The European Commission has approved the German government's plans to promote the construction of the hydrogen core network with three billion euros in funding. Such approval is required under EU state aid rules to prevent market distortions.
The support comes in the form of state guarantees, allowing transmission system operators (TSOs) to obtain loans from the Kreditanstalt für Wiederaufbau (KfW) for the conversion of existing gas pipelines and the construction of new hydrogen pipelines and compressor stations. These loans are to be granted at refinancing costs so that their interest rates are below current market rates. According to the coalition government's plan, the TSOs must repay the funds by 2055. The amount and timing of repayments are to be adjusted to the anticipated increase in hydrogen demand, as expected by Berlin and Brussels.
The Commission justified its decision by stating that the core network aligns with the goals of the European hydrogen strategy and the "Fit for 55" package. Without the funding for the planned network of 9,700 kilometers of hydrogen pipelines, the use of green hydrogen in industry and transport cannot be scaled up by 2030. Additionally, the core network complements several Important Projects of Common European Interest (IPCEIs), particularly the IPCEI "Hy2Infra," approved by the Commission in February this year.
Establishment of a European Hydrogen Market
The EU Commissioner for Competition, Margrethe Vestager, emphasized that a core network of hydrogen pipelines is "crucial" to stimulate investment in hydrogen production and use. The German government's program could "significantly" contribute to establishing a European hydrogen market and help "minimize potential competition distortions."
The regulations for the EU internal energy market will apply to the use of the hydrogen core network. These regulations ensure that third parties have non-discriminatory access to the network and that tariffs are regulated. The construction and operation of the core network will be financed by TSOs selected by the Federal Network Agency. It is expected that the network will have relatively few users in its early years, which could result in initial network charges being too low to cover the provision costs.
The German government presented its draft for the hydrogen core network in November last year. In April this year, it decided to extend the construction deadline from 2032 to 2037 to ease the financial burden on the TSOs. The first major pipeline is expected to be operational by 2025.
