The Challenge of Upscaling Green Hydrogen in Europe

The goal of climate neutrality by 2050 is a central long-term challenge for the European economy. All sectors are under pressure to improve their greenhouse gas balances. For this to succeed, technologies must be implemented that extend the use of electricity from renewable energies beyond direct consumption to the areas of heat and mobility. The production of hydrogen from water molecules using renewable electricity, so-called „green hydrogen“, is one of these options. Its wide range of potential application fields in industry, mobility and the building sector make green hydrogen a suitable instrument for spreading cross-sectoral use of renewables. In the recent energy crisis, it has come even more into the spotlight as a contribution to breaking the dependence on fossil energy sources in hard-to-decarbonize sectors.

Economic obstacles remain

The production and use of green hydrogen in Europe is currently still taking place in a conglomerate of more or less advanced pilot projects, mostly with a regional focus. There are reasons for this, both related to capacity and costs. First, the necessary transregional infrastructure is lacking. To feed in significant quantities of hydrogen, existing gas networks will have to be converted. Another problem is the cost of electrolysis, in particular the combination of high fixed costs and low efficiencies. Although newer generations of electrolysers have efficiency advantages, they also generate higher investment requirements.

Regional demand potential is key

For this reason, the regional utilization potentials will play a key role: They will determine the economic viability of the hydrogen projects in the initial phase. But the landscape of European projects to be launched in the nearer future only partly reflects this principle. For instance, when consulting publicly available project lists, the low presence of Italy, central parts of France and southern Germany on the project map is striking. This includes numerous regions for which above-average utilization potentials can be expected, including industrial core regions such as Ile-de-France and Lombardia.

Short-term answer: Strengthen project coordination

For the upcoming, decisive phase of capacity expansion, there is a risk that the path toward economic viability will be slowed down in part by infrastructure restrictions. Since a considerable amount of public money is invested in these projects, European policymakers should engage in a more active role. Better spatial coordination and more consistent alignment of the projects currently funded through a wide variety of channels is required.

Long-term answer: Remove trade barriers in Europe

The integration of the emerging regions markets represents the next step towards a European hydrogen economy. The right political impetus is needed to accelerate this process. Incentive regulation should focus equally on hydrogen generation, utilization, and infrastructure. European harmonization will be crucial to avoid distortions in allocation. This applies to the tax-related burden on electrolysers and storage operators as well as to the regulation of future hydrogen networks. There is also an urgent need for the adoption of binding EU-wide standards for sustainably produced hydrogen and their certification, including the entire supply chain if possible.

Only if the barriers to hydrogen trade are eliminated, Europe can exploit the specialization potentials necessary to make a hydrogen economy work for everyone.