By Brian Parkin and Vanessa Dezem

(Bloomberg) — Germany is taking its first steps to build an economy based on hydrogen instead of fossil fuels, seeking to deliver both green growth and to avoid being trapped by a small cartel of suppliers.

Ministers have been quietly lining up deals with nations including Nigeria that might produce hydrogen from renewable energy in the near future. The ambition is to reduce Germany’s pollution from oil and natural gas — and to cut reliance on the countries that produce the fuels.

Chancellor Angela Merkel government is looking to meet goals under the Paris Agreement on climate change. That will require a fuel like hydrogen, which can both provide heat for heavy industry and store excess electricity generated by renewables when it’s most sunny and windy. Ministers are concerned that importing more hydrogen may leave Germany dependent on places with the capacity to produce the most, like Russia and OPEC nations that already supply much of the nation’s energy. 

“Unhindered competition will be the mainspring of this global economy,” said Wolf-Dieter Lukas, state secretary in the Education & Research Ministries, one of the wings of government working on the strategy. “Unlike in the oil economy, I don’t expect cartel formation.”

Four separate ministries in Berlin have been working on a blueprint to substitute the lightest element for oil, natural gas and coal. The program is due to be announced later this month by Economy Minister Peter Altmaier.Altmaier in the middle of last year set the goal of making Germany No. 1 in hydrogen. The world’s most abundant element is an attractive climate solution because it creates only water vapor when burned — and can supply the temperatures of 1,000-degrees Celsius or more needed by industries from cement to steelmaking and oil refining.

“Hydrogen isn’t the perfect solution, but it seems to the best available so far, especially for the industry to decarbonize production.” said Fabian Huneke, senior expert at Energy Brainpool. “You can’t really design an energy system with more than 70% of renewables in the energy mix, without hydrogen.”

Chancellor Angela Merkel’s government is about to sign off on a hydrogen strategy for the next decade and beyond. That plan is informed by lessons learned in decades of importing oil and gas, where price and supply are distorted by a cartel, said a top aide. Oil accounts for more than a third of Germany’s primary energy use. And gas, a growing fuel in power generation, mostly comes from Russia.

The hydrogen plan sets out ways to boost supply of hydrogen and what industries will become big consumers, Lukas said. An early first draft of the plan shows that Germany is willing to subsidize the technology initially to spur production capacity in the coming decades — but only up to a point.

To keep import costs down, Germany wants to get hydrogen from many more countries. Last month, it signed a deal with Nigeria to jointly research hydrogen supply chains across 15 nations in West Africa.

That deal and others the government is hoping to draw up would answer two of the main concerns about hydrogen: how to make the gas without boosting emissions and where to obtain the quantities needed.

At the moment, more than two-thirds of the 70 million tons of hydrogen produced a year comes from natural gas. And that process is responsible for about 830 million tons of carbon pollution a year, more than the combined emissions of Britain and Indonesia, according the International Energy Agency.

African nations could become an abundant source of hydrogen because wind and solar farms can be built there in great numbers, powering electrolizers that split hydrogen atoms out of water.

Germany is racing to forge hydrogen production deals with partner states abroad that fulfill several basic conditions. Those include political stability, a sunny climate and a proximity to the sea for desalinating water for electrolysis, according to Lukas.

Future leaders in the hydrogen economy like Germany, Japan and South Korea will sign up emerging market states in bilateral production deals that exceed the number of countries in the Organization of Petroleum Exporting Countries, he said. That in theory would mean enough competition to keep down prices.

Germany may import as much as 45 million tons of green hydrogen annually by mid-century, up from zero today, according to Lukas’ ministry.

As more and more states sign up to hydrogen production deals, “prices will continue to drop,” he said. This will make hydrogen “more and more popular and create a chance to move away from our dependency on the oil economy and its cartel agreements.”

Lukas’ ministry compiled an “Atlas of Potentials,” for partnerships, targeting initially 15 nations in the ECOWAS bloc — the Economic Community of West African States, according to its website. It signed a cooperation deal with Nigeria last month.

The German government also plans to air its strategy to scores of emerging market energy ministers at the annual Berlin Energy Days congress later in March. Australia and Saudi Arabia are also potential partners.

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