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Transformation BP 180112 2

Transformation BP 180112 2

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Published by: Bruegel on Feb 02, 2012
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In the phase after their installation, most stations for newly introduced low-carbon
fuels(suchashydrogen,exchangeablebatteries,biofuels,naturalgas)willseelimited
use.Duetotheinitiallowload,moststationsmightonlybeabletocovertheirvariable
costs in the first decade. Without a clear prospect of recovery of their fixed costs,
private companies would refrain from installing new fuelling stations. Public funding
could compensate for the initial investment cost. A sufficient network of hydrogen
fuellingstationswould,forexample,involveabout1000newfuelstationsinGermany
alone,accordingtoindustryexperts.Ataunit-costof€1million40

,thiswouldaddupto

aninvestmentof€1billioninGermany.

Onecouldenvisagedifferentapproachesforsourcing/channellingthismoney.Itmight
be a direct subsidy. Alternatively, it could be organised by placing obligations on
existing suppliers to provide clean fuels (eg the German implementation of the EU
biofuelsdirective41

)orbyimplicitcross-subsidiesfromfossil-fuelconsumers(suchas
Germanfeed-intariffsforelectricitygeneratedfromrenewablesources).

Whateverthefundingapproach,threeissueswouldarise:

First, due to the initial low density of fuel stations, there would be a lack of (local)
competition. Consequently, each fuel station would have an interest in exercising

THE GREAT TRANSFORMATION

82

40. According to the NextHyLights (2010) study, the investment cost of ‘Small fuelling stations (100 kg/day)’ is
€570,000,of‘Mediumsizefuellingstation(300kg/day)’is€670,000andof‘Largefuellingstations(1,000kg/day)’
is€1,930,000.

41. Directive2003/30/EConthepromotionoftheuseofbiofuelsandotherrenewablefuelsfortransportstipulatedthat
by20105.75percentoftransportfossilfuelsshouldbereplacedwithbiofuels.Germany,forexample,implemented
thedirectivebyobligingallfueloutletstocomplywiththis(tradable)quota(Biokraftstoffquotengesetz,2007).

marketpowerbysettingfuelpricessignificantlyabovetheirmarginalcosts.Thiscould
lead to high fuel prices and consequently low penetration of FCEVs42

. Thus, the state
would need to regulate prices in order to ensure the optimal uptake of the new
technology.Thisischallenginginsuchanewmarket.Duetothedifferentloadfactors
of the fuel stations, the variable cost per unit of fuel (eg labour cost) would vary
significantly. Thus, the optimal fuel price is different at each location, which makes
regulation difficult. That is, even if the state supports the deployment of new fuel
stationsitcouldthennotsimplyletcompetitionworktodeterminetheoptimalprices.

Second, there are a number of individual transport technologies claiming that
infrastructure is the missing ingredient preventing them becoming a competitive
solution to the clean-transport challenge. Compressed natural gas, liquefied natural
gas,electricity,batteryswitching,hydrogenandothersarecompetingforinfrastructure
roll-out support. Funding for refuelling infrastructure for all of these technologies is
unlikely because of the high cost and because only some of the technologies will
ultimatelyprovesuccessful.

Third,inthecurrentenvironmentoftheeconomicandfinancialcrisis,directfinancial
commitmentsthatriskleadingtovisiblefailures(unusedfuelstations)mightbevery
unpopular.

Consequently,directsubsidies,orindirectfinancethroughhigherfossilfuelprices,
for fuelling stations for a certain technology will be very difficult to implement
politically.

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