Today, the concept of a national hydrogen supply is primarily based on generation by large electrolysers near the coast, the import of hydrogen and the expansion of lines to the perspective large customers in the basic industry.
However, if we want to replace fossil fuels with renewable alternatives, we have to involve small and medium-sized enterprises. This in turn requires different policy concepts and also has an impact on infrastructure planning as a whole. Among other things, the hydrogen supply must also be decentralized.
For years, the industry has been dealing with the question of how the economy can achieve CO2-neutral production. This is all the more true in the current situation, which is characterized by global uncertainties and high prices. In addition to measures to increase energy efficiency, the purchase of green electricity and biogas or the local development of renewable generation capacities, the use of green hydrogen as a central part of a comprehensive solution is increasingly becoming the focus of corporate decisions.
The demand is immense, but for many medium-sized companies that form the backbone of German industry, pipeline-connected hydrogen is still a long way off, both in terms of space and time. Therefore, local and seasonal fluctuations in renewable electricity generation must be compensated for in a decentralized manner. The number of providers of such hydrogen-based solution concepts is currently increasing significantly.
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Surprisingly, however, this has not played a significant role in the general discourse so far. Politicians, too, are currently almost exclusively pursuing a central approach based on supplying the large, energy-intensive industries primarily in north-west Germany.
A decentralized approach would have systemic benefits
The aspect of decentralization was indirectly addressed for the first time in the form of the eligibility for funding of so-called hydrogen valleys in the “Repower EU” package, which was published by the European Commission in May. According to the definition, these bring together all elements of the production, storage and end use of renewable hydrogen in an integrated ecosystem in a limited geographical area.
For many medium-sized companies, pipeline-connected hydrogen is still a long way off, both in terms of space and time.
(Photo: dpa)
The discrepancy between decentralized requirements and opportunities on the one hand and a centralized political approach on the other is increasingly leading to distortions with regard to the future prospects of Germany as a hydrogen location. In addition to the immediate needs of the very different industrial locations, some systemic advantages are also obvious.
A recent study showed that smaller electrolysers with an output of up to five megawatts in areas dominated by wind and photovoltaics can be operated in a grid-friendly manner and at the same time with a high degree of probability economically with the increased expansion of renewable energies. Up to 19 terawatt hours of green hydrogen per year could be produced and used regionally in Germany.
The potential is thus far above the current target of the traffic light coalition. And the market and the possibilities are developing again with particular vigor in these months. All of this must therefore be taken into account when planning the infrastructure, because the future distribution of electrolysers and hydrogen sites in the country also has systemic effects.
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In the study “I-H2-Hub-BW” led by Fraunhofer IPA, model calculations were made for two locations in Baden-Württemberg with local production and use of green hydrogen. They show that even with cautious assumptions regarding the further development of technology and the production of the electrolysers, economical operation is possible by the end of this decade at the latest, and under more favorable circumstances even from the middle of the decade. And with the current energy prices, the operation would already be economical today.
At the moment, however, the public discourse is giving the impression that scarce green hydrogen is being reserved for energy-intensive industries and the energy sector. From our point of view, this leads to two fundamental challenges:
First, many of the products manufactured in these industries have to face a world market price. A relative increase in production costs would therefore result in a direct drop in demand. Appropriate funding would have to compensate for this cost disadvantage.
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Secondly, and unfortunately this is also usually not taken into account in central studies, the willingness to pay must be included. So far, the share of energy costs in sectors such as mechanical engineering, at around 0.8 percent of gross value added, is less than a quarter compared to energy-intensive sectors such as the chemical industry.
An increase in energy costs in order to produce CO2-neutrally has a much smaller effect in sectors whose products are not so easy to obtain on the world market. Because the willingness to pay for green hydrogen will probably be higher in these sectors, the question arises as to how the scarce hydrogen should be allocated to the basic industries. A policy that does not take such market dynamics into account will inevitably lead to misallocations and distortions.
It is all the more important to enable companies in regions dominated by wind and photovoltaics to also provide innovative, integrated concepts that include decentralized, regional, cross-sectoral hydrogen solutions and to promote this immense innovation potential today.
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This goes hand in hand with the assumption of a certain economic risk and more responsibility for one’s own security of supply. In the case of natural gas, the latter is still imposed on the suppliers and network operators. The system efficiency is increased enormously, for example, by using the waste heat from electrolysers or by reducing the need for line expansion. It is a core element of an innovative integrated energy transition.
Study “H2 decentralized” should provide answers
The topic is being examined and discussed in detail with stakeholders along the entire value chain as part of the Dena platform “H2 decentralized”. It takes more courage and support to invest in new business areas such as self-sufficiency. The H2 decentralized study is intended to provide answers.
The many market players who have set out here will possibly produce solutions faster than centrally controlled political concepts.
These developments towards decentralization must also be taken into account at the federal level. This applies in particular to the urgently pending realignment of the hydrogen strategy, but also to the forthcoming integrated infrastructure planning and the specific design of the various legislative packages in the coming weeks and months.
Andreas Kuhlmann is CEO of the German Energy Agency (Dena).
Alexander Sauer is director of the Institute for Energy Efficiency at the University of Stuttgart and has been head of the Fraunhofer Institute for Manufacturing Engineering and Automation (Fraunhofer IPA) since January 2020.
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