The Great Hydrogen Reset - Is It Germany's Turn?

This week on Cleaning Up my guest was Dr Eva Schmid, Director of Hydrogen and Synthetic Fuels at the German Energy Agency dena. We explored whether the German Hydrogen Strategy needed a reset. TLDR...

The Great Hydrogen Reset - Is It Germany’s Turn? Cleaning Up with Dr Eva Schmid, Director of Hydrogen and Synthetic Fuels at the German Energy Agency DENA. Image: Cleaning Up/Liebreich Associates

No country in the world is more committed to the Hydrogen Economy and has more ambitious targets than Germany. In this week’s episode of Cleaning Up, I take a deep dive into Germany’s hydrogen plans, in conversation with a brilliant and clear-eyed analyst who sits at the heart of Germany’s energy policy machine: Dr Eva Schmid, who leads a team of 30 as Director of Hydrogen and Synthetic Fuels at the German Energy Agency (dena).

Now, regular readers of the Thoughts of Chairman Michael - or listeners/viewers of Cleaning Up - will know that I have occasionally been ever-so-slightly critical of the hydrogen strategies and forecasts coming out of the chancelleries and great consultancies around the world. In fact, I’ve seen so many overblown hydrogen strategies now, with such inflated targets, based on such poor understanding of the physics and economics of hydrogen, that at the Financial Times Live Hydrogen Summit in June, I called for a reset of the global hydrogen debate.

In July, the European Court of Auditors appeared to agree with me, issuing a scathing report on the European Hydrogen Strategy in which it pointed out that the target of 20 million tons of EU-produced and imported clean energy by 2030 were based on “political will” rather than “robust analysis”, and demanding a “reality check” - a demand the European Commission and Hydrogen Europe promptly rejected.

So the question is, to what extent does Germany’s Hydrogen Strategy also need a reset, rethink, or reality check?

I won’t ruin the episode for you by précising Eva and my entire conversation here, but there were a few takeaways that I will share up front:

• It was very refreshing to find at least one senior German policy-maker who is anchored in the reality-based world. However, while Eva accepted that green hydrogen looks like turning out far more expensive than hoped, and that the Hydrogen Strategy as it stands is likely to need revision, it there do seem to be vast swathes of the German policy-making machinery that have not got the memo.

• Eva expressed confidence in the German policy machinery’s ability to respond to emerging data and learning, but I remained unconvinced. It all came down to her statement that “the purpose of a strategy is to show a sense of direction… where your target is, basically what your vision of the future is… I think the sense of direction is more important than the actual numbers, and it makes sense to update them as you learn.” I see two problems.

  • First, if the direction of a strategy is fundamentally wrong, then no amount of progressive updating can turn it into a useful roadmap. In fact, faith in iterative updates is particularly dangerous if the original strategy is being used by powerful players in your political economy as a way of delaying action in a more viable strategic direction.

  • Second, the German Hydrogen Strategy is not just a high-level vision. It either spawns huge, capital intensive projects, or it is nothing. If you want 10 GW of hydrogen electrolysers or 1800km of hydrogen pipelines by 2030, you have to put the money on the table today to get those projects to Final Investment Decision - many tens of billions of Euros. Not only can these decisions not be unmade, but they add another layer of lock-in, on top of political and financial capital already invested.

• A much bigger part of the rationale for Germany’s Hydrogen Strategy than I had anticipated stems from the idea of a payoff for early leadership in terms of later exports of technology. So, for instance, the 2030 update of the Strategy is clear in targeting 10GW of electrolyzers by 2030 , but not clear about the resulting volume of hydrogen to be produced. This is frankly weird, until you realise that this is not really energy policy, but industrial policy. Germany is still smarting from losing leadership in solar and battery production to China, and its leaders are determined not to lose the race for electrolyzers and fuel cells. But what if there is no race? Or if there is, and Germany loses it anyway?

• Overall, there appears to be no plan B. No other way of keeping the lights on in a power system deeply dependent on wind and solar power. No other way of feeding Germany’s energy-intensive industries. No other way of importing large amounts of energy needed for its economy. No other way of recouping the investment in early leadership.

All this strikes me as extraordinarily risky, given the emerging understanding of hydrogen’s cost problems. Remember the arithmetic: for every €1/kg of cost disadvantage that green hydrogen displays - whether domestically produced or imported - versus the alternative, someone has to come up with a bankable €15 billion commitment up front per million tons to get projects built. If the long-term cost disadvantage is not €1/kg, but €3/kg, as seems increasingly likely, that means €45 billion of missing money today per million tons. Germany’s Hydrogen Strategy envisages up to 18 million tons by 2045 - so the country could be looking at €810 billion in production subsidies. And that does not even include the cost of import facilities, pipelines, storage, distribution or user-side costs. It’s a huge, huge bet on a technology that has, despite 50 years of investment around the world, achieved effectively zero market uptake.

In any case, I believe you’ll find my conversation with Eva fascinating. I certainly enjoyed every minute of it. She has an enormously impressive intellect, and when I said, at the end of our discussion, that I was filled with respect for her pragmatism, calmness and willingness to engage, I was being absolutely honest.

If you have any interest in climate change and net zero, in the future of Europe’s energy system, in whether the EU has any hope of resisting the forces of deindustrialisation, in Germany’s political landscape, this episode of Cleaning Up is a must-listen (or a must-watch on YouTube). And please leave feedback wherever you listen or watch it, to participate in the debate.

Dr Eva Schmidt and me on Cleaning Up. The Great Hydrogen Reset - is it Germany’s Turn? Image: Cleaning Up/Liebreich Associates

Listen to my conversation with Dr Eva Schmid, Director of Hydrogen and Synthetic Fuels at the German Energy Agency (dena) on your favourite podcast platform, or watch it on YouTube!

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