High costs, low demand hold back hydrogen rollout – German energy agency

Five years of real-world research into hydrogen projects in Germany have revealed a persistent gap between ambition and reality, with high production costs, weak demand, and infrastructure uncertainty continuing to hold back the sector, according to a preview of findings published by the German Energy Agency (dena). 

The production of renewable hydrogen remains costly and consumers’ willingness to pay is limited as long as fossil fuel alternatives remain cheaper, dena expert Konstantin Brosch wrote in a post summarising lessons from a research programme accompanying Germany's so-called "real-world laboratories" pilot projects, which are designed to test hydrogen technologies under industrial conditions. The full findings will be published in an upcoming final report.

"The decisive questions are above all of an economic and regulatory nature," Brosch wrote, adding that policy instruments designed to turn ambitious renewable energy targets into reliable, long-term purchase commitments are largely still missing.

Hydrogen produced from renewable electricity, known as green hydrogen, is seen as essential for decarbonising industries that cannot easily electrify directly, such as steel and chemicals. Germany has made green hydrogen a centrepiece of its industrial decarbonisation strategy, but the sector has struggled to move from pilot projects to full commercial scale.

Many other countries beyond Germany are pursuing similar hydrogen strategies and face the same chicken-and-egg problem: producers will not invest without guaranteed buyers, and buyers will not commit without reliable supply and infrastructure. The dena analysis found that solving this requires addressing production, demand, and infrastructure all at once, rather than one after the other.

Electricity remains the dominant cost driver for electrolysis, and investment costs were frequently underestimated, Brosch wrote. Existing policy instruments such as greenhouse gas quotas have only limited impact on demand because of price volatility and planning uncertainty. And while Germany has approved a plan for a national hydrogen pipeline network — the so-called core network — its actual size and timeline depend heavily on how quickly hydrogen-ready gas power plants are built, leaving the infrastructure picture uncertain.