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Hydrogen core network: an investment in the future for Germany

    Hydrogen core network: an investment in the future for Germany

    Germany must become climate-neutral. This means replacing fossil fuels with climate-neutral fuels. One solution is to build hydrogen infrastructure. This is a key component of the German Federal Government’s national hydrogen strategy. As financier of a new instrument, KfW is driving forward the development of a hydrogen core network. A core network is essential for the decarbonisation of the energy supply and important industries.

    As a first step, existing gas pipelines will be converted and new hydrogen-capable lines installed. The goal: for the hydrogen core network to reach a total length of 9,040 kilometres by 2032, with potential hydrogen production sites connected and important industrial centres linked up. It will also be an integral part of the European hydrogen network.

    The Federal Network Agency (Bundesnetzagentur) approved the joint application of the transmission system operators for the construction of the core network on 22 October 2024. Sections 28q, 28r and 28s of the German Energy Industry Act (Energiewirtschaftsgesetz - EnWG) set out the framework conditions for the construction and financing of the hydrogen core network.

    KfW’s role: to finance the hydrogen core network

    Hydrogen core network and amortisation account (in German - source: KfW)

    The core network will be built and operated by the private sector and financed by fees paid by hydrogen customers. Since the number of users is expected to be relatively low at the beginning, the investment costs of the core network operators cannot be fully passed on to the costumers via network fees. For this reason, the Federal Network Agency will set a ceiling for network fees. This will create an incentive for hydrogen customers to switch to hydrogen.

    An amortisation account will bridge the difference between the necessary network fee and the network fee set by the Federal Network Agency through annual compensation payments. If the number of users increases, the revenue from network fees will also go up. Any additional revenues arising at a later date will be returned to the amortisation account and will offset the initial shortfall in revenues by no later than 2055.

    Info graph Hydrogen core network

    The core network operators will jointly participate in a special-purpose vehicle, which will manage the amortisation account. KfW will finance the amortisation account through a loan facility in the amount of EUR 24 billion. The funds will be used to finance the initial compensation payments to hydrogen core network operators. KfW will act on behalf of the Federal Government under a mandated transaction pursuant to Article 2(4) of the KfW Law.

    Map of the authorised hydrogen core network

    Karte des genehmigten Wasserstoff-Kernnetzes in Deutschland

    Key information at a glance

    • The hydrogen core network is an important building block for the hydrogen infrastructure in Germany
    • Natural gas pipelines will be repurposed and new hydrogen pipelines built
    • Between 2025 and 2032, a basic framework of 9,040 kilometres will be built
    • The Federal Network Agency will set the network fees for the hydrogen core network
    • The amortisation account will enable core network operators to invest in the hydrogen core network
    • KfW will provide a loan facility of EUR 24 billion for the amortisation account
    • The aim is to decarbonise the energy supply

    FAQ

    The pipelines of the core network will be built and operated by the private sector and financed through network fees paid by hydrogen customers. An amortisation account will ensure that initial losses due to low usage will be offset by subsequent additional revenues resulting from increased usage.

    As of 27 November 2024