Study: Germany’s hydrogen successes, delays and future challenges

Germany, a European pioneer in hydrogen initiatives, found itself in an uncertain political situation at the end of 2024. The November collapse of the coalition government of the SPD, FDP and Greens raised concerns that it could slow key reforms. Yet the hydrogen sector is a crucial part of Germany’s plan to decarbonise industry and energy. Against this backdrop, the Oxford Institute for Energy Studies published a review of the state of Germany’s hydrogen sector, analysing four key areas: consumption, production, imports and infrastructure.

Consumption

Germany is Europe’s largest consumer of “grey” hydrogen produced from natural gas, which it plans to replace with cleaner alternatives. The government is strongly supporting the transformation of industry through substantial subsidies and support mechanisms. For example, Thyssenkrupp Steel Europe received a direct government grant of 550 million euros and up to 1.45 billion euros in conditional payments to accelerate the use of renewable hydrogen in steel production.

Despite the government’s substantial spending, the high cost of renewable hydrogen remains a significant obstacle for industry. A key mechanism is the innovative system of Climate Contracts for Difference (Climate Contracts for Difference, CCfD), which covers the additional costs companies face when switching to more sustainable technologies.

However, these support instruments are complex and their full potential has yet to be realised. The challenge ahead will be to simplify these mechanisms and implement the EU’s RED III Directive, which could stimulate investment by introducing clear requirements for the use of renewable hydrogen in industry.

Production

Germany aims to install 10 GW of new electrolyser capacity by 2030, but the current reality does not match these ambitions. Of the supported projects, only just over 1 GW of capacity has reached a Final Investment Decision (Final Investment Decision, FID), representing just 10% of the planned total. The largest projects, such as RWE in Lingen and EWE in Emden, have received significant support through the EU’s IPCEI programme (Important Projects of Common European Interest).

Key initiatives are also running behind schedule, including support for systemically important electrolysers and offshore electrolysers, which were intended to provide flexibility to the electricity system. Pilot auctions under the European Hydrogen Bank could provide more stable operating support for new projects, but Germany is also facing competition from countries such as Portugal and Finland, where cheaper renewable energy gives hydrogen producers more favourable conditions.

Imports

In July this year, Germany adopted a long-awaited plan for imports, which assumes that two-thirds of the hydrogen needed will have to be imported. The hydrogen strategy provides a broad framework, but lacks a specific timeline and new funding.

The H2Global scheme, a flagship project supporting imports of hydrogen and its derivatives, began delivering its first results this year. A contract was signed in July with Fertiglobe, which will supply renewable hydrogen from Egypt in the form of ammonia. However, import plans face significant obstacles.

Norwegian company Equinorput on hold its hydrogen pipeline project to Germany this year because of low demand for low-carbon hydrogen. The project had a potential capacity of 10 GW and could have met up to 30% of German demand by 2038. The project to connect hydrogen networks with Denmark has also been delayed, with completion pushed back to 2031.

Infrastructure

Germany made the most progress this year on pipeline infrastructure. The approved plan to build 9 040 km of hydrogen pipelines carries a cost of almost 19 billion euros, with 56% of the network to be created by converting existing gas pipelines. The first 500 km are due to be completed by the end of 2025, primarily through the conversion of part of the Opal pipeline.

By contrast, construction of terminals for direct hydrogen imports is lagging behind. Ports such as Brunsbüttel and Hamburg are planning ammonia cracking facilities or liquid hydrogen terminals, but none of the projects has yet reached a Final Investment Decision (FID).

Plans for hydrogen storage are in a similar position. Germany plans to have 6.1 TWh of capacity by 2030, which would cover projected demand. But capacity of up to 17.9 TWh will be needed by 2035, indicating a substantial shortfall. Securing financial support and removing regulatory barriers therefore remain key challenges.

Conclusion

In conclusion, despite political and economic challenges, Germany remains a leader in Europe’s hydrogen strategy. But its ambitions will depend on the ability of the new government to address key issues, including clear implementation of the EU’s RED III Directive, faster development of infrastructure and storage capacity, and effective support for domestic production and imports.

The future success of Germany’s hydrogen transition will also depend on adapting to macroeconomic factors that affect the cost of renewable hydrogen production, as well as continuing to innovate in support mechanisms such as Climate Contracts for Difference and the European Hydrogen Bank.