Germany pledges additional support to narrow cost gap for hydrogen-based production

Germany will provide at least 1.5 billion euros from its federal budget to bridge the cost gap between conventional and hydrogen-based industrial production in the 2027 round of tenders for state support, the economy ministry said. The funding pledge for so-called Carbon Contracts for Difference (CCfDs) to help industry decarbonise is part of a larger support package for the budding hydrogen market. 

“The development of the hydrogen market is currently facing major challenges and is being held up, particularly as production costs are still significantly higher than what many potential end-use sectors are willing to pay,” the ministry said. Hydrogen projects will also be able to compete for a share of the broader CCfD scheme, for which the government has earmarked up to 8.7 billion euros in total.

In the support package, the ministry also listed existing plans such as supporting the conversion of 4 gigawatts (GW) of power plants to run on hydrogen, and pushing for the expansion of the so-called “core-grid” to transport hydrogen to demand centres. Germany also introduces a requirement to lower the carbon footprint for new offshore wind farms, which it said would mainly happen by using steel produced with green hydrogen. This builds on the EU Net Zero Industry Act (NZIA), which obliges EU member states to introduce non-price criteria such as the carbon footprint in renewable energy auctions. 

Green hydrogen that can be produced with renewable energy sources plays a key role in Germany’s plans for a climate neutral energy system of the future. While the direct use of electricity is set to power the majority of applications – from EVs and heat pumps to home appliances and many manufacturing processes – some industrial production requires very high temperatures that electric systems currently struggle to deliver at a scale and a price that makes it competitive for industry use. Hydrogen will also be needed as a feedstock in the chemical sector, as a fuel in aviation, and to stabilise the power grid during longer periods of little wind and sunshine. 

While Germany's government repeatedly has said it wants to ramp up the hydrogen economy, there is a persistent gap between ambition and reality, with high production costs, weak demand, and infrastructure uncertainty continuing to hold back the sector. The government has faced criticism of funding cuts, and despite billions in subsidies, Germany so far has not achieved the goals set out in its hydrogen strategy – and is unlikely to do so in the near future, the Federal Court of Auditors said in a 2025 special report assessing progress and challenges in establishing a hydrogen economy in the country.