Germany will offer at least 1.5 billion euros out of its federal budget to cut the hydrogen-based production cost gap in the 2027 round of tenders for state support, the economy ministry said. The funding promise for so-called Carbon Contracts for Difference – CCfDs to assist the industry decarbonize constitutes an element of a wider support package for the emerging hydrogen market.
The ministry stated that “The development of the hydrogen market is currently facing major challenges and is being held up, particularly as production costs are still significantly higher than what many potential end-use sectors are willing to pay.” Interestingly, hydrogen projects will also be able to bid for a slice of the wider CCfD scheme, for which the government has allocated a maximum of 8.7 billion euros in total.
As part of addressing the hydrogen-based production cost gap, the ministry’s support package also included current plans like support for converting 4 gigawatts – GW of power plants to operate on hydrogen and pushing to expand the so-called core grid to move hydrogen to demand centers.
Germany additionally imposes a requirement to reduce the carbon footprint when it comes to new offshore wind farms, which it said would primarily happen through the use of steel produced by way of green hydrogen. This stems from the EU Net Zero Industry Act – NZIA, which mandates the EU member states to include non-price criteria, for instance, the carbon footprint, when it comes to the renewable energy auctions.
Germany wants to make its energy system climate neutral in the future – and green hydrogen, which can be produced from renewable energies, is an important building block. Most applications, from EVs and heat pumps to home appliances and many manufacturing processes, will be electrified, but a few industrial production calls for high temperatures, which the electric systems cannot yet provide at an index and an amount that is on par for industrial use.
Hydrogen will also be necessary as a base material in the chemical sector, as a fuel in aviation, and to stabilize the power grid for longer periods of little wind as well as sunshine.
It is worth noting that Germany’s government has continually declared its desire to speed up the hydrogen economy, but an ongoing disconnect between expectations and reality means that high costs of production, low demand, and infrastructure ambiguity continue to hold back the sector. The government has been criticized for cutting funding, and despite receiving billions of subsidies, Germany has not yet met the targets set forth in its hydrogen strategy – and is not likely to do so soon enough. The Federal Court of Auditors stated in a special report on progress and obstacles in setting up a hydrogen economy in the country in 2025.