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German coalition agrees financing details of hydrogen network

(Reuters) - Germany's ruling coalition agreed a financing mechanism for the country's future hydrogen network, extending a deadline for it to be built by five years to 2037 and offering protection for investors in case of bankruptcy.

Many countries are betting on hydrogen, which can be used in part to replace natural gas, as they seek to decarbonize their economies and find ways to absorb intermittent renewable supplies into the power grid. Germany, which was heavily reliant on Russian gas until the Ukraine war began, is especially keen to shift towards hydrogen.

The country's core network for hydrogen fuel will extend over 9,700 km (6,000 miles) and cost around 20 billion euros ($21.6 billion), with existing gas pipelines making up 60% of the network.

The energy policy lawmakers of the government's three coalition parties on Friday agreed on the network's details that will be discussed and are expected to be agreed by the lower house of parliament next week, the lawmakers said in a joint statement.

According to the agreement, the network should be in place by 2037 at the latest, five years beyond the original deadline to try to ease the financial burden for the operators, lawmaker for the Social Democrats Nina Scheer said.

The project will be financed through user fees and built by private companies, and to encourage investment in technology that is in its infancy, the network operators will not be liable if one operator goes bankrupt, with a government guarantee of around 6.7% return on equity before taxes.

The Economy Ministry has been considering what it refers to as an amortization account to cover the network construction costs over a long period to avoid passing the full amount to current consumers, with plans to have the costs paid back by 2055.

If, however, demand is weak and the market fails to take off, network operators will have to shoulder some 24% of the costs, the parties agreed.

"The federal government is only partially liable in the unlikely scenario that the core network ramp-up fails," the agreement said.

The BDEW utilities lobby welcomed the agreement but said investors should be offered more security against the loss of capital.

"The litmus test will be whether or not actual investment decisions are made on the basis of the agreement," Germany's association of local utilities, VKU, said in a statement.

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