The European Commission has signed off on about €3 B ($3.2 B) of planned German state aid for building a system of hydrogen (H₂) pipelines known as the Hydrogen Core Network (HCN).

Berlin plans to give financial guarantees to allow companies that build and run the €20-B network to obtain more favorable loans to cover initial losses during the ramp-up phase from 2025.

Encouraging the uptake of H₂ outweighs any distortion to EU competition and trade from the scheme, the Commission said on Friday.

Germany's ruling coalition agreed in April on the financing mechanism and extended the construction deadline by five years to 2037, also offering protection for investors in case of bankruptcy.

Many countries are looking to H_2, which can be generated from wind and solar power, for a more storable form of green energy, to help them reach net-zero greenhouse gas (GHG) emissions.

Hydrogen is widely viewed as the only practicable carbon-free energy source for many processes in heavy industry, including the steel, chemicals, refining, glass and ceramics sectors.

Germany is targeting more than 9,700 km (6,000 mi) of H₂ pipelines, with existing natural gas transmission making up 60% of the network to power heavy industry sites that cannot switch to electricity.

Green H₂ is produced by splitting water molecules through electrolysis using renewable energy and the German pipeline network will need to connect windpower parks in the north to industrial centers in the south.

Future private sector network operators will seek a return on their investment by charging user fees.

($1 = 0.9355 euros)

(Reporting by Ludwig BurgerEditing by Andrey Sychev and David Goodman)