The German Model

Learnings for India’s transition to a green hydrogen economy

As countries across the world move towards a clean energy future, the re­newable energy sector is witnessing tremendous progress in terms of new technologies and fuels. Green hydrogen is now a part of several countries’ clean en­er­gy tra­n­sition plans. It is zero carbon and is pr­o­­duced by electrolysis powered by renewable energy. It is capable of enabling the decarbonisation of various sectors and in­dustries, while complementing other so­ur­ces of renewable energy such as wind and solar. It can also serve as an energy ca­rrier as well as a medium of energy storage.

Germany is rapidly progressing in its green hydrogen transition. The country is witne­ssing a closure of nuclear and coal power plants, and aims to fill the energy gap with cleaner fuels. Recently, the German parliament passed a bill to amend the Climate Action Law, revising its target to achieve ca­rbon neutrality in 2045, instead of 2050. Green hydrogen is expected to play a central role in this transformation. The amendment also entails the reduction of greenhouse gas emissions to 65 per cent as compared to the 1990 levels, by 2030. By 2040, a reduction of 88 per cent in greenhouse gas emissions would be required. Germany also launched its National Hy­dro­gen Strategy in 2020, with the aim to re­place oil and gas in the industrial, heating and transport sectors. Furthermore, its Cli­mate Action Plan 2050 has laid down a well-defined framework to support investment and financing of new renewable en­ergy projects.

While the country is investing heavily in projects for the development of green hy­drogen infrastructure, it is expected to be dependent on imports to meet its green hydrogen demand over the next few years. The German federal government is thus establishing partnerships with other countries to achieve cost-effective green hydrogen production.

Renewable Watch takes a look at Ger­many’s green hydrogen targets, proje­cts and partnerships, and barriers to provide key insights for the Indian hydrogen sector…

Germany’s national targets and hydrogen strategy

For Germany to become carbon-neutral by 2045, decarbonising its energy supply is essential. Hydrogen can play an integral role in this regard. In June 2020, the National Hydrogen Strategy of Germany was announced, establishing a target of 5 GW of hydrogen production capacity by 2030. An additional 5 GW of capacity is to be added by 2035, but no later than 2040. While the aim is to use the cleanest form of hydrogen, the strategy does not negate the role of blue and turquoise hydrogen in the European hydrogen market.

Prior to the hydrogen strategy, an investment outlay of Euro 12.36 billion by 2026 was outlined as part of the Coronavirus eco­nomic stimulus package to promote hydrogen production. Additionally, a funding of Euro 9 billion was provided under the strategy to develop green hydrogen on a large scale, using wind and solar en­ergy, so as to make synthetic fuels for the en­ergy, industry and transport sectors.

Projects and partnerships

Under its National Hydrogen Strategy 2020, the German government plans to en­­han­ce green hydrogen production th­rough increased investments and collaboration. As the majority of future hydrogen require­me­nts to decarbonise Ger­many are expec­ted to be fulfilled using im­ports, the federal government has been focusing on creating partnerships with various countries to enable cost-effective production and supply of hydrogen in the medium and long term.

For instance, in March 2021, the German federal government entered into an MoU with Canada to venture into the green hy­drogen market. In the same month, it sig­ned an agreement to establish a hydro­gen co­o­peration with Saudi Arabia. This in­clu­des a bilateral innovation fund, which will be created to promote clean hydrogen. In June 2021, the Germany Australia Hydro­gen Accord was signed. The ac­cord inclu­d­es cooperation between the two countri­es for primarily three projects. First, Hy­Gate, which entails the creation of a Ger­man-Australian H2 incubator for ap­p­li­ed research and pilot projects spread ac­ross the entire value chain. Second, a hydrogen trade cooperation to enable the import of green hydrogen and its allied products from Australia to Germany. The third project includes industrial support between the countries for demonstration projects in Australian hydrogen hubs. In the same month, the Clear Hydrogen Mission, which is a joint agreement bet­ween the Euro­pean Com­mission and countries such as Germany, India, the UK and the US was set up. The mission aims to reduce the total cost of clean hydrogen to $2 per kg.

In June 2021, Germany also signed an MoU with Chile to further improve the hydrogen economy. Under the realm of the German-Chilean Energy Partnership, which was established in 2019, a hydrogen task force is planned to be created to further look into investment opportunities. The German Development Bank has also committed to contribute up to Euro 200 million to support the development of gre­en hydrogen in South Africa. The investment will involve the identification of project opportunities for the production, consumption, transportation and storage of green hydrogen in South Africa. Germany is looking into the prospect of future stra­tegic partnerships with various states in West and South Africa, given their high potential for green hydrogen production. Earlier, in 2020, the German government signed an MoU with Morocco for the joint development of green hydrogen production technologies. The agreement includ­es the construction of a 100 MW hydrogen production plant, which will cater to German demand.

The transport ministry has established an investment outlay of over Euro 1.3 billion for research and development as well as marketing of fuel cell production, in Ger­many. Port infrastructure is also ex­pe­c­ted to be expanded to export hydrogen by tank ships. At present, Germany has a global market share of 20 per cent in building electrolysers. The government will also finance investments in electrolysers. As offshore wind can be used to produce green hydrogen, a framework is being developed to promote offshore wind in hydrogen projects.

Challenges on the way

There exist several barriers to scaling up green hydrogen production in Germany. The high cost of green hydrogen is a challenge that is common to several countries. Storage and transport are also mutual issues that need to be addressed. At present, there is low demand for the fuel as compared to conventional fuels. Germa­ny’s National Hydrogen Strategy has also identified key barriers to hydrogen production, which include fossil fuel prices, taxes, levies, and surcharges on electricity utilis­ed for the production of hydrogen.

To overcome this, subsidies and exemptions can be allowed on the surcharges levied on the electricity used for green hydrogen production. Pricing of fossil fuels, which release carbon dioxide, can also be altered to provide a fair standing to renewable energy sources such as green hydrogen. Lack of access to low-cost finance for green hydrogen projects is another limiting factor. Poor funding op­portunities may restrict the development of a full-fledged hydrogen infrastructure and limit the development of advan­ced hydrogen technologies needed to im­prove efficiency. However, in recent mon­ths, the German government has provided a tremendous push in terms of funding to green hydrogen projects. Additio­nally, lack of training and necessary skills amo­ng the workforce may hinder further progress of the sector.

A report published by IRENA in 2020, Green Hydrogen: A Guide to Policy Making, states that green hydrogen experiences heavy energy losses at various stages in the supply chain. Roughly 30-35 per cent of the energy is lost during electro­lysis. Further, converting hydrogen to other energy carriers such as ammonia may lead to an additional energy loss of 13-25 per cent. The use of hydrogen in fuels may ca­use an energy loss of up to 40-50 per cent, in addition to prior loss during electro­l­ysis. Thus, optimisation of energy production and transportation will play a significant role in improving the hydrogen fuel output.

Furthermore, as per the German federal government estimates, the consumption of hydrogen in the country was 55 TWh as of June 2020. This is expected to increase to  90-110 TWh by 2030. However, by 2030, the green hy­drogen production capacity in Germany is likely to be around 14 TWh. Thus, in the medium to long term, Germa­ny will be largely dependent on imports to meet its requirements of green hydrogen. A com­prehensive legal framework as well as regulatory standards for collaboration in gr­een hydrogen transport must be laid down to ensure a smooth energy transition.

Learning for India

Since 2020, Germany’s drive to enhance hydrogen production and its supply capacity has progressed well. India is also working towards a similar objective. Yet, a continued push may be required to establish a robust hydrogen network within both the countries. The German hydrogen strategy provides several insights for India to establish collaborations with other countries, wh­i­ch will be key to ensuring long-term security of green hydrogen energy supply in India. The expansion of production capacity, de­ve­lopments in energy transportation, sto­rage, and market applications can be promoted in India, as seen in Germany and other European countries. A well-establi­shed pipeline for transporting hydrogen bet­ween states and neighbouring countries can also go a long way in meeting In­dia’s growing energy demand.

Further, Germany has established a legal framework for hydrogen production. India must also create a comprehensive legal framework for green hydrogen, in accordance with the standards established in other countries. This will enable the establishment of a market for green hydrogen between India and potential suppliers. To meet its decarbonisation targets, India will also have to ramp up investments in gr­een hydrogen projects, and research and development. The case of Germany sho­ws that increased investment combi­ned with government support, technological im­provements and a skilled workforce can help a country like India to meet its decarbonisation targets.

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