EU Approves €3 Billion German State Aid Scheme for Hydrogen Core Network Development

In a significant move towards achieving the objectives of the EU Hydrogen Strategy and the ‘Fit for 55’ package, the European Commission has given the green light to a €3 billion German scheme aimed at supporting the construction of the Hydrogen Core Network (HCN). This approval, granted under EU State aid rules, is set to pave the way for the creation of a hydrogen transmission infrastructure that is crucial for fostering the use of renewable hydrogen in industry and transport by 2030.

The German Scheme: A Closer Look

Germany’s ambitious plan involves a €3 billion scheme to support the development of the domestic HCN, which will serve as the backbone of long-distance transport pipelines for hydrogen in Germany. This network is also set to be part of the European hydrogen backbone, connecting several Member States.

The scheme aims to stimulate investments in the construction of the HCN, which includes repurposing existing gas pipelines to transport hydrogen and building new hydrogen pipelines and compressor stations. The construction and operation of the HCN will be financed by hydrogen transmission system operators (TSOs), who will be selected by the German federal network agency, Bundesnetzagentur.

The aid will be provided in the form of a State guarantee, enabling the TSOs to secure more favorable loans to cover initial losses during the ramp-up phase of the HCN. The loans will be provided by the German national promotional bank Kreditanstalt für Wiederaufbau (‘KfW’) at its own refinancing cost, below market rates. The loans will be paid back over a period ending in 2055, with reimbursements progressively backloaded in line with the expected increase in hydrogen demand.

The First Major Pipeline and Completion of the HCN

The first major pipeline is expected to be operational by 2025, with the completion of the entire HCN anticipated by 2032. The HCN will be regulated under the internal energy market legislation, making it subject to non-discriminatory third-party access and tariff regulation.

The Commission’s Assessment

The Commission assessed the scheme under EU State aid rules, specifically Article 107 (3)(c) of the Treaty on the Functioning of the European Union (‘TFEU’), and the 2022 Guidelines on State aid for climate, environmental protection and energy (‘CEEAG’).

The Commission found that the measure facilitates the development of an economic activity, specifically the construction and operation of the hydrogen transmission network. The scheme is necessary and appropriate to speed up investments in hydrogen transmission infrastructure, supporting the objectives of key EU policy initiatives such as the European Green Deal and the ‘Fit for 55′ package.

Moreover, the Commission determined that the scheme is proportionate, with the level of aid corresponding to the effective financing needs while safeguards limit the aid to the minimum. The aid also has an incentive effect, as the supported infrastructure would not be financially viable without public support, considering the uncertainty about the prospects of the future market for hydrogen.

The Commission concluded that the aid brings about positive effects which outweigh any potential distortion to competition and trade in the EU. On this basis, the Commission approved the German scheme, marking a significant step forward in the EU’s green energy transition.