The race to finance a Danish hydrogen pipeline is in full swing, pitting the state against private players, with the key question being whether Denmark can establish a hydrogen connection to Germany by 2028. While the ambitious plan aims to build an infrastructure for green hydrogen, the financial framework to support it is yet to be finalized.
As autumn approaches, discussions intensify regarding who will shoulder the financial risk, estimated at DKK 10-22 billion, for the initial phase of this hydrogen infrastructure project. This pipeline is slated to run from West Jutland to Germany, passing through Esbjerg to Fredericia.
Concrete recommendations for financing Danish hydrogen infrastructure are already taking shape, proposed by 14 stakeholders and industry associations. Minister for Climate, Energy, and Utilities Lars Aagaard acknowledges the complexity of this decision, emphasizing the importance of the industry’s involvement and the need for a commitment to a future hydrogen infrastructure.
One of the entities backing these recommendations is Copenhagen Infrastructure Partners (CIP), represented by David Dupont-Mouritzen, Project Director at Høst ptx Esbjerg. He expresses surprise at the Minister’s stance, indicating that these recommendations underscore the concern that industry must make binding commitments before politicians invest in the project.
These recommendations advocate for Energinet, the state-owned operator of the Danish electricity and natural gas transmission systems, to begin building the first segment of the hydrogen link without obligatory commitments from industry players. In this scenario, politicians would need to assume the financial risk by providing a state guarantee and initially stabilizing the hydrogen pipeline tariff, ensuring that early users do not face exorbitant costs, akin to the financing model of the Storebælt Bridge.
David Dupont-Mouritzen highlights the role of risk allocation in the green transition, outlining how the industry manages market risk, business risk, development, construction risk, and technology evolution. However, the state ultimately benefits from taxes and duties, making it the ultimate winner in this energy transition.
According to him, the state must be prepared to take on the funding for the initiative if the green transition is to succeed. He argues that if Energinet cannot secure a state guarantee and flexible framework but requires full commitment from 80% of the industry, then a pause may be necessary to negotiate agreements with German customers, ensuring adequate volumes before proceeding.
However, Senior economist Frederik Læssøe Nielsen from Kraka Advisory holds a different perspective. He acknowledges the need for an informed decision regarding the hydrogen compound but suggests that the recommendations may be driven by a desire to set an aggressive schedule for hydrogen production.
He raises concerns about building pipelines with excessive hydrogen capacity and proposes a more gradual expansion approach that allows for adjustments based on demand. Nielsen also questions the recommendation that hydrogen pipe users should pay off costs slowly, emphasizing that this approach relies on the assumption that hydrogen will be a resounding success.
The expansion of electrolysis capacity in the power-to-x sector, necessary for green hydrogen and green fuel production, is another key aspect of this debate. The agreement reached in 2022 aimed at 4-6 GW of electrolysis capacity, while recent agreements to expand wind energy to 9-14 GW or more suggest an energy surplus. Hydrogen, seen as a means to store surplus energy and a potential export to Germany, becomes essential.
The fate of larger hydrogen production hinges on the political decision to expand wind energy in the North Sea. Denmark has already taken significant steps in the hydrogen arena, including an agreement with Germany regarding a future hydrogen pipeline. However, a key challenge remains, ensuring an efficient connection between production and purchase to foster a hydrogen economy capable of producing green fuels like e-methanol, ammonia, and SAF (sustainable aviation fuel).
This debate underscores the intricate balance between industry and state investment in a green hydrogen future.
