German storage association proposes hydrogen contracts for difference

LONDON (ICIS)–The German association of gas and hydrogen storage operators (INES) wants to introduce contracts for difference (CFDs) to promote investments in hydrogen storage.

In November 2022, the Federal Ministry for Economic Affairs and Climate Action (BMWK) commissioned a report on the need for hydrogen storage capacity in Germany.

In order to achieve greenhouse gas neutrality by 2045, the report estimated the need for hydrogen storage at 64-105TWh, depending on different scenario pathways.

The scenario with the lowest economic cost, T45, sees demand for hydrogen storage capacity rise 74TWh by 2045. This is broken down into demand of 2TWh by 2030, 15TWh by 2035 and 47TWh by 2040.

Currently, there are no commercial hydrogen storage facilities in Germany.

Several pilot projects are ongoing, and hydrogen has successfully been stored at a number of test sites, but final investment decisions are still pending.

According to INES this is because significant economics risks, especially regarding future sales potential, is causing investors to shy away.

To ramp up hydrogen investments quickly, as facilities take a long time to be built, INES suggests using contracts for difference.

This would involve the state guaranteeing a set revenue for prospective hydrogen operators, compensating for shortfalls in revenue and collecting back revenues which exceed the set level over the contract period.

Hydrogen storage facilities will likely largely utilise existing gas infrastructure.

Currently, Germany has natural gas storage capacity of 256TWh, of which 158TWh is in cavern sites and 98TWh is in porous sites.

Cavern facilities are man-made, created by boring into salt domes, while porous facilities are depleted gas reservoirs which have been converted for storage use.

Cavern sites are particularly suitable for hydrogen storage and INES estimates 32TWh of current gas caverns can be converted to store hydrogen.

However, this leaves 42TWh of hydrogen storage capacity to be built from scratch, which is significantly more costly than converting existing gas infrastructure.