis involved.

And what did you learn about the wider PtX industry?

We were positively surprised to get 98 expressions of interest totalling €150bn potential investment and 56GW electrolyser capacity across these countries. But most projects were still in feasibility studies.

We followed up with around 10pc of interested parties, then after deeper due diligence, held negotiations with 2-3 projects. We see the technology for PtX is ready, but finding offtakers able to pay the premium for CO2-neutral products is hard. Mandates with penalties, like the EU's e-SAF quota, definitely stimulate the market, but it would be better if they started in 2025-26 rather than 2030.

Green ammonia buying for now is mainly voluntary and it depends on fertilizer companies being able to attract a premium for it to work. A green steel market is emerging in Sweden, as carmakers can attract a premium for 'green' products. We hope the EU's Renewable Energy Directive III will set quotas for ammonia and steel, but the carbon border adjustment mechanism is of utmost necessity to ensure European industry is not disadvantaged.

What are your expectations for round two?

Round one gave us an overview of the countries, so we really know about the quality of the projects. Now in round two, we want to support possibly several projects. Projects may enter multiple rounds and increase their quality each time until they reach an attractive level.


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