The billion-euro investment: How Germany is financing its hydrogen core network

1. The fundamental dilemma: high costs, few users 

   The central challenge in financing the core network lies in the typical ‘chicken-and-egg problem’ of hydrogen ramp-up: the industry is reluctant to switch to hydrogen-based technologies as long as there is no comprehensive infrastructure, and network operators need a sufficient number of users to justify investments in infrastructure expansion. In addition, even after the infrastructure has been built, user numbers will only rise slowly. As a result, with conventional network fee calculations without regulatory intervention, network fees would be extremely high in the initial phase when utilisation is low. This would make it impossible to ramp up hydrogen use economically – a classic case of market failure in infrastructure investment. 

   The amortisation account: shifting costs into the future 

   Die Bundesnetzagentur hat zur Lösung dieses Dilemmas das Amortisationskonto entwickelt. The Federal Network Agency has developed the amortisation account to solve this dilemma. This allows cost coverage to be deferred. The principle: costs that cannot be covered by network charges during the ramp-up phase are ‘parked’ in a virtual account and only distributed later, when network utilisation has increased, across the then larger user base. 

   In concrete terms, the amortisation account works as follows: the difference between the actual costs incurred by the grid operators and the revenues generated by grid fees is recorded annually and interest is paid on it. These accumulated shortfalls are then gradually reduced over a specified period of time as soon as grid utilisation has reached an economically viable level. The interest rate is based on the regulatory requirements for return on equity. 

   According to the Federal Network Agency, this instrument is intended to ensure that network operators can make the necessary investments despite initially low revenues without irresponsibly increasing their economic risk. At the same time, it is intended to prevent pioneering companies from being deterred or disadvantaged by exorbitant network charges.

KOSMO and WANDA 

The KOSMO (cost stabilisation mechanism) and WANDA (hydrogen network allocation mechanism) pricing regulations form another key element of the financing architecture. KOSMO regulates the systematic passing on of costs to network users and defines how network charges for the hydrogen core network are calculated. It is intended to ensure uniform cost development and thus offer network users greater planning security. With KOSMO, the Federal Network Agency has created a regulatory framework that guarantees the refinancing of network investments on the one hand, but also protects against excessive network charges on the other.  

WANDA specifically regulates the allocation of network capacities and the associated charges. The price regulation aims to ensure non-discriminatory network access while also guaranteeing the efficient use of available capacities. Essentially, WANDA establishes a transparent booking system for transport capacities in the hydrogen core network. Users can book long-term capacities, giving them planning security for their hydrogen supply.  

The ramp-up fee: a bridge to full capacity utilisation 

The ramp-up fee is a temporary special fee that was designed specifically for the network expansion phase. It serves as a transitional instrument until the hydrogen core network has reached an economically viable basic capacity utilisation. The ramp-up fee is intended to compensate for the imbalance between high network construction costs and low initial demand by posting initial revenue shortfalls to an amortisation account and later offsetting them with additional revenue until 2055. This should cover the costs of the network until 2055 without blocking market access through excessive prices. 

All users of the hydrogen core network – both hydrogen producers and consumers – must pay the fee when they feed hydrogen into or withdraw it from the network. The BNetzA has set the ramp-up fee for the hydrogen core network at €25/kW/h/a in July 2025. It intends to adjust the fee annually in line with inflation and review every year whether adjustments are necessary. The decisive factor here is whether the fee generates enough money to balance the amortisation account by the planned date. 

Government funding 

In addition to regulatory instruments, direct government funding plays a crucial role. The Federal Ministry for Economic Affairs and Climate Protection (BMWK) has provided billions in funding through its ‘Funding Guidelines for Hydrogen Network Infrastructure’. According to the BMWK, depending on the project and the object of funding, up to 70 per cent of the investment costs can be subsidised – in exceptional cases up to 90 per cent. This funding significantly reduces the costs to be refinanced via network charges and thus contributes directly to the affordability of hydrogen infrastructure.  

Critical consideration: risks and challenges 

As sophisticated as the financing model may appear, it does harbour some uncertainties and therefore also risks. The biggest challenge is that all calculations are based on forecasts of hydrogen demand. If industrial demand for hydrogen falls short of expectations, the amortisation account could become an almost insurmountable debt burden that ultimately has to be passed on to a small number of users. 

Experts also warn of a potential ‘stranded asset’ risk: if hydrogen does not become established as an energy source to the extent predicted, or if alternative technologies become available more quickly, part of the expensively constructed infrastructure could remain unused.  

Another point of criticism concerns the complexity of the regulatory system itself. Investors and users complain that many details have yet to be finalised and that frequent adjustments to the regulations make long-term planning difficult. 

Regardless of the outcome, one thing is certain: with the hydrogen core network and its innovative financing model, Germany is breaking new ground in terms of infrastructure. Its success will determine whether Germany can consolidate its pioneering role in the hydrogen economy.