| PRENZLAU, Germany
PRENZLAU, Germany Germany's solution to a large part of its energy dilemma may lie in a muddy field in desolate, windswept flatlands in the northeast.
In an area 75 miles north of Berlin that until now has attracted more birdwatchers than cutting-edge industries, start-up Enertrag AG, with the help of partners Vattenfall, Total and Deutsche Bahn, is operating one of the first plants to generate wind power and convert it into hydrogen.
Politicians and utilities are looking to the new technology's potential as Germany withdraws from nuclear power and turns to green power to reach 35 percent of its electricity mix by 2020 and 80 percent by 2050, from 20 percent today.
"My personal wish is that we help create the energy turning point and that wind power-to-hydrogen will take on a leading role. The politicians are very interested in what we are doing here," Werner Diwald, 46, an Enertrag board member, said.
Following the Fukushima nuclear disaster in Japan last March, Germany closed eight nuclear reactor blocks in one fell swoop, leaving power grids vulnerable to any gaps in output from less predictable power from wind and sunshine.
Hydrogen, among its many advantages, is predictable. It can be contained and transported without any carbon emissions. It can be used to generate power and heat, fuel cars or go into natural gas pipelines as an extra ingredient.
"Hydrogen is the only energy source that can safeguard energy supply over long periods," Diwald said.
The Enertrag plant has been online since October after two years of construction at a cost of 21 million euros ($27.9 million). When the wind blows, its three turbines can generate up to 6 megawatts of power.
The power is passed through water and split into oxygen and hydrogen via an electrolyser, which is housed in a supersized garage and then stored in five tanks. The plant can convert up to 0.5 MW into hydrogen, producing 12 kg per hour or enough to power a hydrogen car for 1,200 km.
This technology turns wind into a source of baseload power, the industry's word for 24-hour supply.
The hydrogen can be mixed with biogas made from local corn waste and fed into cogeneration plants, which produce electricity and heat. The power can be fed back into the grid at times when little or no wind is available, and the heat can be fed into a district heating network. During periods of low wind, the biogas plant can run on biomass alone.
"We believe that power-to-gas is one of the most promising technologies for pushing forward Germany's energy strategy shift," said Kurt Oswald, a partner at global consultancy A.T. Kearney, based in the Vienna office.
"It could provide the link between volatile power like wind and solar and the established power and gas systems."
The biggest question will be how to make wind-to-hydrogen profitable.
A.T. Kearney figures show that producing hydrogen or methane, a gas derived from it in another conversion process, costs two to four times the amount Germany pays for imported gas. Mechanization would unlock the entire gas grid as methane acts and behaves just like imported gas.
"Incentives will be necessary to help the technology reach market maturity," Oswald said.
Enertrag says the answer may lie in feed-in tariffs, or subsidies, for hydrogen. Germany used this strategy to turn itself a world leader in wind and solar power.
Diwald said that Germany would need investment of 700 million to 1 billion euros to create a hydrogen market big enough to incentivize companies and investors.
Other alternatives could be tax waivers or the passing on of additional costs down to consumers via network transmission fees.
Oswald said conversion to hydrogen or methane could help save on the expected cost of 10 billion euros to build transmission lines to connect new offshore wind power centers in the north to cities and industries further south.
Utilities are looking to hydrogen as a possible savior as they adjust to the government's new renewable targets and focus more on wind. If they intend to stay in business when the country goes fully green, they must act now.
Vattenfall has 850 MW of offshore wind around European coasts, making it the number two offshore operator worldwide. It wants to spend 4.2 billion euros on expansion between 2012 and 2016.
Oil companies such as Total have come to see hydrogen as a form of hedge against longer-term oil market risks from diminishing supplies and demand-suppressing price rises.
Hydrogen can fuel noise-free and emission-free cars. Tanker lorries already take hydrogen from the Prenzlau plant to Berlin, where Total and others already operate a few hydrogen pumps at regular filling stations.
The car industry wants to develop cars powered by hydrogen because these vehicles can travel 100 km on one kg of hydrogen and distances of 400 to 500 km in total. By comparison, electric cars that run on batteries can only reach up to 200 km.
"If a weak euro and all-time high petrol prices become a problem for consumers, alternative technologies such as power-to-gas could quite quickly become interesting," said Josef Auer, an analyst at Deutsche Bank Research.
A number of car companies including Daimler and Toyota have said they will start high-volume production of hydrogen-run cars in the middle of this decade.
Railway operator Deutsche Bahn is also looking to use power from hydrogen to offset carbon emissions from its rail network.
Enertrag will feed hydrogen gas into the natural gas grid from the summer. Greenpeace Energy, a subsidiary of the environmental organization, is already buying some of this "windgas" and selling it to households.
If done on a mass scale, the use of hydrogen or methane could help reduce reliance on gas imports. This is an important political factor for Germany, which gets 40 percent of its gas from Russia.
Hydrogen could also be stored in Germany's underground gas caverns without major problems, which in total offer space for a fifth of annual consumption.
"The gas industry is battling with sales problems of its own because heating demand is falling," Diwald said. "It has a big chance to present itself as a solution - to absorb hydrogen and raise its sales and profits in the process."
Enertrag plans to build 10 MW of additional hydrogen conversion capacity from 2015 onwards.
But there remain many unanswered questions for the hydrogen start-ups, said Vattenfall spokesman Lutz Wiese.
"Who can fund large-scale electrolysers, what sites are suitable geologically, where is there a lot of wind power and no grid infrastructure, and how will competition between hydrogen for cars and for electricity and heat pan out?" he said.
Berlin is already putting funds into developing this nascent technology to help it become financially viable.
Ministries have offered 200 million euros between 2011 and 2014 for research into energy storage, generating strong competition for the funds.
"Germany may be in a unique position (to transform its energy system) because not only is there a consensus in society but also the technological competency," Stephan Reimelt, head of GE Energy Germany told an energy conference in Berlin in January.
Germany's strong economy also gives it an edge, he said.
Back in Prenzlau, Enertrag executive Sven Pyka, who buys corn for the biogas plant, dusts off his work jacket as he walks back to the car.
Some locals were worried at first about the safety of the hydrogen plant but a recent visitors day attracted 300 people from surrounding communities, he says.
"Now they are increasingly curious about it," he said.
($1 = 0.7534 euros)
(Reporting by Vera Eckert; Editing by Noah Barkin and Jane Baird)