ACER casts sobering light on EU hydrogen progress [Global Gas Perspectives]
The EU faces an uphill struggle in reaching its ambitious 2030 renewable hydrogen targets, according to the first Market Monitoring Report published by the EU Agency for the Cooperation of Energy Regulators (ACER) last month. The report reveals a wide gap between current progress and the stated goal of achieving 20mn tonnes of annual renewable hydrogen consumption by the end of the decade.
The EU has positioned renewable hydrogen as a cornerstone of its decarbonisation strategy, particularly for addressing emissions from hard-to-abate sectors such as heavy industry, power generation and shipping. But the reality on the ground paints a more sobering picture. Renewable hydrogen production remains limited, infrastructure development lags far behind what is required, and economic barriers continue to dampen large-scale adoption. Without urgent measures, the bloc risks falling far short of its targets, jeopardising both its climate objectives and energy independence ambitions.
The EU’s 20mn t/yr goal is to be satisfied evenly with domestic production and imports. However, progress remains far from adequate. As of 2024, hydrogen consumption in the EU stands at 7.2mn t, according to ACER, with 99.7% of it sourced from fossil fuels. Renewable hydrogen production via electrolysis, the process of using electricity from renewable sources to split water into hydrogen and oxygen, is a mere 22,000 t annually – less than 1% of the total hydrogen used.
Limited infrastructure, high costs and regulatory gaps
The development of hydrogen infrastructure is critical for scaling up renewable hydrogen production and consumption, yet it is severely lagging. The report highlights ambitious plans to build 42,000 km of dedicated hydrogen pipelines, along with storage facilities and import-export terminals, over the next decade. However, only 1% of these projects have reached the final investment decision (FID) stage, ACER warns.
This delay is largely attributed to uncertainties surrounding future hydrogen demand. Project developers are hesitant to commit significant investments without clarity on whether there will be sufficient market demand to justify the infrastructure. This lack of alignment between supply-side readiness and demand expectations poses a major challenge to the EU’s hydrogen ambitions.
The economics of renewable hydrogen remain a major barrier, according to ACER. Producing hydrogen by electrolysis is currently three to four times more expensive than producing it from natural gas. This cost gap makes renewable hydrogen uncompetitive in the market, limiting its uptake.
High production costs stem from several factors, including the initial capital outlay for electrolysers, the cost of renewable electricity, and the relatively small scale of current operations. While renewable hydrogen is expected to become more cost-competitive as production scales up, the pace of progress is insufficient to meet the EU’s targets within the current timeframe.
Regulatory clarity is another area where the EU must act decisively, ACER notes. While the EU has adopted its 2024 hydrogen and decarbonised gas legislation, the report stresses the need for member states to swiftly transpose these rules into national laws. Delays in implementation create uncertainty for investors and hinder the development of a cohesive, EU-wide hydrogen market.
Additionally, the fragmented nature of the EU's regulatory framework means that different countries are progressing at different speeds, creating disparities that could undermine the bloc’s overall targets. Greater harmonisation and coordination across member states will be essential to ensure that the EU moves forward collectively.
The report also sheds light on shifting dynamics in the nascent global hydrogen market. Competition for renewable hydrogen imports is intensifying, particularly from regions such as Asia and North America, which are also ramping up their hydrogen ambitions.
Within Europe, the slow pace of electrolyser deployment is a key concern. The EU’s current installed electrolyser capacity is just over 200 MW, far below the more than 100 GW required by 2030. Although projects totalling an additional 1.8 GW are under construction and expected to come online by 2026, this remains a fraction of the capacity needed to meet domestic production targets.
Recommendations
The ACER report outlines a comprehensive roadmap to address the EU's renewable hydrogen challenges and accelerate progress towards its 2030 targets. A key priority is the rapid scaling up of electrolyser deployment to boost renewable hydrogen production. This effort hinges on simplifying permitting processes, offering financial incentives, and ensuring an ample supply of renewable electricity to power these facilities efficiently.
Infrastructure planning also requires significant enhancement. Integrated planning across hydrogen, natural gas, and electricity networks is essential to optimise resource use and minimise costs. Improved coordination among network operators will be critical to aligning infrastructure development with future demand, thereby reducing inefficiencies and avoiding potential bottlenecks.
Regulatory frameworks must also be strengthened to provide clarity and consistency across the EU. The swift and uniform implementation of the EU’s hydrogen and decarbonised gas legislation in member states is crucial to fostering investor confidence and accelerating market growth. Harmonised regulations will ensure that the hydrogen market develops cohesively across the region.
Economic barriers need to be addressed through improved financial support mechanisms such as subsidies and grants. These can help lower the costs of renewable hydrogen production and associated infrastructure projects. Public-private partnerships can play a vital role in bridging funding gaps and driving innovation to reduce costs further.
Given the EU’s dependence on imports to meet its hydrogen goals, fostering international partnerships is vital. Strengthening ties with key exporting regions and establishing long-term agreements with renewable hydrogen producers will be essential to securing stable supplies and mitigating competition from other global markets.
Lastly, enhancing market monitoring will be indispensable for informed decision-making. Reliable and up-to-date data on hydrogen production, consumption, and infrastructure development will enable policymakers to track progress effectively and refine strategies as needed. By addressing these interconnected challenges, the EU can create a robust framework for renewable hydrogen development and move closer to achieving its ambitious climate and energy goals.
Conclusions
While the challenges outlined in the report are significant, ACER stresses that they are not insurmountable. Renewable hydrogen remains a cornerstone of the EU's broader climate and energy goals, and its successful deployment will be critical for decarbonising sectors that are otherwise difficult to transition.
However, time is of the essence. The EU must act swiftly and decisively to address the barriers identified in the report, employing the collective will of policymakers, industry stakeholders and member states. This includes efforts to accelerate the deployment of electrolysers, advancing infrastructure projects, and ensuring regulatory clarity across member states. Equally important is addressing the economic challenges of renewable hydrogen production, which requires both financial support and technological innovation.
Yet, others have argued that the goals set out in the European Commission’s hydrogen strategy four years ago were fundamentally unachievable. Indeed, the European Court of Auditors (ECA) released a report in July stressing that the 2030 targets needed a “reality check.”
“Based on the available information from member states and industry, the EU is unlikely to meet [the targets] by 2030,” Stef Bloc, a member of the court that was involved in preparing that report, explained. These goals were “driven by political will rather than being based on robust analysis,” the report concluded. They are “overly ambitious” and “achieving them has had a bumpy start.”
The new European Commission, which took office on December 1, may therefore have to significantly scale back its hydrogen ambitions. But doing so would not only come at a greater political cost to President Ursula von Der Leyen, who presided over the 2020 hydrogen strategy. It would also require a significant overhaul of Europe’s energy transition strategy in general, to account for lower clean hydrogen output. For the time being, Brussels has shown no indication it will change course.