Hydrogen Pipeline Slows As “Realism” Sets In

The hydrogen economy, once hailed as a cornerstone of future energy systems, is facing mounting challenges as “realism” sets in, dampening the enthusiasm that had grown over the past few years. Frederik Beelitz, principal at Aurora, highlighted these challenges during the firm’s hydrogen conference in London.

After an initial surge in electrolyser capacity, rising from 1 GW in 2018 to 11 GW in 2021, progress has slowed considerably, with only 4 GW added in 2024 so far. This slowdown reflects growing concerns over costs for developers and investors, leading many to question whether the hydrogen economy will materialise as once anticipated.

A key issue is the mismatch between the cost of producing green hydrogen and what industries like refineries, ammonia production, and steelmaking are willing to pay. According to Beelitz, closing this cost gap could require additional incentives of up to EUR 7/kg. While the EU Emissions Trading System (ETS) and policy frameworks like the Renewable Energy Directive (RED III) offer some hope of bridging this divide, these measures are currently insufficient to drive large-scale hydrogen adoption.

Despite these concerns, Beelitz pointed out that the industrial sector remains the most likely early adopter of hydrogen, particularly in high-demand areas like chemicals, refineries, and steel production. Aurora projects that by 2030, Germany and the Netherlands will be the key consumers of hydrogen in Europe, with significant demand in both the transport and industrial sectors. Nonetheless, further incentives and policy action will be crucial to ensure that hydrogen becomes a viable component of the energy transition.