Hydrogen: How do you finance an infrastructure that no one needs yet? – Business

Robert Habeck was full of confidence, but he was already aware of problems. “We are solving the chicken-and-egg problem,” said the Green Economics Minister last November. “We now have to build a network for an energy source that is not yet there.” Two months later it is clear: the way it has been planned so far, the whole operation could go wrong.

The operation: This is the construction of an almost 10,000 kilometer long “core network” that will transport hydrogen throughout the country from 2032 onwards. In a sense, this network would be the hen that would then diligently lay eggs: in power plants that are supposed to use hydrogen to generate climate-neutral electricity, or in steelworks that are supposed to use hydrogen instead of coke to produce “green” steel in the future – free of climate-damaging carbon dioxide. In some cases, old gas pipes will be used and in others new ones will be built. The association of gas network operators, FNB Gas, estimates the costs of this core network at 19.8 billion euros. That’s a lot of money, especially in times of tight budgets.

But where do you get it from if not steal it? On Wednesday, the Bundestag Committee on Climate Protection and Energy addressed this question at a hearing. The opinion of most experts, in short: The way the federal government imagined it will hardly work. At least not without a few changes.

Economics Minister Robert Habeck visiting an Air Liquide electrolysis plant.

(Photo: Henning Kaiser/dpa)

Already those planned change in the law says a lot about what’s special about the whole endeavor. Anyone who sets up a network in this country usually earns money by using it. Every power line is financed by electricity customers through “network fees”. But if investors are now supposed to build a hydrogen network, they cannot rely on this source of income – and not as long as hydrogen is not fed into the network on a large scale and used elsewhere by industry and power plants. Without some kind of bridging solution, this dilemma would remain unresolved forever and a hydrogen economy could never emerge. Because: without a line, there is no change.

Risks remain

The federal government therefore wants to create an “intertemporal cost allocation mechanism” in seemingly endless paragraphs. Anyone who invests in the network should have their costs reimbursed. For this purpose, an “amortization account” should be created; the costs should be reimbursed from this account on credit. If the hydrogen flows at some point and the network fees exceed the network operator’s costs, then this surplus goes back into the account. If everything goes according to plan, the account would be balanced again by 2055, and Germany would have a hydrogen network that is self-sustaining. In principle, network operators also like this.

But risks remain. What if the hydrogen doesn’t flow? The law should also regulate this case of failure. The federal government would cover the loss of investments, but not completely. The same applies if the amortization account is not balanced in 2055. Given all the uncertainties surrounding the future of hydrogen, this is anything but unlikely. The account could be billions in deficit – and investors should also contribute 24 percent of this deficit. If one goes bankrupt in the meantime, the others have to cover their share.

The question marks predominate

Investors are already sounding the alarm. “The Ministry of Economic Affairs has not yet managed to present a financing framework that is suitable for the capital market,” says Sebastian Schweier, who is responsible for infrastructure investments at the Bavarian Insurance Chamber. Insurers, like pension funds, are behind many of the billion-dollar network investments; they are generally considered safe. When it comes to the hydrogen network, however, the question marks now predominate. The impression arises that there is a lack of understanding of the market mechanisms that apply to investors, says Schweier. The same applies to the regulation of networks. “We cannot continue like this if the money necessary for the energy transition is to be made available.” Or, as the head of the energy association BDEW, Kerstin Andreae, says: “The numbers also have to be right.”

It sounds no different at the hearing. “Why should I invest in the core network when I can have higher returns and less risk in the electricity network,” asks Gabriel Clemens, the hydrogen man at the energy company Eon. The expansion of the core network will be a “tightrope walk”. The 24 percent deductible is particularly criticized. The Federal Council had recommended reducing this share to 15 percent – this is also what the network operators are demanding. And they also don’t want to be held jointly liable for insolvent colleagues. Financial market regulations could also stand in the way of such investments.

“Significant risks”

“The risks are significant,” says Barbara Fischer, managing director of FNB Gas, which drew up the original network plan. “At the same time, the network operators have no influence on the development of the market.” You can lay or upgrade the pipes, but whether hydrogen flows is up to others. Without hydrogen there is no income. Many potential investors are already seeing the recently presented plans for a power plant strategy as a warning sign. Originally it was supposed to rely primarily on hydrogen as a replacement for natural gas. The federal government now wants to take some time with this change.

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