EC approves €3 billion state aid to Germany to support hydrogen network

The European Commission has approved the allocation of about €3 billion ($3.2 billion) of Germany’s planned state aid for the construction of a hydrogen pipeline system (Hydrogen Core Network, HCN) in the country. This is stated in the message of the EC.

Germany plans to provide financial guarantees that will allow companies that will build and operate a €20 billion hydrogen network to obtain more favorable loans to cover initial losses at the stage of production ramp-up from 2025.

According to the EC, the promotion of hydrogen use outweighs any distortions to EU competition and trade that may result from the scheme.

The HCN will become the basis for long-distance hydrogen transportation pipelines in Germany and part of a European highway connecting several member states.

The measure will facilitate related investments, which include the conversion of existing gas pipelines for hydrogen transportation and the construction of new hydrogen pipelines and compressor stations.

According to the EC, Germany initially expects that only a few consumers will use the network and that tariffs will be lower than necessary to cover the relevant costs in order to encourage the use of hydrogen.

The loans will be provided by Germany’s Kreditanstalt für Wiederaufbau (“KfW”) at its own refinancing costs below market rates. The loans will be repaid over a period ending in 2055, with reimbursement to be gradually phased in line with the expected growth in hydrogen demand.

The estimated €3 billion of assistance corresponds to the additional financing costs that HCN operators would have to bear in the absence of the government guarantee.

It is expected that the first major pipeline will be commissioned in 2025, with the completion of the entire network in 2032.

In May 2024, the German government approved two bills aimed at accelerating the integration of hydrogen and carbon capture technologies into the country’s energy and industrial systems. Both technologies have been identified as critical components of the country’s ambition to become carbon-neutral by 2045, while preserving its heavy industry.