Report by CASSIS of the University of Bonn and the EWI of the University of Cologne

Hydrogen is considered an important part of the EU's and Germany's climate neutrality strategy. Significant progress is required for the ramp-up, otherwise the targets might not be met. A report by CASSIS and EWI analyses the status of the ramp-up.

Hydrogen is considered a key technology for the European energy transition towards climate neutrality. It is intended to store surplus electricity from renewable energies and provide a high energy density even for sectors that are difficult to electrify, such as the industry. However, hurdles such as high costs and lagging investment on the supply and demand side as well as current uncertainties are slowing down the market ramp-up, while the current geopolitical situation is changing the framework conditions. As a result, the EU targets for hydrogen for 2030 may be difficult to achieve under the current circumstances.

In the interdisciplinary report ‘H2 Reality Check - Reappraising the EU's H2 Strategy in a New Era of Geopolitical Disruptions’, a team from the Center for Advanced Security, Strategic and Integration Studies (CASSIS) of the University of Bonn and the Institute of Energy Economics (EWI) at the University of Cologne examines techno-economic and geopolitical aspects of the hydrogen market ramp-up with regard to the EU's decarbonisation targets for 2030. Based on the latest studies, the current status of the ramp-up and hurdles are presented. The report was funded by the European Climate Foundation.

EU hydrogen strategy: Challenges in implementation

The EU has set itself the goal of installing 40 gigawatts of electrolysis capacity in the EU by 2030, producing 10 million tonnes of green hydrogen in the EU and importing an additional 10 million tonnes. Many member states have launched national strategies and funding programmes, but implementation is stalling. Whilst the political targets are ambitious, the actual investment activity is lagging. The latest global analyses also show that global and European demand for hydrogen could be lower than originally assumed due to new and cost-efficient technologies for electrification in the transport, building and even energy-intensive industrial sectors.

Studies analysed in the report have shown that green hydrogen (based on renewable energy) is unlikely to be price-competitive with blue hydrogen (based on natural gas plus CO2 capture and storage) by 2030. Contrary to expectations, the costs of green hydrogen production have not fallen. In addition, the future potential oversupply of LNG could cause the cost of blue hydrogen to fall further. However, blue hydrogen cannot contribute to a climate-neutral energy system in the long term due to residual emissions.
Rising costs for materials and labour, delays in infrastructure and new, more cost-effective electrification technologies could further slow down the ramp-up of green hydrogen. Green hydrogen prices could exceed the industry's willingness to pay in the medium term. ‘In addition, future prices could be significantly higher than the costs currently being discussed due to grid fees, storage and structuring costs, taxes, levies and margins,’ says Dr.-Ing.
Ann-Kathrin Klaas, Head of Research Area at EWI.

Geopolitical risks in the context of the transition period

In addition to EWI's techno-economic analysis, the CASSIS carried out a detailed analysis of the geopolitical situation as part of the report. With its focus on global, systemic geo-economic and geopolitical changes, this report addresses an important gap in research on the EU hydrogen strategy, particularly in light of the reorientation of EU energy policy with a stronger focus on its global industrial competitiveness and cost efficiency.
However, the newly forecasted lower future hydrogen demand within and outside the EU could also reduce the potential need for imports and thus also Europe's geopolitical risks, vulnerabilities and import dependencies.

The resilience of the EU was also analysed with regard to the import of hydrogen and the raw material requirements for the construction of electrolysers. "The development of a hydrogen economy with large electrolysis production capacities requires an additional increase in the mining, refining and processing of strategic minerals. However, their supply chains are in many cases dominated and controlled by China,‘ says energy expert and project manager of the ’H2 Reality Check" Dr Frank Umbach from CASSIS. 'In addition, the EU is currently becoming increasingly dependent on the import of electrolysis technologies and production capacities from the People's Republic - unless changes are made. In contrast, blue hydrogen could maintain Europe's dependence on current natural gas and LNG exporters in the future.

In view of this development, CASSIS recommends that the EU must, for example, reconcile its future imports of strategic minerals mined and refined in China and cheaper green technologies for faster decarbonisation and the envisaged energy transition with the strategic need for a stable supply of hydrogen and electrolysis technologies and domestic production capacity. To this end, a holistic overall concept for resilient EU energy and raw material supply security must be developed. ‘The study shows that it is necessary to find a pragmatic, evidence-based balance between commendable sustainability ambitions and the geoeconomic and geopolitical realities of a world characterised by disruption,’ says project manager Dr. Enrico Fels from CASSIS at the University of Bonn.

Institutions involved and funding

The European Climate Foundation funded the nine-month research project with around 116,000 euros. In addition to the specific scientific analyses by CASSIS and EWI, the results of discussions at high-level expert workshops in Bonn, Berlin and Brussels with national and international representatives from industry, politics, science and nongovernmental organisations were also incorporated into the report.