High-priced green hydrogen endangers Germany's industrial shift towards renewable energy.

In a bid to combat climate change, Germany is pushing forward with its plans to boost the production and use of green hydrogen. Mathias Koch, a project manager for hydrogen at the Berlin-based climate change think-tank Agora Industry, suggests that public procurement can be a key strategy to boost demand for this clean energy source.

Currently, an additional 1.3GW of hydrogen production is under construction in Germany. This expansion is crucial, as the country seeks to meet its goal of cutting emissions by almost 90% by 2040. Coal-fired blast furnaces generate around 7% of Germany's total emissions, and the country has been at the forefront of a drive for green hydrogen as a potential solution.

However, the cost of hydrogen made from renewable energy is currently around €6 per kilogramme, which is close to double the cost of "grey" hydrogen produced from natural gas. This cost disparity has raised concerns among executives of Germany's leading manufacturing and energy industries, who have expressed doubts about the affordability of green hydrogen compared to other fuels.

In an effort to support the adoption of green hydrogen, the German government has laid out ambitious targets, offering substantial subsidies and loans. Berlin has also struck international partnerships to facilitate large-scale imports and has set a target of having 10GW of electrolyser capacity to produce hydrogen at home by 2030.

However, the draft budget presented to the cabinet in June revealed a reduction in funds for state subsidies for industrial adoption of green hydrogen. This move has further compounded industry gloom, as executives expect the cost of green hydrogen to rise to around €10 per kilo in 2030 due to rising regulatory costs and investment costs, about four times the price of natural gas today.

The current German government, responsible for decisions on green hydrogen funding, is the caretaker cabinet of Chancellor Olaf Scholz, composed of SPD, Bündnis 90/Die Grünen ministers, and independent politicians. The new government has promised to accelerate the hydrogen rollout but has also slashed subsidies aimed at encouraging companies to adopt green hydrogen.

Industry and energy players have generally welcomed the new German government's promise to support the use of grey or blue hydrogen made from fossil fuels. Thyssenkrupp, a German steel major, has warned that unless the cost of green hydrogen falls, they may resort to fossil fuels to run a planned green facility in Duisberg.

ArcelorMittal, Europe's biggest steel producer, abandoned plans to convert two German plants to green production in June, turning down €1.3bn in public subsidies aimed at supporting the change. Daimler, a heavy vehicle maker, announced in July that it was pushing back plans to produce trucks powered by hydrogen due to slow progress in building refuelling stations.

According to Michael Liebreich, a deep sceptic of green hydrogen, the main reason for the slow uptake is not demand constraints, but rather the high cost of green hydrogen. The last German government, including the Green party, made green hydrogen a central part of its plan to decarbonize heavy industry.

The EU has strict rules for green hydrogen to qualify as such, including requiring the power used to come from a wind or solar farm established in the last three years in the same country as the electrolyser producing the hydrogen, and stipulating time limits on how quickly the electricity must be used after it is generated.

Despite the challenges, Germany remains committed to its green hydrogen ambitions. The government plans to invest €500bn into infrastructure over the next 10 years, with a significant portion earmarked for hydrogen projects. The construction of a €20bn hydrogen "core network" consisting of converted gas pipelines stretching 9,000km is already underway, with an expected completion date of 2032.

Despite the current hurdles, the future of green hydrogen in Germany remains uncertain. The key will be finding ways to reduce costs and increase efficiency while maintaining the environmental benefits that make green hydrogen an attractive solution for combating climate change.