Locational incentives for electrolysers: avoiding an increase of North-South constraints in German electricity network

The decarbonisation efforts in Germany have led to an increase in North-South constraints in the German electricity network.

A new study conducted by Frontier Economics on behalf of TenneT TSO GmbH examines how (new) electrolysers can be incentivised to be located at grid-supportive sites in northern Germany, to mitigate additional costs associated with managing these bottlenecks.

The investigation explores various instruments for incentivising the location of electrolysers, including bans, market incentives, regulatory measures, and funding mechanisms. It highlights that incentivising the location of electrolysers within the context of funding mechanisms is in a short-term perspective particularly attractive, both economically and in terms of the potential to specifically support new electrolysers and facilitate their implementation by 2025.

The study outlines a more detailed design of the locational incentives for two specific funding measures: the funding of electrolysers according to § 96 No. 9 WindSeeG and the climate protection agreements (“Klimaschutzverträge”, KSV). These two funding measures together address an electrolyser capacity of approx. 3.5 GW in Germany. With funding under the WindSeeG, it is possible to define specific expansion areas for electrolysers and to introduce a bonus/penalty system for tenders. Within the KSV funding guideline, only expansion areas can be established. The choice of design options should be further discussed against the background of future framework conditions, as well as the effectiveness and impact on the market ramp-up.

You can access the study here. Please note it is in German language.

For more information, please contact us on media@frontier-economics.com  or at +44 (0) 20 7031 7000.