The German government is proposing to invest billions of euros to support the roll-out of a wave of hydrogen-fired power plants. This is part of a move to phase-out coal plants and to deploy large volumes of wind and solar generation.
Details of the hydrogen plan – the Kraftwerksstrategie or KWS – became available on 5 February through a press release from Germany’s Federal Ministry for Economic Affairs and Climate Action 1 , which confirmed government agreement on the scheme. The plan is now subject to the approval of the European Commission and negotiations with the German parliament.
The planned hydrogen subsidies would have a transformative impact on both the German and European electricity markets. But discussions on the plans during 2023 were the privilege only of those inside ministries. Given the importance of these plans, the lack of public debate or transparency so far, especially at European level, is concerning.
In this context, and to inform the debate that will now start, we pose four questions: Why hydrogen? What are the ramifications for the European market? Where in Germany? By when should coal be phased out?
An unprecedented transformation of the German electricity system
Germany wants 80 percent of domestic electricity generation to be renewable by 2030, up from 44 percent in 2022 2 . Specifically, this involves reaching an installed generation capacity of 215 gigawatts solar, 110 GW onshore wind and 30 GW offshore wind by 2030, more than doubling existing capacities in the next six year 3 .
Germany’s governing coalition must also decide whether to bring forward the legally-specified coal phase-out date from 2038 to 2030. Bringing it forward would imply replacement of an additional 17 GW of lignite and coal plants by 2030 4 , on top of 13 GW of plants already scheduled for shut down.
All this means restructuring the electricity system at unprecedented speed. To accompany variable renewables, the deployment of clean-generation capacity that can smooth fluctuations in renewable output – both intra-day and across seasons – is necessary. However, exactly how much new capacity is required, and from which technology, is not clear.
What does Germany aim to do? Principles and compromises
The main thrust of the power plant strategy is to provide subsidies for hydrogen-fired power plants. The German government sees these plants as replacements for coal-fired plants that will shut down, and as complements to variable renewable generation, most likely by helping to balance longer-term fluctuations in renewable output. This is consistent with the German government’s grander ambitions for hydrogen. Plans are being drawn up for a hydrogen pipeline network that will cover 10,000 km by 2032 5 , and up to €20 billion will be spent developing the hydrogen industry between 2024 and 2027 6 .
The government originally wanted to support three types of plant: 1) hydrogen sprinters, 2) hydrogen hybrid, and 3) hydrogen-ready. Sprinters are purpose-built turbines that would run on hydrogen from day one. Hybrids involve the co-location of hydrogen capabilities alongside solar PV or onshore wind, which could even out the electricity sent to the power grid 7 . Hydrogen-ready plants would be plants with gas-fired turbines, and a requirement to provide a detailed roadmap showing how they will switch to hydrogen no later than 2040.
In August 2023, the Federal Ministry for Economic Affairs and Climate Action said it had completed negotiations with the European Commission over provision of state aid to these three types of plant 8 . Plans were drawn up to subsidise 4.4 GW of sprinters, 4.4 GW of hybrid plants, and up to 15 GW of hydrogen-ready plants. A first tender was intended for December 2023.
However, like so much of Germany’s planned climate expenditure, this agreement was thrown into question by a November 2023 constitutional court ruling that COVID-19 debt allowances could not be rolled over into Germany’s Climate and Transformation Fund (Klima- und Transformationsfonds, KTF), on the basis that the rollover would breach government spending rules 9 . The KTF would have been the source of the originally-planned subsidies for three types of hydrogen plant.
Therefore, a compromise was worked out, culminating in the government’s 5 February announcement 10 . The government now plans to subsidise a lower volume of 10 GW hydrogen-ready turbines and has scrapped plans for the 8.8 GW combined sprinters and hybrids. A tender process will offer state support for the construction and operation of four natural gas-fired power plants. Bidders should draw up plans for transitioning to hydrogen between 2035 and 2040. The estimated cost is €16 billion 11 .
This would create a demand for hydrogen of 20 TWh annually once all plants are converted, assuming 1,000 running hours per year 12 . Demand of 20 TWh is significant but not disproportionate in the context of wider plans. Total German hydrogen demand today is 55 TWh, of which almost none is supplied as clean hydrogen produced using renewable electricity 13 . The German national hydrogen strategy sets a target for between 40 TWh and 75 TWh total clean hydrogen demand in 2030 (BMWK, 2023).
Until plants are converted to hydrogen, they will consume natural gas, again estimated at a 20 TWh annual consumption. This compares to typical annual German gas demand of 800 TWh, which will be substantially lower by 2030.
Read the full analysis at the original link.
About the authors
Ben McWilliams is working for Bruegel as an Affiliate fellow in the field of Energy and Climate Policy. His work involves data-driven analysis to critique and inform European public policy, specifically in the area of the energy sector and its decarbonisation.
Georg Zachmann is a Senior Fellow at Bruegel, where he has worked since 2009 on energy and climate policy. His work focuses on regional and distributional impacts of decarbonisation, the analysis and design of carbon, gas and electricity markets, and EU energy and climate policies.