Latham & Watkins Energy & Infrastructure partner Tobias Larisch spoke to two leading industry experts on hydrogen generation and transportation, Jasmin Kaboni-Voit, Director Regulatory & Subsidy Management Hydrogen at energy provider RWE, and Dr. Dirk Flandrich, Senior Project Manager at pipeline network operator Gascade.

Larisch: Why does hydrogen play a central role in the economy’s green transition?

Kaboni-Voit: If Germany wants to remain a leading industrial country, we must consider green hydrogen, since our industry cannot electrify all areas of production. Indeed, in some sectors, electrification is technically impossible or economically unviable. Hydrogen is expected to replace natural gas, oil, and coal in chemical plants or steel mills, as well as in power plants and heavy-duty transport, and it can serve as a basis for shipping and aviation fuels. To ensure security of supply in the power grid, hydrogen needs to function as a storage medium for green electricity. We are therefore witnessing the beginning of a transformation that will expand hydrogen generation on a large scale, although this is enormously expensive at the moment. Currently, electrolyzers are largely made-to-order and thus produced at a high cost. However, serial production will make the production significantly cheaper in future and green hydrogen will thus gradually become more competitive.

"We are therefore witnessing the beginning of a transformation that will expand hydrogen generation on a large scale, although this is enormously expensive at the moment."

Jasmin Kaboni-Voit, Director Regulatory & Subsidy Management Hydrogen

Larisch: Germany is aiming for a total capacity of 10 gigawatts by 2030, although only 0.1 gigawatts are currently installed. What are the biggest barriers to investment?

Kaboni-Voit: There are a number of barriers, but we cannot put all the blame on policymakers. The difficulty is that much needs to happen at the same time in order for the hydrogen economy to ramp up. Since electrolyzers require large amounts of green electricity, the expansion of renewable energies is crucial. However, this requires shorter approval processes, more available land, increased funding, as well as faster reviews under state aid law.

We need a European framework that enables projects instead of preventing them. Ultimately, our goal is to maximize the available solutions, first by ensuring that every green electron can be used to generate green hydrogen. The Delegated Act on RED II (the Renewable Energy Directive) may not be the perfect framework, but it allows us to get started with our projects. RED III will then introduce green hydrogen targets in the industrial sectors for the first time. Germany also needs a market design that supports hydrogen-capable, gas-fired power plants.

In any case, we welcome the fact that a hydrogen core network has been launched in a relatively short time. The electricity grid, gas grid, and hydrogen pipelines need to be intricately planned (including the government incentivizing a rapid conversion of existing pipelines). An important step toward this aim is the planned hydrogen core network, although a decision on financing must be made promptly.

Flandrich: The federal government must now enable the Federal Network Agency to adopt the core network that we have designed with other network operators. We are still at the draft stage and the Federal Network Agency cannot yet make a decision. In addition, there is still no framework to set out how we are supposed to generate income, but we need that framework in order to be able to invest. We expect that Germany will eventually have a large hydrogen sector, however, we must also prepare for other scenarios and therefore the framework conditions must be clarified quickly.

Larisch: A new state transportation network appears to be off the table: Much of the hydrogen pipelines are to be provided by existing natural gas pipelines. Does this require complex retrofitting?

Flandrich: We aim to repurpose over 1,000 kilometers of already existing pipelines from the Baltic Sea to Baden-Württemberg. We are able to do so because in some areas there are three pipelines lying next to each other in parallel. In new-supply scenarios that involve liquefied natural gas (LNG), we could consider using one of these pipelines to transport hydrogen. In our opinion, this is technically feasible for the grid and steel we are using, although the pressure clearance must be kept low during operation.

Larisch: How significant are imports for the security of supply? And how can we prevent dependencies (as in the case of natural gas, for example), which is the declared goal of the federal government?

Flandrich: Our largest projects relate to pipeline imports. We are planning a collective header line in the North Sea through which hydrogen from German offshore projects and Northern Europe can flow. We are also able to import in the Lubmin area, near the Baltic Sea. Indeed, we believe that imports from Europe provide many advantages as we can directly obtain hydrogen from a safe region. Production may be cheaper in countries like Namibia, but transportation is much more complex.

Kaboni-Voit: RWE has entered into partnerships with companies based in many different countries. We need countries like Chile and Namibia, but like Mr. Flandrich, I would also like to make the case for considering our intra-European partners, such as Norway and Denmark.

Larisch: If hydrogen arrives predominantly in northern Germany (either as an import or generated from German offshore projects), would this not present us with the same unwanted challenges as the north-south high-voltage transmission lines? How important is local generation?

Kaboni-Voit: Important — we require all kinds of solutions and we need to think both big and small. Domestic production to supply the local industrial sectors is also essential. The town of Lingen, for example, plays a key role in RWE’s hydrogen strategy, and by 2027 we aim to create an electrolysis capacity of 300 megawatts there. All industries need strong incentives to enhance the use of hydrogen, so that supply and demand can grow hand in hand.

Larisch: What is the situation in terms of hydrogen storage?

Flandrich: This area needs to accelerate. Retrofitting existing storage is time-consuming and expensive, so starting early is important. So far, however, there is no regulatory framework (or even an economic framework) available to storage operators.

Larisch: In your view, what are the key requirements to entice funding and promotion?

Kaboni-Voit: Every new sector needs to start from somewhere. Government startup funding for both producers and consumers can enable Germany to ramp up the projects sector. We welcome the fact that the target of the national hydrogen strategy has been formally increased to 10 gigawatts. However, Germany lacks available funding programs, which are essential to ensure the economic viability of hydrogen projects, especially in the beginning. At the European level, the recently published conditions for the first tenders commissioned by H2Bank point in the right direction, but today’s funding practices are very complex. Each project requires a separate application and qualification, which is very lengthy and delays the much-needed ramp-up of the hydrogen economy. Simpler, pragmatic rules would be desirable; the US show how this is feasible through the Inflation Reduction Act.

Flandrich: Significantly faster competition law exemptions at the EU level are also important. Brussels, for example, is a real bottleneck for IPCEI procedures, which is something market participants clearly notice.

The conversation with Jasmin Kaboni-Voit and Dr. Dirk Flandrich took place as part of the recent Latham Infra Circle on the topic “Hydrogen: Perspectives and Challenges.” Four times per year, the Latham Infra Circle provides a platform for discussion and exchange on current trends and challenges, featuring experts from the energy and infrastructure industry.