Hydrogen: hype or the answer to Germany's energy woes?

AI generated: hydrogen facility with wind turbine in background

Dear Reader,

Hydrogen hasn’t been this popular in Germany since the days of the Hindenburg.

For Energy Minister Robert Habeck, it is “the next big chapter” in the country’s energy transformation.

For Olaf Scholz, it is the stuff of Huxley-esque dreams.

“Ships, planes, steel or chemical production, for all these large machines, factories and engines we need hydrogen - that small molecule without which there would be no life on earth,” he mused on a recent visit to a hydrogen research facility in Hamburg.

Hydrogen has plenty to recommend it. It’s the most plentiful molecule in the universe, it doesn’t absorb infrared radiation, meaning it isn’t going to heat up the planet, and it is highly combustible.

What’s not to like?

Especially since the Russian invasion of Ukraine, the promise of a future fuelled by hydrogen rather than natural gas has captured the world’s imagination.

Wasserstoff is particularly crucial to solving Germany’s renewable energy dilemma.

Unlike some neighbours (France, Finland), Germany has decided to forgo the predictable energy produced by nuclear reactors. And, unlike others (Norway, Austria), die Bundesrepublik has neither the geography nor the climate to make renewables a reliable alternative.

With few mountains, minimal coastline and (as any inhabitant of Berlin will attest) hardly any sun in the winter, Germany is ill-suited to running an entire energy system on hydro dams, wind turbines and solar panels.

This immutable reality means that the dreaded Dunkelflaute, short, cloudy days with no wind, is a fact of life. In November, Germany’s sprawling renewable energy grid - built at a cost of several hundred billion euros - produced next to no power for days on end.

Whenever the wind drops, the country needs to fire up its coal plants to prevent a blackout. But burning coal means pumping CO2 into the atmosphere - the dirty secret of Germany’s vaunted Energiewende.

With the country aiming to hit net-zero carbon emissions by 2045, that is a state of affairs that can’t continue.

And this is where hydrogen comes in.

Over the next two decades Germany wants to construct a network of “H2 ready” power plants that will initially run on natural gas but will switch to hydrogen once it is being produced in sufficient quantities. The plants will pick up the slack when there isn’t enough wind or sun energy to meet demand.

Add to this the fact that the government is pushing for steel manufacturers such as ThyssenKrupp to use “green fuel” to heat their furnaces and Germany’s demand for hydrogen is set to soar over the coming decades.

By one estimate, German annual hydrogen demand will hit 350 TWh by 2045. For anyone (like me) who struggles to visualise that, it is as much power as one German nuclear reactor produced in 32 years (making it the most productive reactor in the world).

Suffice to say, we are talking about vast, vast quantities of gas.

So it seems reasonable to ask where all this hydrogen is going to come from - and whether it is going to be affordable.

At least publicly, Habeck has no concerns. “My personal assessment is that everything will happen much faster and therefore will be much cheaper than we previously imagined,” he said last year.

But, as infectious as the Energy Minister’s enthusiasm might be, there are good reasons to remain sceptical.

For one, while hydrogen molecules are everywhere, hydrogen gas isn’t.

Regardless of the breathless headlines that have popped up in the press hinting at endless hydrogen fields under countries like France and Mali, the fact is that natural hydrogen gas has never been commercially exploited.

Instead, in the industrial processes where it has been needed for decades, companies have extracted it from methane. This is the most cost-effective way of creating it and still accounts for over 95 percent of production. On the down side, this process of creating “grey hydrogen” releases carbon dioxide into the atmosphere. As a fuel for a net-zero future, it is a non-starter.

Fortunately, there is another way. By running water through something called an electrolyser, you can split the H2 from the O to obtain pure hydrogen gas.

If using water as the raw material for all our energy needs sounds like the holy grail, it is a little bit more complicated than that. Electrolysers are expensive to build and running them requires electricity… a lot of electricity.

These two factors account for the fact that using electrolysis to produce hydrogen remains uncompetitive in comparison with extracting it from methane.

But there’s more. If the electricity you are using isn’t “green” then the hydrogen won’t be green either. With Germany having said “nein!” to nuclear, that restricts it to running its electrolysers on wind and solar.

Not a problem, says Habeck, who sees electrolysers are the perfect foil to wind turbines.

In much the same way that hydrogen power stations will step in when there is too little wind, electrolysers could make use of all the extra energy being produced when there is too much wind.

If you imagine renewable energy production as a wave with peaks that rise above demand and troughs that fall below it, electrolysers would siphon off the excess energy from the peaks and turn it into hydrogen, which would then be used to fill in the troughs.

Suddenly, renewable energy production would perfectly match demand. It sounds like a match made in heaven.

But, whether it works in practice is another story.

To test the theory, the Energy Ministry funded a pilot project called WESTKÜSTE100, which was aimed at finding out whether you could run a large electrolyser commercially.

Run at the Heide Refinery in the northern state of Schleswig-Holstein, the project was given the best possible starting conditions.

There was plentiful electricity: Schleswig-Holstein has the most wind turbines per square metre of any state in the country.

The infrastructure was there: the refinery was already linked to a hydrogen pipeline.

And the customers were already there: the local heating supplier had agreed to feed the hydrogen into its district heating system.

Handed an initial €36 million in federal funding, the project was supposed to start with a moderately-sized 60 MW electrolyser, before scaling up to a gigantic 600 MW one if things went well.

And yet, last December the joint venture behind WESTKÜSTE100 announced that they were going to end the project before even building the smaller electrolyser due to the “major economic risks” involved.

“A project only works if it is profitable and unfortunately this was not the case here. That’s why we made this sensible decision,” project leader Jörg Kubitza said.

Why had they concluded that the project was unaffordable despite all the money and care that had been put into planning it? WESTKÜSTE100 offered few answers beyond vague statements about the “economic conditions not being suitable.”

A search for answers at the Energy Ministry does little to clear up the confusion. In fact, it is not even clear that they’ve registered the fact that the project failed.

In the ministry’s latest energy research report, published in July, WESTKÜSTE100 is still listed among ongoing pilot projects in which “important milestones for the energy transformation are being met.”

I requested a statement from the ministry on whether it had run an analysis of the pilot project, whether it could tell me why it had failed, and whether it would be feeding lessons into future funding rounds. By the time of publication, I never received a reply.

The state government in Schleswig-Holstein told me that the reasons for the failure were “diverse” but did not elaborate.

However, an article in Die Tageszeitung offers some thought-provoking answers. I’ll quote it at length and I should point out that Die Tageszeitung (known colloquially as Die Taz) is the most pro-Green newspaper in the country:

“It became clear that not everything that is technically feasible is also economically viable. The reason is a fundamental problem that every operator of an electrolyser faces.

On the one hand, the high capital costs involved mean that the system should run for as long as possible - ideally more than 8,000 hours per year. On the other hand, this means that not only cheap surplus electricity (in this case wind power) can be used, but that electricity also has to be purchased during hours when it is scarce and correspondingly expensive - and, above all, not green.

If hydrogen is only produced during the hours of excess wind and low electricity prices, the runtime of each electrolyser will be short. High fixed costs can then only be allocated to relatively few operating hours, which makes long-term coverage of the investment costs unrealistic. In view of this constellation and the high investment costs, the project managers decided to pull the plug.”

That is an analysis that should have had all the alarm bells in the Energy Ministry flashing red.

Strangely though, the joint venture behind WESTKÜSTE100 said that they wanted to build the larger 600 MW electrolyser nonetheless. Again, they offered no explanation of why this big project should work where the smaller one had failed.

I’ll return to Die Tageszeitung for some answers on why:

“The Schleswig-Holstein state government has already earmarked €194 million for the bigger project… and more than twice that sum is likely to be provided by the federal government as part of the EU's so-called IPCEI projects. This would result in funding of around half a billion euros - which might be enough to at least implement this project.”

In other words, if a small project isn’t working with small amounts of public money perhaps a large one will work with large amounts of public money, Especially in these times of stretched state budgets, it is hard to think of a more perverse logic!

In actual fact, it looks like the plan to build a mega electrolyser at the Heide Refinery is now on extremely shaky ground.

The Schleswig-Holstein state government told me that it is “working on the assumption” that the project will still be executed but referred me to the refinery for further details. The refinery hasn’t released any new information on the project in over a year and a net-zero road map released by the state government in May made no mention of the project despite including a lengthy section on the refinery’s efforts to go green. Meanwhile, it has also dropped off the list of German projects granted money via the EU’s IPCEI hydrogen fund.

All of this uncertainty doesn’t mean that the government has lost faith in the viability of domestically produced hydrogen, though. Far from it!

Last year, Habeck announced that he was doubling the target for domestic hydrogen production capacity from 5 to 10 gigawatts by the end of the decade.

But, as is so often the case with Habeck, targets don’t have much to do with reality. Current installed electrolyser capacity is 66 MW - less than one percent of the energy minister’s goal.

Meanwhile, as if WESTKÜSTE100 never happened, Habeck is busy funding new pilot projects meant to test the viability of combining electrolysers with wind turbines.

At the opening of a 30 MW electrolyser in the town of Lingen in August, he praised the “favourable conditions for climate-neutral growth.”

“I am convinced that electrolysers like the one here will make an important contribution to the success of the energy transition,” he said.

Much like in Heide, an initial round of funding could be followed by half a billion euros if operator RWE manages to build a 600MW mega electrolyser in Lingen. That, it seems, is what Habeck’s “favourable economic conditions” cost.

The energy minister likes to present these subsidies as one-off investments that will get the hydrogen economy up and running - solving the chicken-and-egg problem, as he calls it.

Experts in the field are less sure.

A group of economists at the Potsdam Institute for Climate Impact Research published a paper this year that found that Germany would have to fund domestic hydrogen production with up to €9 billion every year if it wants to compete with the price of imports for just three key industries.

Economic realities mean it is simply cheaper to produce the hydrogen in places with abundant sun and then ship it or pipe it to Germany, the report found.

Mind you, not even Habeck is so optimistic as to believe that he can turn Germany into the next Saudi Arabia.

He has said that he wants to import two thirds of Germany’s hydrogen and produce the rest at home. It is unclear what the basis for this ratio is, but it presumably meets Habeck’s threshold for the “onshoring” of critical infrastructure.

Thus, if he is not opening hydrogen labs at home, the energy minister is busy trying to find suppliers abroad. This week he was in Nairobi for a summit with African leaders - and hydrogen partnerships were top of the agenda. A cooperation agreement has already been signed with Namibia.

This all raises fascinating questions about Germany’s future in a hydrogen-fuelled world. Why would ThyssenKrupp et al put up with the higher prices of imports in the long term when they can head for sunnier climes and save on transportation costs? Will German electricity costs ever come down to a competitive price when other countries can run their systems on cheaper home-made hydrogen?

More profoundly, if Germany’s rise in the 19th century was based on the fortune of sitting on rich seams of coal in the Ruhr and Lusatia, will its lack of the energy sources needed to produce hydrogen fuel mark its decline in the 21st century?

Let me know what you think in the comments section!