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2024

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04

Denmark agrees to finance hydrogen pipeline network — if sector meets five conditions

Author:

HydrogenInsight


 

 

The four-page agreement, entitled Economic framework conditions for hydrogen infrastructure, creates the financing framework and regulations for a future “hydrogen backbone” on the Jutland peninsula (ie, the part of Denmark connected to northern Germany).

 

“The state is ready to take on part of the risk and open the Treasury, but Danes’ money must be used responsibly,” explains a statement from the country’s Ministry of Climate, Energy and Utilities.

“Therefore, it is a requirement from the state that the market players lean into the project and fulfil five conditions. This means, among other things, that the market players must undertake to buy 1.4GW, which corresponds to approximately 44% of the pipe’s [3GW] capacity, so the state only invests in building a pipe that is used and brings money back to the Treasury.”

 

The document adds that users must also commit to booking capacity on the pipeline — which would be built and operated by state-owned electricity and gas transmission system operator Energinet — for a minimum of ten to 15 years.

 

All hydrogen in the network must be green — ie, made using renewable energy, such as offshore wind from the North Sea — and Danish developers have already announced 9GW of green H2 projects, including 7GW that would close to a Jutland hydrogen backbone.

 

“The establishment of the hydrogen infrastructure will require large investments, which are associated with great risk… Energinet currently that a backbone can cost (capital investment) in the region of DKr15bn [$2.17bn].”

 

It would work by Energinet selling pipeline capacity to hydrogen users via special tariffs.

 

“The state is thus ready to assume part of the risk for the project, if the market players are willing to also assume part of the risk under the requirements described in the agreement.”

 

The other requirements — on top of the aforementioned capacity bookings — are as follows:

 

Energinet must enter into a contract with German gas transmission system operator Gasunie for a hydrogen pipeline to Germany.

Energinet must establish a new subsidiary for the development and operation of hydrogen infrastructure to ensure that electricity and gas customers to do not pay for H2 pipelines through their utility bills.

 

State funding is assessed to be financially responsible and not incur expenses on the state budget.

 

Energinet can, subject to approval of the Danish Supply Authority, charge lower tariffs during the start-up period, and therefore operate with a deficit in the short term, before recovering the shortfall when more users are connected to the network. This would reduce the risks for the first users, but Energinet “must be able to recover its accumulated losses when more users use the system”.

 

In Denmark, major decisions are often agreed among all mainstream political parties in advance to ensure that future governments would not overturn them.

 

The signatories are the three government coalition parties (Social Democrats, Liberals and Moderates), and the Socialist People's Party, Liberal Alliance, the Conservative People's Party, the Unity List (Red-Green Alliance), Radical Liberal Party, Danish People's Party and the Alternative (a green political party).

 

“The North Sea contains enormous offshore wind potential. We must reap that so we can ensure green and cheap electricity in Danish and European households and so we can boost the production of green fuels for heavy industry, ships and aircraft,” said Lea Wermelin, climate, energy and supply rapporteur for the Social Democrats.

 

“A future Jutland hydrogen backbone is the key to unlocking the potential for Danish hydrogen production. Therefore, today we are taking a decisive step towards opening up a new green business adventure that creates Danish jobs and strengthens European security of supply.”

 

Source: HydrogenInsight

 

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