The hydrogen core network will connect future hydrogen producers and consumers throughout Germany. Section 28r Energy Industry Act (Energiewirtschaftsgesetz, “EnWG”) now provides a procedure for bringing together industry and public administration in a cooperative process. An accompanying innovative financing concept is intended to resolve the common infrastructure problem of high (ramp-up) investment costs.
A germany-wide hydrogen network for the economy of the future
The German government sees hydrogen as the backbone of a climate-friendly economy of the future. For this to become a reality, hydrogen producers and consumers will have to be connected through network infrastructure. The details for establishing Germany-wide hydrogen core network infrastructure are now set out in section 28r EnWG which came into force on 29 December 2023.
Under this provision, the main future hydrogen producers and consumers as well as hydrogen storage facilities are to be connected by the “hydrogen core network” by 2032. Companies from sectors that are difficult to decarbonise and have a high greenhouse gas reduction potential – and for which there is no energy- and cost-efficient alternative – are to be prioritised for connection. Non-essential hydrogen consumers will then be connected as part of the network development plan.
Construction of the hydrogen core network by transmission system operators
The transmission system operators will be responsible for constructing the hydrogen core network, which will mean easier use of already existing natural gas network infrastructure in particular. Pursuant to section 28r(2) EnWG, the transmission system operators have the right to initiate the planning for a nationwide hydrogen core network and have until 19 January 2024 to submit an application to the Federal Network Agency (Bundesnetzagentur) for approval of their plans. A draft application was in fact submitted to the Bundesnetzagentur on 15 November 2023 and the consultation process ended on 8 January 2024. The transmission system operators are now expected to formally apply to the Bundesnetzagentur for approval of the core network, with the application taking into account the findings from the consultation process. The Bundesnetzagentur will decide whether or not to approve the network.
Current planning status of the hydrogen core network
The draft application of the transmission system operators provides for a 9,700 km-long supra-regional hydrogen network, 60% of which will comprise converted natural gas pipelines. This means that much of the planned hydrogen infrastructure is already in place. However, since conversion of the infrastructure must not put the public’s current energy supply at risk, section 28r(2) EnWG stipulates that it will only be possible to convert natural gas pipelines if this does not jeopardise the current security of supply.
Cooperative process for faster results
Section 28r EnWG is aimed at securing prompt approval of the hydrogen core network. As a result, the Bundesnetzagentur has no discretion when it comes to approving the network and, in order to save time, any applications by transmission system operators that do not meet the criteria for approval pursuant to section 28r(6), sentence 1 EnWG will not be rejected. The Bundesnetzagentur will instead be able to require that the application be amended accordingly. If the transmission system operators fail to make use of their right to initiate planning, section 28r(3) EnWG sets a four-month time limit for the Bundesnetzagentur to design the hydrogen core network itself. In this way, the hydrogen core network is conceptualised as a cooperative process between the energy sector and public administration.
However, from a purely practical standpoint, the establishment of Germany-wide energy infrastructure will also affect the general public. In construction law, the typically divergent interests of citizens, hydrogen producers and consumers, transmission system operators and public administration converge in complex balancing processes. In some instances, balancing these interests on a case-by-case basis will have the potential to create a permanent obstacle to the construction of a hydrogen core network. The legislator has therefore anticipated the balancing process in section 28r(8) EnWG and, on the basis that rapid construction of the hydrogen core network is necessary and urgent for the future energy industry, taken the general basic decision that the hydrogen core network infrastructure to be commissioned by 2030 is in the overriding public interest. This principle has already been established in section 2 Renewable Energy Sources Act (Eneuerbare-Energien-Gesetz) for the expansion of renewable energies. In this context, judicial practice over the past year shows that this basic decision by the legislator has given renewable energies additional clout in court reviews. It is therefore to be expected that a parallel basic decision in favour of the expansion of the hydrogen core network will accelerate the implementation of the hydrogen core infrastructure under construction law.
Financing the hydrogen core network
The hydrogen core network is expected to involve investment costs of around EUR 20 billion. The financing will generally be accomplished through market-based fees. As only a few hydrogen users will be connected to the hydrogen core network during the market ramp-up phase, however, the fees charged will likely not cover the investment costs during this phase. In anticipation of this, the German government has developed a “fee deferral” concept, in which revenue shortfalls from the construction phase will be offset against increased revenues from the operating phase. Fee deferral is based on a two-pillar model in which network fees for users will be capped and the Federal Government will set up an “amortisation account” to be used for interim financing of the difference between the initially high investment costs and the later (presumably) higher fee revenues. This will ensure that users connected at a later time bear a share of the initial investment costs. The plan is for the amortisation account to be balanced by 2055. If the shortfall has not been made up for by then, subsidiary state cover will take effect and the Federal Government will pay the shortfall, with the operators of the hydrogen core network contributing up to 24%. Whereas the capped fees will benefit the network users (hydrogen producers and consumers) and in this way make the hydrogen network more attractive to users, the purpose of the amortisation account is to encourage investment in the hydrogen core network. This is to pave the way for the infrastructure to be financed entirely by the private sector. The subsidiary state coverage of any shortfall in the amortisation account will provide additional security for the network operators and investors.
Conclusion
The construction of a Germany-wide hydrogen network is an ambitious large-scale infrastructure project. The hydrogen core network is intended to ensure the supra-regional transport of hydrogen and will serve as the foundation for the future hydrogen economy. As such, it will connect producers and consumers. The planned completion by 2032 underscores the significance of hydrogen as a future energy source. Against this background, the process culminating in a hydrogen core network is structured as a cooperative process between industry and the Bundesnetzagentur. This cooperation is reflected in the right of the transmission system operators to initiate planning, in the various measures to speed up the process and in the legislator’s affirmation that the hydrogen core network is in the overriding public interest. At the same time, the Federal Government’s innovative financing concept ensures that the project will be attractive for both users and investors. Section 28r EnWG is thus intended to combine the strengths of industry and public administration and to ensure the rapid establishment of sustainable energy infrastructure.
Forward