Germany has announced a plan to subsidize gas power plants that can switch to hydrogen as part of its efforts to reduce carbon emissions and increase renewable energy sources. The plan, which was agreed upon by the government on Monday, has a budget of $17 billion and aims to support the transition of four gas plants with a total capacity of up to 10 gigawatts (GW) to hydrogen by 2040.
Why is hydrogen important for Germany’s energy transition?
Hydrogen is seen as a key element of Germany’s energy transition, as it can store and transport renewable energy and replace fossil fuels in various sectors, such as industry, transport, and heating. Germany has set a target of becoming climate-neutral by 2045 and phasing out coal-fired power by 2038. However, the country still relies on gas for about a quarter of its electricity generation and faces challenges in balancing the intermittent supply of wind and solar power.
By subsidizing gas power plants that can switch to hydrogen, the government hopes to ensure a reliable and flexible backup for renewable energy while also preparing for a future where hydrogen will play a major role in the energy system. The government also expects the plan to create jobs and innovation in the hydrogen sector, which is seen as a strategic industry for Europe.
How will the plan work?
The plan will involve a tender process for the four gas plants, which will take place soon, according to the economy ministry. The state support for companies to build and operate future hydrogen-ready gas power plants will total around $17 billion, including capital and operating subsidies, two coalition sources told Reuters on Monday.
The ministry said hydrogen transition plans should be drawn up by 2032 to enable the plants to be fully switched to hydrogen between 2035 and 2040. The plants will initially run on natural gas but will gradually increase the share of hydrogen in their fuel mix until they can run entirely on hydrogen. The hydrogen will be produced from renewable energy sources, such as wind and solar, using electrolysis, a process that splits water into hydrogen and oxygen.
The government will also subsidize power plants running exclusively on hydrogen with a capacity of up to 500 megawatts for energy research purposes, the ministry said, without providing financial details.
What are the challenges and criticisms of the plan?
The plan has been welcomed by some industry players, such as utilities RWE and EnBW, which said they planned to take part in the tenders. EnBW board member Georg Stamatelopoulos said that while the agreement was an important step, the 10 GW goal was too low to ensure an accelerated exit from coal-fired power by 2030, and a swift tender process was key given that such projects take 6–8 years.
However, the plan has also faced criticism from environmental groups, which argued that the plan was vague, risky, and unnecessary. Germany’s Deutsche Umwelthilfe environmental group said the agreement, including the financing and tender design, remained vague and may lead to gas power plants being built that do not get converted to hydrogen. It said the agreement considers deploying expensive or uncertain technologies that are still in development, such as nuclear fusion and carbon capture, instead of relying on existing solutions.
The group also questioned the need for subsidies for gas power plants when renewable energy sources and storage technologies are already available and cheaper. It said the plan was a “gift” to the gas industry and a “betrayal” of climate goals.
In addition to the plan for hydrogen-ready gas plants, the government also said on Monday that it would introduce a market-based capacity mechanism, to be agreed upon around the middle of this year and operational by 2028. The mechanism would pay utilities to ensure baseload capacity when intermittent solar and wind power fall short and would reflect the increased share of renewables in Germany’s energy mix.
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