Renewable hydrogen is positioned as an essential element in the European Union’s energy transition. However, the slow market progress, high production costs, and regulatory challenges threaten the ambitious goals of reaching 20 Mt of consumption by 2030.

According to the recent report from the European Union Agency for the Cooperation of Energy Regulators (ACER), the hydrogen market in Europe is progressing, but its development “remains in an early stage and faces critical barriers,” from infrastructure to regulation.

A fragmented market with disparate ambitions

Europe has set a strategic target of 20 Mt of renewable hydrogen by 2030, of which 10 Mt should be imported. However, current progress does not reflect this ambition. Currently, hydrogen consumption in the EU stands at 7.2 Mt, of which 99.7% comes from fossil fuels, contrasting with the EU’s decarbonization vision. According to the report from the European Union Agency for the Cooperation of Energy Regulators (ACER), “the hydrogen market in Europe is progressing slowly and faces critical barriers that hinder its consolidation as an energy pillar.”

Production through electrolysis, which is key for renewable hydrogen, is almost negligible, with only 22 kt produced currently. Additionally, the installed capacity of electrolyzers barely exceeds 200 MW, while to meet the EU’s hydrogen strategy targets, this capacity should reach 40 GW by 2030.

Member states have very diverse objectives for hydrogen infrastructure development. Spain and Germany lead with goals of 12 GW and 10 GW of installed electrolyzers by 2030, respectively, followed by France (6.5 GW) and Portugal (5.5 GW). However, the lack of alignment between national strategies and the European vision slows overall progress.

Costs and demand: two significant obstacles

One of the greatest challenges for renewable hydrogen is its cost. Producing hydrogen through electrolysis is currently three to four times more expensive than methods based on natural gas. This cost difference is even greater due to the strict EU regulations on renewable fuels of non-biological origin (RFNBO), designed to ensure net decarbonization impacts. These cost disparities are raising significant doubts among early investors, who face high risks when making long-term decisions in such an uncertain market.

The projected demand also presents challenges. While sectors like the chemical industry and heavy transport offer significant potential for renewable hydrogen adoption, penetration remains slow. Germany, for example, has projected demand of up to 4 Mt by 2030, while France expects to reach 0.77 Mt. However, these figures fall short when compared to the estimated needs to meet global targets.

Infrastructure and regulation: the pending pillars

The infrastructure required to connect hydrogen production regions with demand centers is limited and faces inadequate planning. While major pipeline and storage projects are being planned, most are still in the early stages. Additionally, reusing natural gas networks for hydrogen transport, considered a cost-reduction measure, faces technical and economic challenges. According to the ACER report, “these decisions require a thorough evaluation to ensure that the benefits outweigh the risks.”

From a regulatory standpoint, the transposition of the gas and hydrogen decarbonization package at the national level is key to establishing a harmonized legal framework. However, implementation has been slow, and no member state has yet complied with this obligation, with a deadline of August 2026. Countries like Germany and Denmark have made progress in regulatory consultations, but progress is uneven across the EU.

The role of low-carbon hydrogen and ACER’s recommendations

In the short term, low-carbon hydrogen, produced from natural gas with carbon capture, could play a crucial role in boosting demand and reducing initial costs. However, this solution is not without criticism, as it could lead to prolonged dependence on fossil fuels and hinder long-term decarbonization efforts.

ACER has provided specific recommendations to address market challenges. The agency emphasizes the need to accelerate the certification of sustainable hydrogen, improve integrated planning of electricity networks, and promote more effective funding mechanisms. It also highlights the importance of ensuring cost transparency and adopting a more integrated strategy that connects the hydrogen, gas, and electricity sectors.

Despite the challenges, the EU is confident that hydrogen will become a driving force for decarbonization in sectors such as industry and transport. “Success will depend on the ability to overcome the current challenges and lay the foundations for sustainable growth,” concludes ACER.

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