Germany’s (over)ambitious green H2 plan

Germany plans to massively increase imports of hydrogen and its derivative products such as ammonia and methanol over the next five years but are the targets unrealistic and how green is the fuel? Listen to a discussion on what “hydrogen ready” could mean for infrastructure such as pipelines and power plants, the immense costs involved and the timescale for the decarbonisation of industry.

Host: Richard Sverrisson, Editor-in-Chief, Montel
Guest: Henning Gloystein, Director, Eurasia Group.

Transcript

Richard Sverrisson, Editor-in-Chief, Montel: 0:16

Hello listeners and welcome to the Montel Weekly podcast. Bring New Energy Matters, an informal setting in our second pod after the summer break, we also turned to announcements made while we were off air. The German government approved a hydrogen import strategy in July with the key takeaways being diversified supply, for instance, from Northern European countries as well as North Africa, and a forecast need for up to 130 terawatt hours of hydrogen, ammonia and methanol by 2030. This represents almost a quarter. Current German power use. So it's a very ambitious plan indeed and set against the current rift in the government over the debt break with several ministries fighting over every fenig, or should I say, euro cent is Germany, setting out targets. It doesn't stand a chance of meeting. So helping me to discuss this and much, much more is our old friend, Henning Gloystein of Eurasia. A warm welcome to you, Henning.

Henning Gloystein, Director, Eurasia Group: 1:17

Thank you. Great to be back with you.

Richard Sverrisson, Editor-in-Chief, Montel: 1:19

Excellent. So what's the situation in Germany at the moment? How would you evaluate it? This, the sort of issues around the debt break? It's a bit toing and froing. We were, it's agreed and then it's not agreed. Where are we now?

Henning Gloystein, Director, Eurasia Group: 1:30

Yeah. So basically they have agreed to not publicly disagreed too much at the moment, which means that they quietly disagree about virtually everything in the budget, but they have. Agreed not to let the government coalition break over this. And I know that sounds really weird and a bit basically incompetent, but the background here is that the free Democrats have totally different views to the Social Democrats and the Green Party on how to finance the budget on whether they should be able to allow to take on more debt or not. Whether they could try and bring this past to get constitutional change, which they would require and. For that, you need a two-thirds majority in the Bundestag, which they don't have. And basically all I'm saying is that there's a lot of hurdles and loops to get over and through. And they have decided that they will muddle through until the general elections and that is what they will manage I think, and that means that they will agree little things are nothing too big.

Richard Sverrisson, Editor-in-Chief, Montel: 2:28

So what does that mean for the funding for renewables then? And they were supposed to take from this COVID fund to finance the decarbonization projects, but obviously that's off the table now. So where's the money for this very ambitious hydrogen strategy, for example, gonna come from?

Henning Gloystein, Director, Eurasia Group: 2:44

So there's less money available for the very ambitious hydrogen strategy. So the very ambitious hydrogen strategy is now a little bit less ambitious. That's the z among these special funds that from COVID, they're just not there anymore. And they can fiddle with the figures a little bit by taking a little bit from another pot and putting into this one. And that's some of the loops they're jumping through and that gets you. Off the ground, but it won't get you towards the ambitions. And this is where I think the cruxes specifically to the hydrogen ambitions in Germany, they have got some off the ground. They've, they're changing the way, they're subsidizing the energy transition. They're not gonna give away these 20 year long feed in tariffs for a renewable energy anymore. Instead, we'll only incentivize building new capacity. And instead they will hand out long-term contracts for difference for decarbonization of industry, which includes a lot of hydrogen, but they've the car started, but they're not gonna get to the high speed that they're planning to with the current budget. And the budget's not gonna improve. So I think the hydrogen strategy will not be achieved. They'll get somewhere, but it won't be fully achieved.

Richard Sverrisson, Editor-in-Chief, Montel: 3:49

Not by 2030. No way. No but as I think it's an important point as well. You mentioned there I, that the government is not gonna collapse over this so they've aggrieved that they're not gonna disband over this issue.

Henning Gloystein, Director, Eurasia Group: 4:00

Yeah, that's actually dare I say, I think that's a success for the government because. Under slightly more or slightly different circumstances. This government would've collapsed long ago, first doing, maybe even during the energy crisis of 2223, then again now over this constitutional crisis on debt because they've got such different views. But there is the one thing, so the binding fact in this coalition of the sort of this force coalition almost, is that the free Democrats are the most junior partner, the smallest partner in the coalition. If they were to just pull the plug now and say, that's it, we're out of this and there was elections coming up soon, there would be a very high risk of falling below the 5% threshold IE being out of parliament so that they would be close to committing suicide over this Olaf Schultz, the Chancellor, his party, the social Democrats would not collapse, but. That would be at risk of falling below eight 20% maybe. And so he would certainly not be chancellor anymore, and the social Democrats would be the smallest ever since the post-war era. And then the Green Party, which just four years ago, was hoping that they were contesting for becoming chancellor. But even Halbeck, who was one of the more popular politicians, he probably wouldn't win the elections again and would be forced into some weird coalition that they didn't want. So none of the parties want the government to collapse at this stage, and that's why it isn't.

Richard Sverrisson, Editor-in-Chief, Montel: 5:12

Okay. And what's the position of the CDU here in opposition? Would they support increase funds for these kind of projects?

Henning Gloystein, Director, Eurasia Group: 5:17

No, that's, and that's the thing. The CDU is the party that took this whole Bergen stuff to the Supreme Court, to and they were Supreme Court in Germany said the conservative were right. So Frederick Mattz, the head of the CDU, is looking smug at the moment. Is saying, I told you and and he's just looking at the coalition saying he looked what a bunch of incompetent idiots basically. And so he is watching this break. He is favorite to win the elect federal elections next year. And it's a long time to go. A lot of things can change, but I think he's just finding his time and then see what happens in September next year when they, when the elections take place.

Richard Sverrisson, Editor-in-Chief, Montel: 5:49

I'd like to bring the discussion back to hydrogen or green hydrogen in particular. You mentioned the government has started the car, but it's spluttering along in maybe first, maybe even second gear at the moment, and certainly is unlikely to hit these very ambitious targets by 2030 beyond. That's another. Question, but I'd just like to talk to you about green hydrogen. What's your view here? Is this really the key to unlocking the energy transition, as many will say? Or is it an expensive side trick or a diversion?

Henning Gloystein, Director, Eurasia Group: 6:20

I think it's between those two. It's not the key to the energy transition, but it's a key. And I actually think you need pretty much every key available. And there's about 15 locks to the energy transition. Green hydrogen definitely plays a role. We've discussed this a little bit before, and so where is green hydrogen feasible and how much is needed? More is needed than is feasible in Germany. This is why the German government has announced that they will import hydrogen or ammonia, which is a derivative product also in from third parties because there's an awareness of this. They have especially the Green party has now tolerates the fact that some of this hydrogen might not be green. It might be blue. So decarbonized, fossil gas basically. Even that will struggle though. But it's still needed because the green transition is now focusing more on decarbonization of heavy industry because as I said earlier, these feed in tariffs for renewable energy are going away because wind and solar is basically competitive at market merchant terms now, whereas heavy industry decarbonization isn't. So that's where government support is there needed and we need for. A clean form of gas in heavy, whether it's chemicals, whether it's steel making, cement, making all sorts of stuff. And hydrogen is plays a role here. The preference is for domestic EU produced, maybe Norway produced because it's common market green hydrogen. That is the priority because the eus and Germany's overall goal is to electrify as much as possible. That's the decarbonization strategy. And that also means by taking out fossil gases outta the system. And green hydrogen is origin electric generation. So we want electric heating, electrically generated, hydrogen electric vehicles and so forth, but. There's a realization that part of this. Will not work because we can't build that much green hydrogen capacity, and that is where the CCS law in Germany is now coming in as well. Until basically this year, you couldn't even plan anything in CCS in a for Germany because you weren't allowed to store CO2 in Germany and you weren't export it as a rubbish, as a waste product, so you couldn't do anything. Now they're changing that and that will enable investment in this. Space, but it'll all be slow and it'll all be not quite as big as its biggest enthusiasts hope for. And that's why 2030 target is unrealistic. But I do think it will be an important fuel for heavy industry in particular in Europe and in Germany.

Richard Sverrisson, Editor-in-Chief, Montel: 8:33

And you mentioned some industries in particular. We've seen projects in northern Sweden, for example Northern Scandinavia, looking at greening this production of steel. It has to also be said that no green steel has yet been produced, but it's coming you think?

Henning Gloystein, Director, Eurasia Group: 8:47

It's definitely coming. So we're actually quite involved in this. So I can't give all the details, but there's dozens of projects now that are underway and that will produce green steel from about 2026. The first rebar, clean steel products will come. The first auto electric vehicles will be made from green steel. There's the contracts assigned, but it actually, you mentioned the Swedish stuff. The FT was reporting this week. That green industry boom in Sweden is quite slow. It's the same problem. The ambition is there, the money is there, the know-how is there, but it's all taking longer than everybody wanted to, and it'll be like that in Germany. I suspect it might be even a bit slow in Germany because. Germany tends to be fairly slow in these things, but it'll happen. And the steel is a good example. Europe actually has a leading position in this globally. I think Europe will buy around 20, 30, 20 35, be the first major steel producing region that churn out significant. Volume of clean steel.

Richard Sverrisson, Editor-in-Chief, Montel: 9:39

But I think isn't there a case of saying, okay, let's start with fossil hydrogen, or the hydrogen that's produced from fossil fuels, so black or blue even. And then the, if you decarbonize that, you're making quite some headway into ke decarbonizing key industries, right? Like fertilizer as well.

Henning Gloystein, Director, Eurasia Group: 9:57

Yeah we, we need to do both. So we, we need to pretty much try and get into from second to third, fourth, fifth gear, whatever, green and blue hydro, clean hydrogen, whatever, low carbon, hydrogen, whatever you wanna call it. We need it all grid, hydrogen. As long as the electricity grid is clean, we need the grid to be able to provide. Electricity of hydrogen. So you can't just have what? Most countries now, this regulation that the unit of hydrogen must be connected to a specific power unit, let's say offshore wind park A, has to be connected to electoral unit B. If the grid in is green enough, the UK is close to it, Sweden, probably France with nuclear, then you should be able to just connect to the grid and that's not there. And you mentioned blue hydrogen from natural gas. The CCS. Success story isn't there yet. So the oil and gas industry has been really not very good at showing the world that CCS is scalable and affordable. So I actually think, yes, the green hydrogen has big challenges ahead in terms of cost and deployment and scale. The gas industry and decarbonizing its own systems has, I, I'd say, an even bigger task to, to prove that it actually works at an affordable scale. And they're not there yet.

Richard Sverrisson, Editor-in-Chief, Montel: 11:03

Exactly. And is blue hydrogen that palatable, that's hydrogen produced from gas. I mean in Germany, that's obviously a difficult question.

Henning Gloystein, Director, Eurasia Group: 11:10

Yeah, that's, it's low on the priority list, but, so this is the big change where the green party dropped some of its previous dogma that they will say, okay. Hub minister ha keeps saying that they are colorblind now towards, and technology neutral towards hydrogen as long as it's clean. But the unspoken truth is that subsidy support and policy support, regulatory support still favors green hydrogen domestically produced over blue hydrogen imported, which I have some sympathy for. One, you are adding costs to an already costly import and the other one you are. Helping a domestic industry to kick but to be built. I prefer the latter.

Richard Sverrisson, Editor-in-Chief, Montel: 11:46

Absolutely. And if we can go into some of the detail from the strategy that was announced by the German government, which countries were named in terms of where the imports could come from, and I mentioned Northern Europe, so there's maybe Norway, Denmark, UK, even, and other countries on the list?

Henning Gloystein, Director, Eurasia Group: 12:01

Norway is top of the list here. The Norwegian German hydrogen strategy that was launched was it in late? 22 or early 2023 is the blueprint, and that's the, it's the most obvious one. The pipeline system's there. The common market is there. It's already the, Norway is the biggest supply of energy to, to Germany. Both countries are rich, they get on well, so they can throw money at each other to, to build a future supply chain on this. North Africa plays a role. There's been some countries that have put on the list here. So Morocco plays a probably role because they're emerging as North Africa, sort of hydrogen ammonia, superstar. The UAE Emirates I think will play a very strong role. The UAE and Germany have. Fairly quietly started a quite deep strategic relationship over the last three, three years or so. And it's accelerated through the energy crisis. You have related ad knocks or Abu Dhabi National Oil Corp trying to buy Covestro German chemical company that would open up decarbonization support for chemical industry for adeno in Germany because the German government won't subsidize decarbonized fossil fuel production at source in the Emirates. So you have a backdoor there. UAE supplied the first demonstration hydrogen shipment to Germany a year and a bit ago. So there's stuff going on there. Canada, I think might play a role at some point, but Canada has its own domestic logistical issues that the East coast doesn't really export, that sort of stuff. The United States, depending on the. Outcome of the presidential election would be very strong. Play here and then, there, there's also talks in South America, in Southern Africa even as far as Waves Australia. But that I think is just political intention. Being outspoken. The shipping from Western Australia to Europe makes no sense at all. Even South America, I find a little bit of a stretch. So I think with ammonia and hydrogen imports for Germany, you basically have to look at periphery. And as far as you can get is maybe North America and maybe at some point Eastern Europe. Ukraine, maybe even. But the Nordics, Finland talks about this quite a lot now as well. So it's the periphery if you ba back a couple of thousand kilometers circle around Germany, I think that's what the most feasible is.

Richard Sverrisson, Editor-in-Chief, Montel: 14:04

Sure. We're talking, as you mentioned, the derivative products of hydrogen more than actually the gas itself in terms of the transportation.

Henning Gloystein, Director, Eurasia Group: 14:12

So Liquid Ammonia is currently on a favorite version of it because the shipping is easier. The production at site in places like the middle and North Africa is quite easy. You do have some storage problems on the receiving side here though, because Liquid Ammonia really is explosive. I mean that I think is a security issue, but for heavy industry, I think that works because, the chemical sector is very used to handling, toxic and dangerous materials, but this is also where, for instance, hydrogen and heating I think is a bit far fetched. Household heating. I even if it can be made safe, which it probably can be, and but I think people just don't want that. They just have an image of the hidden burg blowing up and

Richard Sverrisson, Editor-in-Chief, Montel: 14:47

Very much and these sort very hazardous chemicals that, that we're talking about here, honey. But you mentioned also the pipeline. So coming from No, I've heard a lot of talk about, the gas. Both the transmission grid or the transportation grid and the lower kind of distribution at distribution level, is it feasible that you can transport hydrogen in these pipelines without making huge investments in order to coin a phrase and make them hydrogen ready?

Henning Gloystein, Director, Eurasia Group: 15:12

Yeah, the, that's like the future power stations, the gas fired power stations that will be made hydrogen ready at some point in the future. I think that's politics kicking the can down the road. Literally they're saying like, okay we've put the intention into the law and a future government and regulator must an engineer will find out, figure out how exactly we make them hydrogen ready intentions there. There'll probably be subsidies there and hopefully technological advances over the next decade to actually make it happen. At this stage, I think that's. Not fully realistic. The turbines can be made hydrogen ready. I've talked to turbine makers who say, yeah, we can do that. They're more expensive, but we can do it. The pipeline operators can do the same thing. The pioneers are probably here, the Netherlands, they've got this Highway 27 project from the government to make the entire Dutch gas grid hydrogen ready. They're on track. And Germany has a really good accidental advantage here that the Northern German gas grid is owned by the Dutch Gass grid operator, gassy. They're they're benefiting from Dutch innovation here. So I'd actually look at the Netherlands and the hydrogen ide, Rotterdam, maybe also Belgium anrp, the vanet that they've got going there, that's. As far as I'm aware where at least in Europe, the biggest innovation is happening in this space. And then areas like Illa Half and Hamburg, whatever they can probably feed off that. And there's a lot of cooperation between the two. So I'm cautiously optimistic that it'll work at some stage, but at the moment it's. It's a good intention rather than a fixed plan.

Richard Sverrisson, Editor-in-Chief, Montel: 16:33

Yeah. We've talked a lot about this privately Henning as well, and you've made a very good case for the use of hydrogen and hydrogen derivative products in industry, but to. To generate, to transport and burn green hydrogen as a fuel for the power industry, just for me, doesn't seem to make much sense. And there's a lot of talk, as you mentioned, this kind of idea of a hydrogen ready gas plant. I dunno I, the finances, the science, everything just seems to say this would be an extremely inefficient use of that technology.

Henning Gloystein, Director, Eurasia Group: 17:09

I think you might be right. So I have a, I don't know this, but I have a sneaking suspicion that these 10 gigawatts of hydrogen ready gas fired power stations that the Germans are building, step one, build the gas fired power station so that they replace coal. And then that's part of the decarbonization strategy and it. Enables the coal phase out, not by 2030. Their Germans will fail on that as well, I'm pretty sure. But by 2038, as the law at least says, so in the 2030s, they'll manage it, will provide that. Then you can still offset a little bit. You can maybe get some heavily decarbonized gas from Norway, from North America into those power stations that decarbonize again. And then maybe by the mid late 2030s, you don't really need the hydrogen in at all. I think that's. What's gonna happen, but it's early stages. I'm, I hope I'm wrong. Actually, I'm no. Maybe I don't even hope I'm wrong. I just don't. I think you're right. It's pure hydrogen fired gas power stations isn't very efficient, is it?

Richard Sverrisson, Editor-in-Chief, Montel: 18:04

No, not really. It doesn't seem to make a lot of sense to me. But I think there are a couple of issues here. Firstly, you have, okay, we built this gas hydrogen ready gas fire plant, but there's no hydrogen, so let's just burn gas. That's the one thing. And then the second part is that, that would then imply that you're locking yourself into to a gas future into a fossil fuel future for however 10, 15, 20 years.

Henning Gloystein, Director, Eurasia Group: 18:25

As long as it's not past 2050 or German 2045, I think you can use 10 gigawatts isn't huge and then you can talk to your suppliers and say, Hey, can you decarbonize some of that gas, please? That would be really good. And so I think that's the back door exit here. And then maybe not operate these gas fire power stations for 40 years. You just replace them with storage units, imports, whatever. I don't know what whatever it becomes available later.

Richard Sverrisson, Editor-in-Chief, Montel: 18:48

I think the, there's an added issue here as well, and I think it's very, 'cause hydrogen is, pardon the pun, a very hot topic at the moment. It's very easy to make announcements. It's to, to say, we're building this here. We've got these plants, we've got this infrastructure, this electrolyzer here. Doesn't seem to be so easy to say, actually no, we're spiking this and there are very few. From what I read and from what the journalists are finding here that of projects that come to fruition at the moment. Maybe I'm being a bit pessimistic here, but I think there's a lot of noise around it, but very little of actual, happening on the ground. I dunno what you are feeling, maybe I'm being too cynical here, Henning.

Henning Gloystein, Director, Eurasia Group: 19:20

No, it's true. At the moment it's tiny, but I do think we are approaching a kickoff point, so what I mentioned earlier on the, in the clean steel sector. That will kick off barring a major screw up by 2026, you will see the first clean steel and you will, not huge, but it's. More than anywhere else in the world. And then by 2030 you'll have quite a lot going on. Public clean steel tracker away can see how much is coming up. And it's quite a bit. And so I think that and then people see, oh, goodness me, it works. And then I think you will start seeing the first chemical plants that really do feed green hydrogen into their units. And once that happens, they will make a big PR splash about this. They will say, Hey, look at that. We have a stake in this. Great offshore wind park and it produces very competitive electricity. And we are using it directly to feed our units here. It's public stuff. So BSF, they bought 25% in the starch offshore wind park. They have an electrolysis deal with the with the local authorities in the waaf net in Antwerp and it's German subsidies. The Antwerp declaration that was launched in February this year. This big industrial competitiveness call sort of industry call on politicians will, I think will be taken up. I think it's. Gathered a lot of momentum now that the European parliament's gonna come back in new commission. They will take that up and so I think give it a between 2025 and 2027, we're gonna see quite a lot of stuff coming on. And I think that will then lead to a bit more, I'm not a PR guy, but positive publicity saying oh look, it's there and it's doing stuff. But you're right, we're not quite there yet. At the moment. There's a lot of PowerPoint and less actual engineering.

Richard Sverrisson, Editor-in-Chief, Montel: 20:53

Absolutely. And I think once we get to the stage and fingers crossed we do that, we see these inroads made into, to the decarbonizing European industry that there will be a domino effect in others. So if we can do it still, why not chemicals? Why not? Why not glass? Why or others? I think cement. Cement. Yeah, exactly. Yeah. But is there another point here that. Would you say Germany is a front runner here in terms of its hydrogen strategy and what it wants to do, and that there's a case for other countries looking very closely saying, oh we'll let Germany make a few mistakes and then we'll come and do it differently or in the same way maybe.

Henning Gloystein, Director, Eurasia Group: 21:26

Yes, I think that's correct because Germany is a little bit of a front money. They're not the totally ahead in, in the pack of hydrogen developing clean hydrogen, green hydrogen develop countries. I, as I often say to clients who in public the Netherlands and Belgium are ahead in this, but Germany of the major European or maybe ma major global economies is. Is one of the ones. And because the scaling there is so big the government support is so big, the industry demand is so big, it's definitely the case that a lot of other countries look very closely at what Germany's doing with these climate CFGs. So the way the subsidies work how industry adopts it, where there's. Screw ups mistakes I there. Yes. So I think a lot of countries are looking at what's going on in Germany and then they will pick and choose what would best Germany's done this before and it's in a vendor when they first launched it 30 years ago. There was also a lot of mistakes in that one. But yeah that's, when you have a big industry that employs so many people, like in Germany, you have to move a little bit faster than others. And then on top of that, you have the energy crisis over the last two and a half years, they really had to move fast. I don't think Germany's in a position to say Ooh let's wait until Italy or Japan does something, or Britain, that they're gonna have to do it themselves.

Richard Sverrisson, Editor-in-Chief, Montel: 22:37

Rightly, pointing out the major successes with the energy transition, the amounts of the massive growth in renewables in Germany, as well as dealing with the energy crisis. Let's not forget the, they were major breakthroughs and without which I think Europe. Would've been in a very different place. But I think on the other side if Germany fails in this green hydrogen project, then I think Europe and European industry fails as well, or put, is put in a very tight spot.

Henning Gloystein, Director, Eurasia Group: 23:00

Yeah. So I'm greatly opposed to this often implo Deindustrialization of Germany or parts of Europe. I, because of high energy prices and the failing green transition, I think it's really not true and I think it will really not be true. And I think, I really believe there will be a green industrial dividend coming our way at some point towards the end of this decade, probably, hopefully. But you're absolutely right if they screw this up if it doesn't work, then I think Europe does face major problems in keeping its industry alive here because that would mean that it's not just they'll have failed to clean it up and they'll have failed to make it more competitive again by enabling cheaper energy costs to industries. If they fail on those both accounts, then that would be that would be pretty nasty.

Richard Sverrisson, Editor-in-Chief, Montel: 23:45

So that would be a disaster. But let's try and stay optimistic here, Henning.

Henning Gloystein, Director, Eurasia Group: 23:49

Absolutely. Exactly.

Richard Sverrisson, Editor-in-Chief, Montel: 23:49

Excellent to gain your insights here Henning and I'm sure this is a topic we'll return to maybe further, six months 12 months down the line and see how far the German government has got if political constellations await Germany in the future. So Henning. Thank you very much for being a guest on the Montel Weekly podcast.

Henning Gloystein, Director, Eurasia Group: 24:07

Thank you very much.