Expensive ‘green’ hydrogen jeopardises German industrial energy transition
Unless cost of hydrogen made from renewable energy falls, some manufacturers would have to use fossil fuels, warn executives
Executives of Germany’s leading manufacturing and energy industries have warned that “green” hydrogen is still far too expensive compared with other fuels, raising doubts over a key plank of the country’s efforts to cut carbon emissions.
Miguel Ángel López Borrego, chief executive of German steel major Thyssenkrupp, warned that unless the cost of hydrogen made from renewable energy fell, the company would have to resort to fossil fuels to run a steel plant which was intended to be its flagship green facility in the industrial town of Duisberg.
Germany, an industrial powerhouse and the EU’s largest greenhouse gas emitter, had laid out a series of bold targets for producing and importing the fuel, underpinned by tens of billions in subsidies and loans. But faced with sluggish economic growth and trade competition from China, Europe’s biggest economy is joining a broader global slowdown in its adoption.
Coal-fired blast furnaces generate around 7 per cent of Germany’s total emissions and the EU’s most populous nation had been at the forefront of a drive by the bloc for green hydrogen as it seeks to meet its goal of cutting emissions by almost 90 per cent by 2040.
However, green hydrogen costs around €6 per kilogramme — close to double the cost of “grey” hydrogen produced from natural gas. Energy industry executives say they expect that green hydrogen will rise to around €10 per kilo in 2030 due to rising regulatory costs and investment costs, about four times the price of natural gas today.
López told the Financial Times he would “prefer to start reducing CO₂ in, I don’t know, 2028 with [methane] gas instead of waiting for the green hydrogen”, he told the Financial Times.
While the use of methane gas produces fewer carbon dioxide emissions than coal-fired power, the fossil fuel’s methane molecule has an 80 times greater warming potential over a span of two decades than carbon dioxide.
The warning from Germany’s leading steelmaker comes after ArcelorMittal, Europe’s biggest steel producer, in June abandoned plans to convert two German plants to green production, and would turn down €1.3bn in public subsidies aimed at supporting the change.
Heavy vehicle maker Daimler in July also announced it was pushing back plans to produce trucks powered by hydrogen by several years due to slow progress in building refuelling stations.
“I can have the best product on earth but if there’s no demand, it doesn’t matter,” said Jan Taschenberger, chief operating officer of new green power and gas at the nationalised gas group Uniper. Referring to the “hype cycle” for technology adoption, he said there was a danger that the sector had entered the “trough of disillusionment”.
Sopna Sury, chief operating officer for hydrogen at the energy company RWE, said a litany of European regulation on what qualifies a fuel as green hydrogen was making the fuel overly expensive.
There are strict rules for the end-product to qualify as green hydrogen in the EU. Brussels stipulates the power used must come from a wind or solar farm that was established in the last three years located in the same country as the electrolyser producing the hydrogen. There are also time limits on how quickly the electricity must be used after it is generated.
“If you take away all those constraints . . . then you could reduce the cost of green hydrogen by at least €2 per kilogramme,” Sury said.
The industry gloom has been compounded by mixed signals from Germany’s new government. It has promised to accelerate the hydrogen rollout but also slashed subsidies aimed at encouraging companies to adopt green hydrogen.
Chancellor Friedrich Merz and his economy minister Katherina Reiche, who have made the revival of economic growth a top priority, have made lukewarm public commitments to its previous climate change policy.
The last government, a three-way coalition that included the Green party, put green hydrogen at the centre of its plans to decarbonise its large and hard-to-electrify heavy industry.
Work started this year on building a near-€20bn hydrogen “core network” consisting of mainly converted gas pipelines stretching 9,000km, and expected to be complete by 2032.
Berlin also struck international partnerships aimed at paving the way for large-scale imports as well as setting a target of having the 10GW of electrolyser capacity to produce hydrogen at home in Germany by 2030.
Yet currently, the country is far away from that target — with installed capacity of just 0.1GW, according to a recent report by the IEA.
Optimists point to the fact that a further 1.3GW is under construction — roughly around half of all the current projects in Europe.
Industry and energy players have generally welcomed the new German government’s promise to instead support the use of grey or blue hydrogen made from fossil fuels.
“There are still dark clouds on the surface but if you look slightly below there are good things happening,” said Nils Aldag, CEO of the German company Sunfire, which produces electrolysers for hydrogen.
But there is frustration at the cut in state funding for industrial adoption of green hydrogen in the draft budget presented to the cabinet in June.
“We saw some signals that maybe hydrogen is not on the top priority of this government,” said Barbara Fischer, head of FNB Gas, an association representing companies responsible for gas transmission networks which are building the hydrogen grid.
An energy ministry spokesperson said the funds allocated for industrial decarbonisation subsidies this year had been reduced because Berlin only wanted to commit an amount that could realistically be approved this year.
The German government took “the concerns of the business community seriously”, adding that it wanted to ensure the development of a hydrogen economy was “accelerated and designed more pragmatically”.
Mathias Koch, a project manager for hydrogen at the Berlin-based climate change think-tank Agora Industry, said public procurement was “an obvious place to start” to boost demand for green hydrogen.
Merz’s government plans to pour €500bn into infrastructure over the next 10 years.
Koch said projects should use green steel or green cement “so that the producers of green steel and their suppliers have certainty that this [demand] will come.”
But Michael Liebreich, who runs a clean energy advisory firm and has long been a deep sceptic of green hydrogen, said demand constraints were not the cause of the problem for the slow uptake. “The fundamental reason is that it’s expensive . . . and not only is it expensive now but it will remain expensive,” he added.