Why Hydrogen is Not Ready to Lead the Energy Transition

The rapid pace of urbanization, combined with the growth of the global population and economy, has led to a substantial rise in energy demand. Today, according to the Financial Times, approximately 80% of this demand is met by fossil fuels. However, these resources are finite and are being depleted at an alarming rate.

Additionally, the environmental impact of fossil fuel use—such as greenhouse gas emissions, pollution, and climate change—poses serious threats to ecosystems and public health worldwide. This has created a growing urgency to shift toward sustainable and green energy sources that can provide reliable power without the adverse effects associated with fossil fuels.

Researchers are increasingly focused on developing alternative energy systems that are renewable, efficient, and environmentally friendly. Among these alternatives, hydrogen has gained attention as a potential game-changer in the quest for clean energy. As a fuel, it offers zero emissions at the point of use, producing only water vapor when burned or used in fuel cells.

This quality makes hydrogen appealing for sectors looking to reduce greenhouse gas emissions. According to the global hydrogen market report, the market was valued at approximately $150 billion in 2021, with a projected compound annual growth rate (CAGR) of over 9% through 2030.

However, hydrogen still faces numerous challenges that hinder its widespread adoption. High production costs, energy inefficiencies, and the need for extensive infrastructure development limit its viability as a primary energy source for now. Overcoming these obstacles requires significant technological advancements and investment before hydrogen can fully integrate into the global energy landscape.

The Current Landscape of Hydrogen Production Processes

Hydrogen is gaining prominence in the energy transition, but its production processes differ significantly in cost, efficiency, and environmental impact. Understanding these methods provides valuable insights into the potential role of hydrogen in reducing emissions.

Grey Hydrogen: Dominating Current Production

Approximately 95% of global hydrogen production is grey hydrogen, primarily through Steam Methane Reforming (SMR). This method uses natural gas, releasing around 9-10 kg of CO₂ per kg of hydrogen produced, according to the International Energy Agency (IEA). The lack of carbon capture makes grey hydrogen the least sustainable option. In 2022, 70 million tonnes of hydrogen were produced globally, with grey hydrogen contributing the majority, as noted by the Hydrogen Council.

Blue Hydrogen: Bridging the Gap

Blue hydrogen seeks to reduce environmental impact by incorporating Carbon Capture and Storage (CCS). When CCS is applied to SMR or Auto-Thermal Reforming (ATR), up to 90% of CO₂ emissions can be captured, according to the Global CCS Institute. However, the total cost remains high. CCS adds approximately $1-$2 per kg to hydrogen production costs, resulting in prices between $1.50 and $2.50 per kg, depending on natural gas prices and carbon pricing mechanisms, as reported by BloombergNEF.

Green Hydrogen: The Future, But at a Cost

Green hydrogen, produced via electrolysis powered by renewable energy, is considered the ultimate goal for achieving carbon neutrality. Currently, it accounts for only 1% of total hydrogen production, as stated by the IEA. Electrolysis using renewable energy can cost between $4 and $6 per kg. However, with falling renewable energy prices and technological advances, costs are projected to drop below $2 per kg by 2030, as estimated by the International Renewable Energy Agency (IRENA).

Efficiency of Hydrogen Power in Different Applications: A Comparative Analysis

Hydrogen is often touted as a key solution for decarbonizing various sectors, but its efficiency varies significantly across applications. When compared to direct electricity use, hydrogen often lags in efficiency, highlighting why it may not yet be the optimal choice for many applications.

Transportation: Fuel Cell Electric Vehicles (FCEVs) vs. Battery Electric Vehicles (BEVs)

The efficiency and cost of powering vehicles using hydrogen fuel cells compared to battery electric vehicles (BEVs) reveal significant differences in energy usage and operational expenses.

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Power Generation: Hydrogen Turbines vs. Battery Storage

In power generation, hydrogen turbines can convert stored hydrogen back into electricity with an efficiency of around 40-50%. However, real-world applications often show even lower efficiencies. According to a study published in ScienceDirect, the actual efficiency of transforming hydrogen back into electricity in power plants is approximately 38%. This highlights the significant energy losses in the process, from electrolysis to storage and reconversion, making hydrogen less efficient for electricity generation compared to direct battery storage.

In contrast, battery storage systems (e.g., lithium-ion batteries) achieve round-trip efficiencies of 85-90%. This stark difference makes batteries much more suitable for grid balancing and renewable energy storage, as they store electricity directly with minimal losses.

Hydrogen in Europe: Directives, Targets and Actual Progress

The European Union’s ambitious hydrogen goals, laid out in the European Hydrogen Strategy and related directives, aimed to establish a robust hydrogen economy by scaling up production, infrastructure, and industrial usage. As of 2024, a comparison of these expectations with the current reality exposes more setbacks than progress, highlighting significant challenges and shortcomings.

The EU’s hydrogen strategy, outlined in the EU Hydrogen Strategy (COM/2020/301) and the Alternative Fuels Infrastructure Directive (AFID), presents lofty ambitions for integrating hydrogen into its energy system and promoting hydrogen fuel cell vehicles. However, the stark reality exposes a troubling gap between these grand expectations and the slow pace of actual progress.

By 2024, the EU aimed for a renewable hydrogen electrolyzer capacity of 6 GW, intending to build momentum towards the 2030 goal of 40 GW and the production of 10 million tonnes of renewable hydrogen annually. Yet, this vision seems increasingly out of reach. The current capacity languishes at a mere 2-3 GW, far short of the interim target. The reasons are well-rehearsed: project financing delays, permitting roadblocks, and the exorbitant costs of electrolyzer technology. These issues suggest a chronic underestimation of the challenges, casting serious doubt on whether the EU can meet its 2030 goals.

Similarly, the AFID’s objective of establishing 1,000 hydrogen refueling stations by 2030 to support a growing fleet of hydrogen fuel cell vehicles (FCEVs) appears overly optimistic. As of 2024, only 230 stations are operational, with a substantial share located in Germany, France, and the Netherlands. Germany, leading with over 100 stations, exemplifies some progress, but the picture is bleak. The current infrastructure falls woefully short of what is required to support widespread FCEV adoption. At the present rate, the EU’s target seems more like wishful thinking than an actionable plan.

Even with the 2023 adoption of the Delegated Acts on Renewable Hydrogen, which attempt to solidify the criteria for renewable hydrogen production, the practical impact remains limited. While these regulatory efforts might clarify technical standards and boost investor confidence, they do little to address the fundamental bottlenecks. The persistent gap between regulatory aspirations and ground realities hints at systemic issues unlikely to be resolved without a radical shift in strategy and execution.

So, What’s Holding Hydrogen Back?

The production of green hydrogen, though pivotal for achieving carbon neutrality, remains expensive. Current costs make hydrogen less competitive compared to other energy sources, such as direct electricity use in batteries and heat pumps.

Moreover, building a comprehensive hydrogen infrastructure, including pipelines, storage facilities, and refueling stations, is a monumental task. The European Investment Bank (EIB) estimates that €65 billion is required by 2030 to develop this infrastructure. As of 2024, progress remains slow, far short of EU targets.

Despite these challenges, hydrogen remains a critical component of the EU’s strategy to decarbonize transport, industry, and power generation. Addressing these barriers requires coordinated efforts from governments, industry stakeholders, and international collaborators. Significant investment, policy alignment, and technological advancements will be crucial to making hydrogen a viable and sustainable energy solution for the future.