Federal Audit Office criticizes current hydrogen policy as misguided

"Despite billions in subsidies, the federal government is failing to meet its ambitious targets for ramping up the hydrogen economy. Supply and demand remain well below expectations. This jeopardizes the achievement of climate neutrality by 2045 and the future viability of Germany as an industrial location. And as long as there is no prospect of hydrogen becoming price-competitive, continued government subsidies threaten to put further pressure on federal finances, which are already in disarray." This was stated by the President of the Federal Audit Office, Kay Scheller, on October 28 on the occasion of the publication of a special report on the implementation of the federal government's hydrogen strategy (PDF). He addressed his criticism primarily to former E.ON manager Katherina Reiche, who was confirmed as chair of the German government's National Hydrogen Council (NWR) shortly after her appointment as Federal Minister for Economic Affairs: “It's time for a reality check. The responsible Ministry of Economic Affairs has itself recognized that it needs to adjust its approach. Now it must also act consistently.”

High costs have yielded meager results so far

In reviewing the progress and challenges of establishing a hydrogen economy in Germany, the Federal Audit Office gained the impression that there is a significant discrepancy between objectives and results, which does not justify the costs incurred. By 2024 and 2025, the federal government will have provided more than €7 billion, primarily in subsidies. Commitments amounting to billions of euros will remain in place until the end of the decade. In addition, the federal government is providing financial backing for the development of the network infrastructure.

This means that hydrogen plays a key role for the federal government in the energy transition in order to achieve its goals: Germany is to be climate-neutral by 2045 while remaining a sustainable industrial location. Climate-neutral (“green”) hydrogen is to replace fossil fuels where electricity from renewable energies cannot be used directly. In addition, hydrogen-compatible gas-fired power plants are to contribute to a secure electricity supply.

Both the production targets for green hydrogen and the coverage of import requirements will not be achieved

However, despite this strong financial commitment, the federal government has not yet achieved the goals of its hydrogen strategy because the supply and demand for green hydrogen in Germany has not developed as planned. The plan was to ensure a sufficient supply of hydrogen through domestic production and at least half through imports. However, the federal government will neither achieve its domestic production targets for green hydrogen by 2030 nor be able to cover the expected demand through imports.

At the same time, demand is developing more slowly than expected. The subsidies initiated by the federal government for the industrial use of hydrogen have not led to the hoped-for demand, especially from the steel industry. There is also a lack of significant demand stimulus as long as gas-fired power plants are not required to convert to hydrogen, contrary to what was planned in the past.

The hydrogen core network is too ambitious

The expansion plan for the hydrogen core network does not yet take these developments into account. In view of the actual development of supply and demand, the expansion of the hydrogen core network is too ambitious.

Green hydrogen is still significantly more expensive than fossil fuels such as natural gas. Since it cannot be produced or imported at competitive prices in the foreseeable future, long-term government subsidies are likely. In order to compensate for the price difference between hydrogen and natural gas, imports alone could cost the federal budget between €3 billion and €25 billion in 2030.

The development of the hydrogen core network also entails considerable risks for the federal budget: during a ramp-up phase, core network operators would receive part of their network costs from a government-backed loan instead of from network users. The loan would later be repaid from excess network fee revenues. However, this would require a sufficient number of users to connect to the network. If the ramp-up of the hydrogen economy fails, this could place an additional burden of tens of billions of euros on the federal budget.

Green hydrogen does have the potential to be produced and used in a climate-neutral way. However, it is uncertain whether the desired positive climate impact will materialize. The import of green hydrogen in particular could result in significant upstream emissions. However, the federal government wants to cover at least half of its hydrogen demand through imports. In addition, it has made concessions on sustainability requirements in international tenders in order to receive enough bids. This also poses risks to the environmental compatibility of the hydrogen economy.

The Federal Audit Office therefore recommends that the federal government

• subject the hydrogen strategy and its implementation to date to a “reality check” and reassess whether and when green hydrogen can be available in sufficient quantities, at a competitive price, and in a climate-neutral and sustainable manner without permanent subsidies

• to examine, in this performance review, what contribution the hydrogen economy can make to the energy transition as a whole,

• to revise the hydrogen strategy so that supply, demand, and infrastructure are developed as synchronously and economically as possible, and

• after a reassessment, to develop a Plan B in good time, if necessary, in order to achieve climate neutrality by 2045 even without a permanently subsidized hydrogen economy.

Links (internal)

• Concerns about planned capacity reserve without hydrogen (250706)
• Federal Network Agency approves hydrogen core network with minor concessions (241001)
• Suspicion of corruption in hydrogen funding confirmed (240906)
• EU Commission approves three billion euros in aid for the hydrogen core network (240610)

• List of links on hydrogen

• Background: Only green hydrogen benefits the climate (June 2020)

Link (external, no guarantee)

• PDF  Report by the Federal Audit Office pursuant to Section 99 of the Federal Budget Code on the implementation of the federal government's hydrogen strategy (47 pages)