Dawn of European hydrogen market – is EU doing enough to support it?

To support the development of the European hydrogen market, the European Union (EU) has, among other activities, adopted a regulation and a directive establishing internal market rules for hydrogen and started work on a pilot mechanism that aims to accelerate investments. However, major European hydrogen companies claim that the EU also needs to require more “made in Europe” standards for the industry.

In its hydrogen strategy, the EU states that hydrogen is essential to achieving net zero greenhouse gas (GHG) emissions by 2050. Although renewable electricity is expected to decarbonize a significant proportion of the EU’s energy consumption by 2050, it won’t meet all energy needs. Hydrogen from renewable sources has the potential to fill this gap.

As per the European Commission (EC), there are 254 renewable hydrogen projects in the EU, of which 170 are in operation and 84 are under construction. Overall, approximately €18 billion has been invested in Europe from the Resilience and Recovery Facility, member states’ schemes and several regional and innovation programs to boost the first hydrogen production projects, support fuel switching and develop infrastructure.

Internal market rules for hydrogen

In May 2024, the Council of the EU adopted a regulation and a directive establishing common internal market rules for renewable and natural gases and hydrogen and reforming the existing EU gas legislation.

The Council claimed that the gas package sets out “solid” rules for the organization of the natural gas market and establishes a “strong” framework for the development of the future hydrogen market, including for dedicated hydrogen infrastructure. It contains specific rules for the transport, supply and storage of natural gas and hydrogen.

The new rules call for “integrated and transparent network planning across the EU, under the principle of ‘energy efficiency first’ and with a forward-looking approach,” the Council said, adding that gas and hydrogen network operators will prepare a 10-year EU network development plan.

Accelerating hydrogen investments through a new mechanism

Under the adopted decarbonized gases and hydrogen package, the Commission started work on a new mechanism that aims to boost investments by providing a “clearer” picture of the market situation of both off-takers and suppliers and facilitating contacts between them.

The mechanism will collect, process and give access to information on demand and supply for renewable, low-carbon hydrogen and derivatives, allowing European off-takers to match with both European and foreign suppliers. Furthermore, it will collect and process market data on the development of hydrogen flows and prices.

The Commission revealed that a procurement process has started to find a service provider to develop an IT platform to operate the mechanism, adding that it plans to sign a contract by the end of 2024 so that it can start its operations by mid-2025.

“Improving demand visibility between suppliers and consumers will help accelerate final investment decisions in Europe and contribute to securing off-take agreements. Hydrogen will play an important role in achieving our Green Deal targets, phasing out Russian fossil fuels, and supporting the decarbonisation and competitiveness of European industry,” the Commission stated.

Kadri Simson, Commissioner for Energy, observed: “This new mechanism will play a critical role in kick-starting a functioning European hydrogen market. There are still too few projects moving towards final investment decisions, and too few off-takers signing contracts to switch to hydrogen. This mechanism will help us better understand and identify where hydrogen demand and supply are emerging.”

“The information that will be available will help us create bridges between European off-takers and hydrogen suppliers both within and outside the EU, preparing the ground for future auctions under the European Hydrogen Bank. It will also allow us to guide the planning and development of the necessary transport infrastructure through Projects of Common European Interest and its funding through the EU Connecting Europe Facility for Energy.”

Call for ‘made in Europe’ standards

In July 2024, 20 major electrolyzer manufacturers, including Nel Hydrogen, Siemens Energy and thyssenkrupp nucera, signed a letter calling on the EU to ensure a level playing field and require more “made in Europe” standards for the industry.

The companies claimed that Chinese subsidies for state-owned hydrogen companies create a “skewed” playing field that puts European manufacturers at a “significant” disadvantage.

As per the companies, the push for European resilience criteria is aimed at supporting the build-up of a resilient value chain in Europe as well as Europe’s ambitions to become a leader in the production of renewable hydrogen, which is seen as a key way to reduce emissions from heavy industry and heavy-duty transport.

European manufacturers stated that they want important parts of the electrolyzer production process, such as cell assembly, cell stacking and surface treatment, to be made in Europe for the next round of funding from the EU’s Hydrogen Bank later in 2024, alleging that the results of the EU’s bank pilot auction reveal that less than half of the awarded projects plan to rely on European technology.

Nel Hydrogen said the companies hope that their efforts will lead to new rules that support the development of the European renewable hydrogen value chain and help European electrolyzer manufacturers compete against Chinese imports.

Funding and hydrogen ramp-up

To note, the EU has outlined the rules on the EU definition of renewable hydrogen, and the Commission plans to propose a legal definition of low-carbon hydrogen by the end of 2024. Hydrogen supply chain projects are now considered of strategic interest, and thus eligible for faster permitting and other supportive measures.

The Commission is involved in the development of hydrogen infrastructure and has established the European Hydrogen Bank to boost investments in hydrogen projects and facilitate the establishment of a full hydrogen value chain in Europe.

The EU’s executive arm has approved State aid for four Important Projects of Common European Interest (IPCEIs) in the hydrogen value chain, amounting to €18.9 billion. These are expected to unlock some €27 billion in private investment. The supported projects will cover the full clean hydrogen value chain – from renewable and low-carbon hydrogen production to hydrogen storage, transmission and distribution, as well as hydrogen application, notably in industrial sectors.

The Commission is also supporting the emergence and implementation of value chains integrating hydrogen projects through its Hydrogen Valleys Innovation Mission, with around 100 valleys worldwide already being part of the Hydrogen Valleys platform, including more than 50 in Europe.

The hydrogen ramp-up is part of the EU’s efforts to strengthen Europe’s energy security and cut its reliance on Russian fossil fuels well before 2030, as well as to accelerate the transition to greener and cleaner forms of energy.