High cost of green hydrogen stalls Germany’s industrial energy transition

Leaders of Germany’s prominent manufacturing and energy sectors have warned that “green” hydrogen remains too expensive compared to other fuels, casting doubt on a cornerstone of the nation’s efforts to reduce carbon emissions.

Miguel Ángel López Borrego, CEO of German steel giant Thyssenkrupp, warned that unless the cost of hydrogen produced from renewable energy decreases, the company will have to resort to fossil fuels to operate its steel plant in the industrial city of Duisburg, which is planned to be a flagship green facility.

Germany, the EU’s largest producer of greenhouse gases, had set a series of bold targets for fuel production and imports, supported by tens of billions of dollars in subsidies and loans.

However, facing slowing economic growth and commercial competition from China, Europe’s largest economy is joining a global slowdown in the adoption of this fuel.

Coal-fired blast furnaces account for approximately 7% of Germany’s total emissions, and the EU’s most populous country was at the forefront of the bloc’s green hydrogen initiative to meet its goal of reducing emissions by nearly 90% by 2040.

Yet, green hydrogen costs about €6 per kilogram, nearly double the cost of “grey” hydrogen produced from natural gas.

Energy sector executives estimate that due to rising regulatory and investment costs, the price of green hydrogen will increase to around €10 per kilogram by 2030, a figure roughly four times the current price of natural gas.

“I would rather start reducing CO₂ emissions with [methane] gas in 2028 than wait for green hydrogen,” López told the Financial Times.

Although the use of methane gas produces fewer carbon dioxide emissions than coal-fired power, the methane molecule in fossil fuels has a warming potential 80 times greater than carbon dioxide over a twenty-year period.

Thyssenkrupp’s warning comes after ArcelorMittal, Europe’s largest steel producer, abandoned plans in June to convert two German plants to green production, rejecting €1.3 billion in state aid allocated to support the change.

In July, Daimler also announced it was delaying its plans to produce hydrogen-powered trucks by several years due to slow progress in the construction of refueling stations.

“I can have the best product in the world, but if there is no demand, it doesn’t matter,” said Jan Taschenberger, chief operating officer for new green energy and gas at the publicly owned gas group Uniper. He added that the industry is in danger of entering a “trough of disillusionment,” referring to the “hype cycle” of technology adoption.

Sopna Sury, head of hydrogen operations at energy company RWE, said that a series of regulations in Europe for a fuel to qualify as green hydrogen has made it excessively expensive.

In the EU, there are strict rules for a product to be classified as green hydrogen. Brussels stipulates that the energy used must come from a wind or solar power plant located in the same country as the electrolyzer producing the hydrogen and built within the last three years.

There are also time limits on how soon the electricity must be used after it is generated. “If you remove all these restrictions… you could reduce the cost of green hydrogen by at least €2 per kilogram,” Sury said.

Mixed signals from Germany’s new government have further fueled pessimism in the sector. The government promised to accelerate the rollout of hydrogen but also cut subsidies designed to encourage companies to adopt green hydrogen.

Chancellor Friedrich Merz and Economy Minister Katherina Reiche, who have made reviving economic growth their top priority, have made moderate public commitments to previous climate change policies.

The previous government, a three-party coalition that included the Greens, had placed green hydrogen at the center of its plans to decarbonize its large and hard-to-electrify heavy industry.

This year, construction began on a 9,000 km hydrogen “core network,” consisting mostly of converted gas pipelines, expected to be completed by 2032 at a cost of approximately €20 billion.

Berlin also established international partnerships aimed at paving the way for large-scale imports and set a target of 10 GW of electrolyzer capacity for hydrogen production in Germany by 2030.

However, the country is currently far from this target. According to the latest report from the International Energy Agency (IEA), the installed capacity is only 0.1 GW. Optimists note that another 1.3 GW of capacity is under construction, accounting for about half of the current projects in Europe.

Industry and energy sector players have generally welcomed the new German government’s promise to support the use of grey or blue hydrogen produced from fossil fuels.

But the draft budget presented to the cabinet in June was disappointing, as it cut state funding for the industrial adoption of green hydrogen.

“We have seen some signs that hydrogen may not be the top priority for this government,” said Barbara Fischer, head of FNB Gas, an association representing the gas transmission network companies building the hydrogen grid.

An Economy Ministry spokesperson said that funds allocated for industrial decarbonization subsidies this year were reduced because Berlin wanted to commit only to an amount that could realistically be approved this year.

However, the spokesperson added that the German government “takes the concerns of the business community seriously” and wants to ensure the hydrogen economy is “accelerated and designed in a more pragmatic way.”

The Merz government plans to invest €500 billion in infrastructure over the next 10 years.