Early Financing Crucial for Hydrogen Storages

Hydrogen storage is a central element of a future hydrogen economy and the future energy system. Their importance lies particularly in ensuring security of supply in the electricity sector: large storage capacities are needed to bridge the seasonal gap in demand from hydrogen power plants. However, uncertainties about the future development of the hydrogen economy have so far severely restricted the planning and construction of storage facilities.

The expansion of hydrogen storage facilities announced to date only covers the expected demand until around 2030, and even here the final investment decisions have yet to be made. The BMWK has therefore commissioned a study on the demand, conversion, new construction and financing of hydrogen storage facilities, which was carried out by a consortium led by dena and with the participation of the Fraunhofer ISI Institute and the consulting firm Guidehouse.

Corinna Enders, CEO of dena, said: ‘In a climate-neutral energy system, hydrogen storage systems are central to the security of supply and stability of the energy system. The current study shows how the development of hydrogen storage can be incentivised. Stable financing instruments communicated at an early stage are of great importance in order to trigger investment in the construction of hydrogen storage facilities. The corresponding political and necessary regulatory framework should be put in place quickly.’

The study deals with technical, economic and financial aspects of storage expansion and is based on a scenario analysis and numerous stakeholder interviews. After weighing up all the relevant aspects, it makes the following recommendations:

Due to the long realisation times, the new construction of extensive (in particular cavern) storage capacities should be initiated at an early stage, if possible in the coming years. This also requires a political vision and corresponding support for hydrogen storage facilities. This is the only way to ensure the timely completion of sufficient storage capacities, as final investment decisions cannot be made without government support in the ramp-up phase given the economic risks that exist in the current market situation.

Balancing demand risks (price and volume risks) for storage operators is crucial for the financing of hydrogen storage facilities. If sufficiently secure revenues to cover costs and relevant risks cannot be guaranteed, investments in the required storage capacity expansion are likely to be significantly too low.

The regulatory framework to be defined by the BNetzA will play a decisive role in determining which financing model can best address these risks. The regulatory framework and the state-backed financing model for hydrogen storage in the ramp-up phase should be introduced as early as possible (ideally from mid-2026). Communication of the future regulatory and financing framework as early as possible is crucial even before its introduction.

Revenue-based contracts-for-difference may be particularly suitable as a funding mechanism. They create early and effective investment incentives in the market ramp-up phase. To ensure the efficiency of the subsidisation, they should also be awarded within the framework of competitive tenders. The scope of the tenders should be determined by the German government's political objectives for the hydrogen sector. An amortisation account would be suitable for financing, as it would enable private-sector refinancing through a significantly broader storage user base in the future.