German opportunities and goals

Germany is heavily dependent on energy imports. And the Government has set three ambitious energy transition goals of greenhouse gas reductions, more renewable energies and higher energy efficiency. Hydrogen is widely seen as part of the solution, which has the necessary characteristics (incl being a storable energy carrier) to help meet the German climate target of reducing CO2 emissions by 95 % in 2050. Hence, the German Government set and published its National Hydrogen Strategy in June 2020. The Strategy outlines the role of hydrogen both as a low carbon energy carrier and as industrial feedstock. The German Strategy not only envisages hydrogen to decarbonise the industrial processes but also as a means to accelerate the domestic supplier industry by financially supporting research, innovation and pilot projects. Major German technology companies such as Siemens and Thyssenkrupp are global market leaders in electrolysis technology already today.

But to be able to meet the additional demand of hydrogen required by 2030 and by 2050 in order to decarbonise the industrial, heating and energy sectors, Germany needs to build up large-scale hydrogen production, use and application. The Strategy sees a liquid European hydrogen market as a requisite to be able to cater to the foreseeable hydrogen supply gap in Germany. However, taking industrial application as well as the aviation, heavy transport and heating sectors into account, hydrogen demand in the EU is expected to rise to over 40 million tons by 2050. Domestic production is expected to reach merely 25 million tons a year. Germany will remain a major energy importer as it is today and must build up new import strategies since it cannot rely on the EU to cover its supply. 

Regarding the different production pathways (colours) of hydrogen, the German Strategy focusses on carbon-free (green) hydrogen produced by electrolysis based on renewable energy as the only sustainable production pathway for the long term. However, blue and turquoise hydrogen will also be tradable in Germany and are so-called “technologies to bridge the gap”. These production ways are carbon neutral and can even be carbon positive as they use CCUS technologies to store the released CO2 or capture it in the methane pyrolysis production. To effectively and efficiently trade carbon neutral hydrogen of all colours internationally, the need for an internationally recognised standardisation and certification system is indispensable.

The Government has already begun to expand partnerships with existing energy suppliers such as Australia by including hydrogen and launched strategic technical partnerships with worldwide hydrogen pioneers such as Japan. Between Germany and Japan opportunities overlap to some extent, even though strategies may differ. Australia as a potential large producer and exporter can export to both countries. And while Germany will need to import hydrogen in the future, it is also suited as a strategic technology, standardisation and certification partner within the energy trialogue with Australia and Japan.

Shared interest 1: scale

Born out of the existing German-Australian energy cooperation and to support the hydrogen market rollout, the two governments launched the joint feasibility study “HySupply” to evaluate the production of green hydrogen in Australia and its transport by ship to Germany. Funded by the German Ministry of Research and coordinated by the German Academy of Science and Engineering (Acatech) and the Federation of German Industries, its aim is to map out business models that favour a long-term hydrogen partnership and to scale up a sustainable transport system for both countries. Particularly, companies in the steel and chemical sectors will soon need climate-neutral hydrogen in large quantities in order to serve their share of the climate targets. Thyssenkrupp and BASF are both on board the German-Australian project. Siemens Energy is also participating in “HySupply” and already supplying electrolysers to Australia. Thyssenkrupp is not only a potential large-scale customer for green hydrogen, but also a supplier of electrolysers. The company is constructing the production facilities for the production of green ammonia in Port Lincoln in Southern Australia.

The predicted growth of the Australian hydrogen production could open up extensive market opportunities for German companies in the field of renewable energy generation, electrolysis, transport and storage of hydrogen, as well as for products and services related to hydrogen applications. Besides the abovementioned companies, others such as Enercon, WestWind Energy, NewEn, Pro Ventum International, ibvogt, BayWa, Wirsol, and innogy are supporting Australia’s expansion of wind and solar capacities.

In order to help strengthen the export character, joint lighthouse projects of sufficient size should be launched so that hydrogen transport and import technologies and learnings can be tested and costs of production can be reduced and then scaled. Both Germany and Japan – even though they have less favourable conditions for productions – are aiming at large shares of domestic green hydrogen production. Projects developing new technologies for hydrogen production, for use and storage, especially innovative solution approaches for transport (eg LOHC technologies, ammonia) over long distances should be made eligible for additional state funding.

Shared interest 2: technology cooperation & investment

Importing energy sources is no new concept for Germany. Already today, 70% of German primary energy consumption is imported. Countries with many more hours of sunlight and strong winds could be able to supply the needed quantities of green hydrogen more efficiently. For that reason, existing bilateral energy partnerships include joint studies and pilot projects. For instance, expanding the partnership with Russia with a view to Russia’s potential to transport hydrogen via the Nord Stream 2 pipeline. Or with Norway with its developing industry of CCUS technologies. New partnerships, such as the ones with Morocco and Ukraine, are in the making. For supply in the long term and technology cooperation, not only the MENA region, but also Australia and Japan are viable. Decisive criteria for hydrogen trade are production and transport costs, suitable political and economic conditions, the availability of skilled workers, political interest in the development of hydrogen value chains and investment security. In Australia’s case the often used argument that the locally produced hydrogen could rather be used domestically is irrelevant due to the sheer amount the country will be producing.

But for sustainable and competitive hydrogen trade to make sense between Australia and Germany (or the EU), transport technologies must improve. According to the Energy Economics Institute of the University of Cologne, the highest costs are linked to transport by ship compared to green hydrogen that is locally produced or transported through converted natural gas pipelines. The high energy input required for liquefaction before transport must be lowered. At the present time and in the mid-term, it is more plausible that Australian hydrogen will be exported to Asia and the Pacific region, while European demand is met by own production and by imports from closer regions such as North Africa or the Middle East. However, it is in Germany’s interest for Australia to develop its production of hydrogen sooner rather than later. On the one hand, this can boost the technological learning curve and economies of scale worldwide. On the other hand, it can meet expected demand from Asia and the Pacific, which will tend to depress market prices for hydrogen from the Middle East which, in turn, would serve Europe. 

The German energy company RWE is pushing forward the development of German-Australian hydrogen trade. The aim of the company’s trading subsidiary RWE Supply & Trading is to import green hydrogen produced in Australia to Europe in the form of ammonia or synthetic methane. RWE’s entry into hydrogen trading represents an extension of its existing trading relationships (including LNG trading) with Australia.

Of particular interest to German companies is the fact that Japan often follows different paths than Europe. For example, the country does not only focus on fuel cell passenger cars, while Europe prefers battery-powered electric cars. Japan also wants to use hydrogen and ammonia in power generation as well as in the heating market. In addition, unlike the EU, Japan is focussing not merely on green hydrogen but on blue hydrogen, which is split off from fossil fuels, with the CO2 being stored. Technological cooperation needs to be expanded in the areas of hydrogen application in the heating and transport sectors. Hydrogen is also an important topic in the German-Japanese energy partnership, which was initiated by the ministries of economics of both countries. A joint study on the role of hydrogen in both countries was the first result. Such an energy partnership concentrated on hydrogen is an excellent opportunity for countries to exchange information on research and development. While Europe has only recently started to take hydrogen seriously, Japanese corporations have been investing massively for years to create a global market and exportable technology for the gas by 2030.

Shared interest 3: low carbon transition

Another main shared interest is the definition of standards and certification procedures. Australia has already made progress in developing technical standards. Japan is discussing a certification scheme to test hydrogen sources from ammonia to water in one of Japan’s regions.

Technical standards are an important prerequisite for the large-scale application of green hydrogen in all three countries. They ensure efficient global trade in hydrogen by reaching international harmonisation, eg for pressure levels, purities and pipeline transport. But they must be accompanied by sustainability standards. 

Sustainability standards ensure that emission reductions in Germany through the import and use of hydrogen do not lead to increased emissions in the countries of origin, and that the environmental impacts arising from the hydrogen value chain (production, conversion, storage, transport, distribution and use) remain within acceptable limits. The most common criteria applied in different certification schemes relate to the

  • reduction of life-cycle greenhouse gases,
  • dilemma in the case of green hydrogen production, where conflicts of use arise about when to use the renewable energy as a power source and when to convert it to hydrogen – especially in countries such as Germany and Japan where renewable power generation is limited – and
  • water consumption, land requirements, and possibly socioeconomic and developmental impacts.

When defining concrete requirements and thresholds for certification, the appropriate balance is key. Only hydrogen with clear climate advantages over conventional energy carriers should be eligible for certification. At the same time, the aim is to avoid barriers to hydrogen market development caused by overly strict requirements.

In terms of sustainability standards, it would make sense to strive for a common definition of carbon-free and low carbon hydrogen. For all three countries these standards will likely play an important role in establishing international markets. In defining standards for carbon-free and low carbon hydrogen, issues such as guarantees of origin and environmental and social standards for renewable energy generation, water desalination and electrolysis will play a role. Especially with Australia, as probably one of the largest hydrogen exporting countries of the future, a common definition of low carbon hydrogen would be very relevant. Issues such as the limits or carbon intensity of hydrogen, the definition of the limits of life cycle analysis, the consideration of methane leaks or the eligibility of nuclear based electrolysers play a role.


Biography

Prof Pflueger is the Director of the European Centre for Climate, Energy and Resource Security (EUCERS) at the Department of War Studies, King’s College London. He has previously served as a press secretary to the former German President Richard von Weizsaecker. Further, he was a Member of the German Bundestag (1990-2006), Chairman of the Bundestag Committee on the Affairs of the European Union (1998-2004) and Deputy Minister for Defence in the first Merkel Government

(2005/06). Since September 2009, he is Professor for International Relations at the Department of War Studies, King’s College London. He is also non-resident senior fellow at the Atlantic Council’s Energy and Environment Program and Senior Advisor to the World Energy Council’s Global Gas Centre. Friedbert Pflueger has his own consultancy in Berlin/Erbil and is Senior Adviser for Roland Berger Strategy Consultants. He publishes frequently on current energy and resource security issues.

Foreword

Analysis