Hydrogen, just a milestone on the way to a completely emission-free energy supply?

The challenges of the energy supply in Europe

Europe’s energy dependencies have increased as a result of the gradual phase-out of fossil fuels and nuclear energy. Geopolitical tensions and the focus on renewable energy have led to an increase in energy prices, which puts the local economy at a competitive disadvantage. Therefore, Europe as an industrial location depends on large quantities of emission-free and cost-effective energy to reverse the trend. This requires immense – yet to-be-built – distribution and storage capacities which is probably the biggest hurdle. The production of green hydrogen (H₂) via power-to-gas and hydrogen derivatives seems to present a promising solution component while also facilitating the decarbonisation of non-electrifiable industries.

What challenges arise along the value chain for the ramp-up of hydrogen in Germany?

A. Grid infrastructure adaptions (modernisation and new construction) are necessary due to the regional generation to provide cost-efficient and sufficient green electricity.

B. Technological progress in water treatment and the efficiency level of the existing electrolysers represent major obstacles. The series production of alternatives such as capillary electrolysis with an efficiency of 95 to 97% (an increase of 20%) would represent a technological breakthrough in terms of operating and investment costs.

C. Local transport infrastructure must be expanded (e.g. by municipal suppliers) and forms a typical last-mile challenge to supply recipients that are beyond the reach of the core network. Moreover, insufficient transportation capacity, the technological maturity of hydrogen derivatives and their recovery, as well as the lack of specialised terminals, represent a bottleneck.

D. Storage alternatives like iron oxide pellets or liquid methanol need to be developed for locations that, unlike northern Germany, lack large underground storage capacities to ensure a comprehensive supply of hydrogen.

E. Hydrogen imports amounting to 50% to 70% of the annual demand will be necessary due to the demand forecast of 95 TWh to 130 TWh of hydrogen by 2030 which significantly exceeds the projected German production capacities.²

Consequently, the energy sector is faced with the challenge to efficiently manage domestic generation, transport, and hydrogen storage while ensuring compatibility with imports.

Looking ahead – What impact will the price development have on the hydrogen ramp-up?

The long-term success of hydrogen largely depends on its price competitiveness compared to fossil energy and is currently on the brink, putting the comprehensive transformation of the German economy at risk. The forecast from Forvis Mazars outlines a continuous but decreasing reduction potential for the price of green hydrogen due to economies of scale. It also illustrates the long way to price superiority over fossil fuels, which are becoming increasingly unattractive due to tax countermeasures in the form of CO2 pricing (Figure 1). The originally incurred cost target for green hydrogen of 3 €/kg (≙ 0,9 €/kWh) by 2030 is likely to be missed due to slower-than-expected technological progress.³ This trend is leading to a slowdown in ramp-up despite existing tax exemptions and price cap mechanisms at the European level, however, they are far from sufficient. Failure to reverse this trend would above all jeopardise Germany as a production location for hydrogen due to a lack of competitiveness and lead to increasing dependence on energy imports.

What is next: How can energy providers strategically position to avoid losing touch?

1. The high dependence on hydrogen imports opens up economic opportunities in the technological support of foreign markets (for example in the area of water treatment and the installation of solar and wind power plants) and should not be underestimated.
2. In the long run, hydrogen may be challenged and supplemented by more efficient and cost-effective alternatives, requiring energy providers to follow a hybrid strategy.

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