Ms. Klaas, in its hydrogen strategy, the previous German government set itself the goal of establishing a domestic electrolysis capacity of 10 gigawatts by 2030. In a recent study, you came to the conclusion that this goal is unlikely to be achieved—why?
Because many announced projects will probably not be realized by then. At the end of 2025, electrolyzers with a total capacity of just under 200 megawatts were in operation in Germany. This corresponds to the installed capacity of around 80 wind turbines. There are also currently 22 projects with a total of 1.3 gigawatts for which companies have already made the final financing decisions. These projects are to be realized within two years, so that we will end up with around 1.5 gigawatts nationwide in 2027. The financing decisions on other, larger projects will soon be taken. However, people are now hesitant due to the uncertainty about whether the hydrogen produced will actually find buyers. We’re talking here about several projects of 100 megawatts each, many of them in northern Germany. If these are not implemented, the ramp-up of hydrogen power in Germany is likely to take considerably longer than was previously assumed.
Is this concern about hesitant demand for green hydrogen justified?
Green hydrogen is currently still much more expensive than expected. Forecasts and studies previously assumed that production costs would fall to €2 to €3 per kilogram in the long term. Our current analyses show that we could be at around €5 to €6 per kilogram in 2030. Costs for storage and transport must be added to this. In the long term, the production costs for green hydrogen could fall to €3 to €4 per kilogram, which is still a lot. The operators of the electrolyzers cannot conclude offtake agreements—and hardly any electrolyzer projects will be launched without such a contract.
How did this discrepancy come about?
A few years ago there was a lot of hydrogen hype. However, the market has developed much more slowly than expected. In the beginning, the costs of building large electrolyzers were simply underestimated, especially in terms of the ancillary costs—the connections to the electricity and hydrogen grids, and all the engineering involved. If you add it all up, the current investment costs for an electrolyzer are around €2,000 per kilowatt.
Could new efficient electrolysis technologies help reduce the price of hydrogen?
You need to distinguish between the investment costs for the electrolyzer and the total production costs for the hydrogen. The investment accounts for around half of the hydrogen price. New, efficient technologies and innovations can certainly lead to savings here, but the other half is the cost of the green electricity needed for the electrolysis.
Can the government exert any influence to accelerate the ramp-up of electrolysis?
Yes, above all by ensuring more planning security. Many project developers see the current debate on electricity grid charges as a real stumbling block. At the moment, electrolyzers that will go into operation before mid-2029 are exempt from grid charges. As things stand today, conventional grid charges will then be paid for all systems that go into operation after then. That could mean additional costs of up to 20 percent. A reform of electricity grid charges is currently under discussion. There are also discussions about continuing the electrolyzer exemption from charges after mid-2029. Everything is still open, which is why there is a great deal of uncertainty on the market. This state of affairs with the electrolyzers also shows that politicians had expected the hydrogen market to ramp up much more quickly, and they then intervened with regulations. From the viewpoint of the project developers, an exemption beyond 2029 would make sense.
Are these difficulties a purely German phenomenon?
We have a total of around 600 megawatts of electrolysis in operation in the EU. With almost 200 megawatts, Germany has the largest share. In addition, electrolyzers are currently in operation in Denmark, Spain and Norway in particular. There are various initiatives to build Europe-wide, cross-border infrastructure—for example the European Hydrogen Backbone. The German gas transmission system operators have entered into many cooperative ventures with all the surrounding countries. However, the hydrogen ramp-up in other European countries is basically at the same point as in Germany and is also facing similar problems.
And these would be?
The European RFNBO criteria are currently the main obstacle. The abbreviation stands for Renewable Fuels of Non-Biological Origin. There are strict requirements for the purchase of electricity for electrolyzers here. Operators are only allowed to produce if they enter into a direct contract with a renewable energy facility such as a wind farm—a so-called power purchase agreement, or PPA for short. Furthermore, the electrolyzer may only consume as much electricity per month as the energy facility in question generates. This “monthly simultaneity” is to be tightened to hourly simultaneity starting in 2030. This makes the operation of an electrolyzer inflexible because it is very closely tied to the availability of electricity over time. Today, an electrolyzer cannot participate directly in the electricity market, but is instead bound by direct contracts. Here, too, a rapid hydrogen ramp-up was expected and the aim was to regulate the market. This is now proving to be an obstacle.
What else can be done to accelerate the ramp-up of electrolysis capacity and the hydrogen economy?
Basically I believe there are three approaches: Firstly, you can try to reduce costs on the production side, for example through innovation. Secondly, you can try to increase the willingness to pay on the demand side. This could be achieved by making fossil fuels more expensive—for example through CO2 pricing. However, in the current tight energy market, this would increase the pressure on industry even further and could lead to energy-intensive production being relocated abroad.
And the third approach?
Coupling hydrogen producers and consumers via intermediaries—so-called midstreamers. These traders bundle supply and demand and thus aggregate larger quantities. This is already the case in the electricity and gas markets. In the future, this bundling can lead to savings through economies of scale, as large quantities of hydrogen will be traded, stored, and transported. There is currently talk of providing regulatory financial support via the midstreamers. H2Global offers a good example of such a stakeholder in the hydrogen market. This foundation coordinates auctions for the import of green hydrogen on behalf of the German government. One auction round was won by a project in Egypt, where green ammonia is produced. Ammonia can be used to chemically store and transport hydrogen. Deliveries of the green ammonia to Germany are scheduled to begin in 2027. The project is being subsidized with funds provided by the German government. These funds are managed by the midstreamer that organizes the auction.
How will the hydrogen market, and with it electrolysis, develop in the coming years?
All current climate neutrality studies show that we will not achieve climate neutrality in Germany and Europe without green hydrogen. There are industries and production processes that rely on hydrogen as a green energy source—for example the steel industry. Until now, steelmakers have smelted metal ores using coking coal in blast furnaces. In the future, direct reduction furnaces using hydrogen will provide a climate-neutral alternative. At the moment, however, the high cost of hydrogen production means this is often not an economical option. Changing this situation will require an extensive package of measures. Targeted government funding could also accelerate the ramp-up. Steel manufacturers in Germany, for example, receive a subsidy to support investment in new facilities such as direct reduction furnaces. However, it’s also clear that every subsidy must have a fixed term because the government cannot afford to provide subsidies indefinitely.
