April 2024 Blog

Regulations on financing the hydrogen core grid adopted

In its session on 12 April 2024, the German Bundestag adopted the new regulations in the EnWG for financing the hydrogen core grid.

After the new Section 28r EnWG came into force on 29 December 2023, which deals with the prompt creation of a hydrogen core network to enable the rapid ramp-up of the hydrogen market, the German Bundestag passed the new regulations in the EnWG for financing the hydrogen core network on 12 April 2024 with the ‘Second Act to Amend the Energy Industry Act’ (originally introduced as the ‘Third Act to Amend the Energy Industry Act’). In future, the framework conditions for financing the hydrogen core network will be found in Sections 28r and 28s EnWG (Section 28r on the creation of the hydrogen core network, which came into force on 29 December 2023, will become Section 28q). The central regulations in the EnWG for the creation and financing of the hydrogen core network will therefore be Sections 28q, 28r and 28s after the ‘Second Act to Amend the Energy Industry Act’ comes into force.

The Federal Government had already forwarded its proposed amendments or new versions of these regulations to the Federal Council on 16 November 2023 with the draft of a ‘Third Act to Amend the Energy Industry Act’, which discussed this draft on 15 December 2023 and issued an opinion on it with proposed amendments. Insofar as this opinion concerned Sections 28r and 28s EnWG, the Federal Government did not agree with the Bundesrat's proposals in its counterstatement. However, in its recommended resolution of 10 April 2024, the responsible Committee for Climate Protection and Energy of the German Bundestag also proposed amendments to the Federal Government's draft bill. In addition to changing the name of the draft bill to ‘Second Act to Amend the Energy Industry Act’, this primarily concerned changes to the content of the provisions of Sections 28r and 28s EnWG. With the amendments to the recommended resolution, the German Bundestag then adopted the Federal Government's draft bill in its session on 12 April 2024. A final consultation in the Bundesrat took place on 26 April 2024, so that the regulations can enter into force shortly after their promulgation in the Federal Law Gazette. However, their application is then still subject to approval by the European Commission under state aid law.

The new Section 28r regulates the principles of financing the hydrogen core network as well as the pricing. Financing is to be provided by the private sector, but with an intertemporal cost allocation mechanism until 2055, entirely via standardised nationwide grid fees. A so-called amortisation account will be created for this purpose, the compensation of which is regulated by the federal government in Section 28s in the event that the legislatively intended amortisation does not occur by 2055. Despite repeated demands by the transmission system operators and other market participants during the legislative process, the deductible of 24% to be borne by the hydrogen core network operators in this case in accordance with Section 28s (3) EnWG, based on the year 2055, remained unchanged (however, the deductible is reduced by 0.5 percentage points per year calculated backwards and would therefore be 16% in the event of termination at the earliest date - 31 December 2038).

Pursuant to Section 28r (1) sentence 2 EnWG in its future version, the Federal Network Agency must, in accordance with the provisions of Section 28r EnWG and taking into account an expert opinion prepared on behalf of the federal government to validate the sustainability of the financing model provided for in Section 28r EnWG, specify an intertemporal cost allocation mechanism that enables the hydrogen core network to be financed until the end of 31 December 2055. The imputed equity interest rate (before taxes) of 6.69% set in Section 28r (1) sentence 7 EnWG until 31 December 2027 is not to be changed by the specification.

In addition to the answer to the question of whether the European Commission will grant state aid approval and, if so, with what conditions, it is eagerly awaited in practice how investors will react to the deductible of 24% and the equity interest rate of 6.69%. This is because it will largely depend on whether the transmission system operators submit their final application for the hydrogen core network by 21 May 2024 at the latest in accordance with Section 28r EnWG (in future 28q).

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