Hydrogen law, regulations & strategy in Germany

Since 2023, numerous steps have been taken in Germany to accelerate the ramp-up of the hydrogen market. Germany's role as a central transit country in the European Hydrogen Backbone and its considerable dependence on imports of green hydrogen make the expansion of the hydrogen market in Germany of international importance.

In mid-2024, funding decisions were issued for 23 projects as part of the Important Project of Common European Interest ("IPCEI") Hydrogen Programme, which were approved by the European Commission under state aid law at the beginning of 2024. This includes projects at all stages of the value chain, with total funding amounting to EUR 4.6 billion. The companies which are to receive subsidies are themselves investing EUR 3.3 billion, meaning total investments of around EUR 7.9 billion are expected to be made by 2030. The 23 projects include projects for the production of green hydrogen by electrolysis with up to 1.4 GW of generation capacity, storage projects of up to 370 GWh, pipelines of up to 2,000 km and projects for the use of liquid organic hydrogen carriers for the transport of around 1,800 tonnes of hydrogen per year.

In 2021, the Ministry of Economics approved funding of up to EUR 900 million for the first tranche of a tender, which formed part of the H2Global programme. The aim of the tender was to support the procurement of green hydrogen derivatives (ammonia, renewable methanol and sustainable aviation fuel) worldwide and offer them on the German and European markets. Delivery periods are to be 10 years and it is expected that, to begin and before demand increases, there may be higher purchase prices for these hydrogen derivatives but lower sales prices. The potential losses resulting from this will be compensated for by funding from the government using the Contracts for Difference approach. In the first round of the tender, the green hydrogen products that were purchased were required to have been produced outside the EU and EFTA.

The first round of tenders was completed in July 2024. The winner was the company Fertiglobe, which, according to the Ministry of Economics, will supply at least 259,000 tonnes of green ammonia to Germany between 2027 and 2033. The production price is expected to be around EUR 811 per tonne of ammonia, which will result in a price of less than EUR 4.50 per kg of green hydrogen. To produce the green ammonia, 273 megawatts of renewable electricity generation capacity will be developed in Egypt.

Also in July 2024, the German gas transmission system operators ("TSO") submitted an application for the "hydrogen core network" (see Main Development B). The core network is an essential component for the development of the hydrogen infrastructure and part of the European Hydrogen Backbone and must be approved by the Federal Network Agency (“BNetzA”).

The National Hydrogen Strategy ("NHS") Update was published in July 2023 and developed the strategy originally published in 2020. The main aims of the NHS are to:

• increase the planned electrolysis capacity,
• develop the hydrogen infrastructure, and
• define the priority consumption sectors.

Due to the dependence on imports to match current and projected green hydrogen and derivatives demand, the import strategy which was announced in July 2024 is particularly important (see Main Development A re. NHS and Import Strategy).

The policy framework is to be completed in time for the upcoming announcement of the hydrogen storage strategy, which is expected by the end of 2024.

Furthermore, recent legislation has created a framework for developing hydrogen infrastructure by implementing two amendments to the German Energy Act (Energiewirtschaftsgesetz) and the German Hydrogen Acceleration Act (Wasserstoffbeschleunigungsgesetz):

• At the end of 2023, provisions relating to the hydrogen core network were included in the Energy Act. These set out the obligation to develop the core network as approved by the Energy Regulator and the requirements to be met for infrastructure to become part of the network. Furthermore, it provides for financing principles  (see Main Development B re. the core network).
• In May 2024, provisions on integrated network development planning for the natural gas and hydrogen transport network and provisions relating to financing the core network were added to the Energy Act (see Main Development B re. the core network).
• Also in May 2024, the German government passed the draft Hydrogen Acceleration Act, which is intended to accelerate the market ramp-up of hydrogen. To this end, the planning, approval and award procedures for the production, storage and import of hydrogen are expected to be significantly simplified (see Main Development C).

National Hydrogen Strategy/Import Strategy

The update to the National Hydrogen Strategy (NHS) adopted by the German government in July 2023 supplemented by the Hydrogen Import Strategy published in 2024 set more ambitious targets for developing the hydrogen market compared to the first version from 2020. As the demand for hydrogen is expected to reach 95 to 130 TWh by 2030, the electrolysis target will be doubled to at least 10 GW. Highlighting the importance of a long-term import strategy (explored further below), forecasts predict that for the next five years 50-70% of the domestic demand will have to be met by imports of hydrogen. After 2030, the demand for imports is expected to increase further to 360-500 TWh for hydrogen and 200 TWh for hydrogen derivatives by 2045. 

By 2030, hydrogen use is expected to be most used in those sectors which cannot be easily electrified at a reasonable cost. According to the NHS, this will primarily be within the industrial sector, such as for the production of steel and chemicals. The use of green hydrogen is to be incentivised in these areas by entering into what are called carbon Contracts for Difference. These C-CfDs are to be 15 year civil contracts between the German Federal government and the proposed recipient of the funding (normally the hydrogen producer). In the electricity sector, hydrogen is also expected to be used as short-term and seasonal energy storage for renewable electricity, while in the transport sector, the use of hydrogen-based e-fuels is to be promoted for air and sea transport. For road transport, the current focus is on the electrification of road transport, with hydrogen playing a much smaller role at present. The use of hydrogen for domestic heating is not planned until 2030. 

To support the expansion of hydrogen demand, the hydrogen infrastructure is to be expanded both within Germany but also for connecting to and from Germany and other countries. Domestically, existing gas pipelines are to be converted and new hydrogen pipelines built. Internationally, the German network is expected to be expanded in line with the European Hydrogen Backbone, which will connect European member states to one another. In addition, pipelines are to be built from the EU to North Africa, as this is expected to be a key region for hydrogen production. The concepts set out in the NHS for expanding the German network have already been implemented into legislation through the above-mentioned amendments to the Energy Industry Act – creation of the core network and joint network development planning – (see Main Development B). 

As mentioned above, imports are expected to also play a key role in meeting Germany’s demand and will include hydrogen in various energy carrier forms. In addition to gaseous or liquid hydrogen, this primarily includes hydrogen derivatives such as ammonia, methanol, naphtha and electricity-based fuels. 

Due to the wide range of hydrogen products envisaged, the import strategy relies not only on the establishment and expansion of the corresponding pipeline network, but also on creating port infrastructure for the import of hydrogen and hydrogen derivatives arriving in Germany by ship. Accordingly, H₂-readiness is a requirement under the current German authorisation process for LNG terminals. 

The import strategy takes a comprehensive approach to creating suitable framework conditions.

• In addition to the aforementioned expansion of pipelines and terminal capacity, an emphasis has been put on strengthening the demand for hydrogen in Germany. This is to be achieved, for example, by promoting a conversion in steel production to green hydrogen.
• On the supply side, funding instruments, such as the H2Global tenders are also intended to increase the availability of green hydrogen derivatives. At the same time, the German government is intensifying international cooperation on hydrogen in a large number of bilateral partnerships and alliances. 1
• Ultimately, transparent and practical sustainability requirements, which have been transposed into German federal emission control legislation by implementing the EU's "Delegated Acts" (implementing the Renewable Energy Directive II), should contribute to a reliable regulatory framework for the ramp-up of the hydrogen market. Certification will be of particular importance here, as without this it is difficult for international trade in green hydrogen and its derivatives to work in practice.

Hydrogen core network

At the end of 2023, the goal of creating a supra-regional network as a basis for the development of the hydrogen transport infrastructure was included in the German Energy Act. In future, this core network will connect the main generation regions, storage facilities and import points with the consumption centres (e.g. industry and power plants) across Germany. It is to be built primarily by converting existing gas transport networks that are no longer needed for the gas sector. The pipelines must be located in Germany and are to be commissioned by the end of 2032.

The amendment to the Energy Industry Act from May 2024 expanded the legal framework for the ramp-up of the network by introducing comprehensive integrated network development planning for the natural gas and future hydrogen transport network. BNetzA is to approve an initial joint network development plan ("NDP") for gas and hydrogen in 2026. It is envisaged that the gas TSO and future regulated operators of hydrogen transport networks will draw up a scenario framework and, based on this, an integrated NDP for gas and hydrogen every two years. Public consultation processes are to form part of this procedure.

Under the NDP, BNetzA will be entitled to permit for an extension of the deadline for commissioning – beyond 2032 – to 2037 for individual projects that were included in the original core network application. The responsible network operators retain their right to claim funding.

The flexibility intended by the NDP aims to develop the network on the basis of demand and cost efficiency, thereby avoiding having unused capacity on the network. Where gas pipelines are to be converted to hydrogen, the operator of that pipeline must provide evidence demonstrating that the remaining gas network will cover the transport requirements for gas after the conversion.

The planning and construction of the core network is based on an application made by the TSO in July 2024, proposing a network of 9,666 km with investment costs amounting to EUR 19.7 billion. BNetzA has approved the proposed core network in October 2024 reducing its size to 9,040 km and the total investment costs to EUR 18.9 billion, scheduled to go into operation until 2032. Around 60 % of this consists of converted natural gas pipelines.

The amendment to the Energy Industry Act in May 2024 established that the core network is to be financed through cost-based charges payable by network users for access to the core network. However, the legislators identified that in the initial period there will only be a low demand for hydrogen, meaning the utilisation of the network will initially be low. The result would mean high network charges for a small number of users, creating high barriers to market development. For this reason, a model was introduced with the following key points:

• The operators of the core network determine their network costs in accordance with the Hydrogen Network Charges Regulation (Wasserstoffnetzentgeltverordnung).
• BNetzA will, based on forecasts, set a uniform, non-cost-covering ramp-up charge that will ensure the marketability of hydrogen and that will be charged at all entry and exit points of the network from 1 January 2025. The charge will be reviewed every three years.
• The capped ramp-up charge will create a gap between revenues and costs for the network operators, which will be offset by payments from the "amortisation account", which is an account that will be funded initially using a loan from the German development bank Kreditanstalt für Wiederaufbau (KfW) and which must be repaid by 2055.
• As revenues increase over time, the network operators will make repayments to the amortisation account, with the aim of balancing the account by 2055, at the latest.
• If in 2055 there is a shortfall, meaning that the amounts paid out of the amortisation account still exceed any amounts paid in by network operators, 76% of the shortfall will be borne by the federal government and 24% by the network operators (risk coverage of the network operators with a deductible).
• If the hydrogen ramp-up does not progress as expected, the federal government will be entitled to terminate the amortisation account at the end of 2038.

In June 2024, the model was approved by the EU Commission under state aid law.

Also in June 2024, BNetzA issued a decision for the financing of the core network ("WANDA"), which will apply from 1 January 2025. WANDA governs the regulatory framework for the core network and the ramp-up charge, but does not provide for the amount of the charge.

German Hydrogen Acceleration Act

The Hydrogen Acceleration Act is intended to create the legal framework for the rapid development and expansion of generation and supply capacities. The aim is to significantly accelerate the market ramp-up of hydrogen by 2030. The draft Hydrogen Acceleration Act contains several points in this regard.

A key point to note is the stipulation that projects within the scope of the Hydrogen Acceleration Act are generally in the overriding public interest and serve public safety. This type of stipulation facilitates the approval of projects, particularly in the case of (other) planning considerations and in connection with conflicts under nature conservation law. The stipulation applies to electrolysers and storage facilities, as well as, for example, liquid organic hydrogen carriers, hydrogen and ammonia terminals, crackers and certain pipelines. Import options in respect of methanol and synthetic natural gas have not yet been included in the draft Act. The effect of the stipulation is time limited, such that, in respect of electrolysers and storage facilities, it will only apply until 2045 when net zero is expected to be achieved and, for all other facilities, the stipulation will cease to apply in 2035. As well as this, until the end of 2029, electrolysers will be required to either be directly connected to a renewable energy facility or to be operated with at least 80% renewable energy. From 2030, this requirement will no longer apply, as it is assumed that at least 80 % of the electricity from the grid will then come from renewable energy.

Another focus of the draft Act is digitalisation and the speeding up of approval procedures. To this end, provisions in various approval regimes that play a role in the planning and approval of hydrogen infrastructure projects are being amended. These include the immission control procedures, the water law procedures, the planning approval procedure under the Energy Industry Act and the corresponding environmental impact assessments.

From now on, the approval procedures, including the submission of application documents and their disclosure to the public, will be conducted electronically and the public hearing required as part of the approval process will also take place online. It should be noted, however, that this will not affect the ability for third parties to submit their comments in writing.

The draft Hydrogen Acceleration Act also contains procedural deadlines, such as the process by which the approval authority checks that application documents are complete must be finished within one month. The documents will be deemed complete if they relate to all the legally relevant aspects of the project and allow the authority to effectively examine the plan in detail.

Legal actions against an approval will not have a suspensive effect. This means that the projects can be implemented despite pending objections or legal action unless interim relief is successfully sought against the implementation of a project. Interim relief must be obtained within one month of the approval decision being issued. In addition, the appeal process will be shortened: depending on the type of project, either the Federal or a Higher Administrative Court will have jurisdiction in the first instance and lower administrative courts will no longer have jurisdiction.

Finally, the procurement and review procedures for projects within the scope of the Hydrogen Acceleration Act will also be modified. For example, in certain instances a contract may be awarded without the need for a review procedure to be carried out. Disputed proceedings will be accelerated by, for example, requiring decisions to be made based on the case file or on oral hearings, both of which will be in an online format. In addition to economic and technical reasons, time-related reasons will also now be used to assess the awarding of contracts.

All in all, the draft Hydrogen Acceleration Act contains relatively small-scale changes that serve to speed up the process for projects to commence development but does not present any major breakthroughs. The complex substantive legal requirements that projects are required to navigate still present significant barriers and other obstacles, such as the lack of digitalisation of the approval authorities and their staffing, are not addressed in the draft.