We must find ways around the barriers to new energy, including green hydrogen and its derivate e-fuels, which will almost certainly feature in a green-powered world. Technology unlocks the potential for hydrogen production but there are more factors in play if we are to create a viable, price competitive, hydrogen economy.

Stefano Innocenzi, Senior Vice-President for New Energy Business at Siemens Energy, discusses the regulatory, political, logistical, and economic barriers to a successful hydrogen economy. How can using green hydrogen pay off economically? How can we get technology costs down and off-takers to use green hydrogen?

How can we accelerate investments to a pace that matches the climate urgency and ensures Europe can be a technology leader in this global development? Will the drive for energy independence reduce competitiveness in hydrogen production? We need to replace fossil fuels with renewables, and this is a global issue that requires a global, competitive solution. What are the barriers and what can we do to knock them down?

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Why hydrogen is important for fuel transition both as an energy carrier and storage medium…

Many governments around the globe are looking to renewable energy, such as wind and solar power, to decarbonize their societies. The most efficient way is to use these renewable sources directly.

Direct electrification requires massive investment in new charging infrastructure, new e-vehicles, heat pumps and more, but direct electrification is not always the best or only option. Air travel cannot decarbonise without synthetic jet fuel, steel production cannot decarbonise with direct electrification, and heavy-duty road transport has many other potentially viable options, ranging from battery-electric over fuel cells, to e-fuels and overhead lines.

In addition, the expected demand for renewable energy means continued reliance on energy imports, creating the need to make renewable energy transportable over long distances and ship it from the world’s best wind/solar spots to the demand centres, which can only be done using liquid fuels. e-fuels allow renewable energy to be transported from locations with no energy demand to regions with high demand and high CO2 emissions.

Hydrogen is both a great energy carrier and storage medium. Of all common fuels, it has the highest energy content by weight, about three times more than gasoline. It is a clean-burning fuel, and when combined with oxygen in a fuel cell, produces heat and electricity with only water vapour as a by-product, making it ideal for decarbonisation.

Although renewables are a vital part of the equation for a greener world, the levels of production inevitably fluctuate according to whether the wind blows or the sun shines. Therefore, renewable energy systems cannot provide a 24/7 solution alone and require considerable amounts of dispatchable capacity to deliver energy to meet demands when renewables cannot. As such, renewable energy systems require molecules, and these need to be green. Replacing natural gas with renewable hydrogen meets this need.

The price of renewable electricity is dependent upon location, which affects the capacity factor of an installation. For wind power, for example, the capacity factor of onshore plants in Chile, where there is a more consistent level of high winds, is much higher than a plant located in central Europe, producing 6,000 hours of wind compared with 2,500. Equally, in areas such as the Middle East, the capacity factor of solar plants means considerably lower energy costs than in temperate climates. Hydrogen, and its derivative fuels, present an opportunity to enable the transport of this cheaper renewable electricity throughout the world.

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Targets for hydrogen production

Hydrogen currently only represents a small proportion of the global energy mix and, for even the little there is, the majority is produced from fossil fuels – but this is set to change.

As part of the EU’s commitment to reach carbon neutrality by 2050, it has developed a plan to have 2 x 40GW of renewable electrolysers by 2030, 40 GW inside the EU and 40 outside. The plan details that by 2024, 6GW of renewable hydrogen electrolyzers will be in the EU, producing up to one million tonnes of renewable hydrogen.

Recent discussions on the Russian invasion of Ukraine and the question over how to decrease our dependency on Russian natural gas started an additional political dynamic on EU level and could accelerate investments in the hydrogen sector. But these targets are under pressure.

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Logistics – scale and location

Hydrogen needs to be produced in the volumes needed to meet the demands of existing hydrogen applications and additional carbon-intensive applications. This is not only a question of capacity but also location.

The first challenge is scale. The production of green hydrogen exists, and the technology is available. Ramping up hydrogen production to an industrial scale, at an economical price break, is a top priority.

It is expected that European investments in direct hydrogen use will mainly concern projects located in Europe, as hydrogen is not easily transportable over long distances. However, liquid fuels, such as ammonia, methanol, and new Liquid Organic Hydrogen Carriers (LOHC), which absorb and release hydrogen as required, can be easily shipped across the globe, enabling full exploitation of cheap wind and solar energy from the best locations worldwide. They allow renewable energy to be transported from locations with no energy demand to regions with high demand and high CO2 emissions. Their use presents a massive opportunity to accelerate global investments in renewable energy and export European climate technologies.

A recent example of a large-scale hydrogen project is an electrolyzer plant in the 50MW range is being constructed at Aabenraa, in the southern part of Denmark. It is powered by solar energy from the nearby 300 MW Kassø solar park and will feed the world’s first large-scale commercial e-methanol production facility, developed and operated by European Energy, in a project that will produce cost-effective e-methanol to support large-scale, CO2-neutral shipping.

Existing gas pipeline networks should be repurposed for the use of hydrogen. All major OEMs are heavily investing/working in making their turbines 100% hydrogen ready by latest 2030 – today gas turbines are capable of co-firing hydrogen and natural gas which offers a ready-made way to reduce carbon emissions in the short-term.

To overcome the barriers of scale and transport requires the right regulatory framework to promote investment in industrial scale projects and ensure that renewables from outside the EU can be imported using e-fuels.

Regulatory and political influences

Globally, it is estimated that the total investment in hydrogen projects along the whole value chain will reach $500bn through 20301, approximately one-third of which will come from Europe. Of the projects in this pipeline, also around one third are considered ‘mature’ (in the planning stage), have passed a final investment decision (FID), or are associated with a project that is already under construction, commissioned, or currently operational.

The bid to decarbonize across all sectors has led to a battle for renewable electricity sources. The EU does not want hydrogen to compete with the green electricity needed for e-mobility. However, it would make more sense for the demand of all off-take sectors, whether hydrogen, industry, or general domestic electricity supply, to be included and integrated into the targets for building renewable energy capacity.

In Europe, the main driver to ramp up hydrogen and hydrogen-derived fuels and to develop industrial-scale projects are currently funding and financing tools (Important Projects of Common European Interest (IPCEI), State aid framework, GBER, EU Innovation Fund). In Europe, subsidies are to come from Important Projects of Common European Interest (IPCEI) for hydrogen projects, which are aimed at supporting the development of the complete hydrogen supply chain. If Europe is to succeed in its ambitions for a hydrogen economy, it is vital IPCEI funding is up and running quickly and national subsidies established.

A delegated act of the Renewable Energy Directive (RED) will define the rules under which conditions hydrogen produced from electricity can be considered ‘green’. Currently, one part includes additionality: the need for the renewable electricity used in the hydrogen process to be additional and not from existing renewable electricity production and has never been subsidised. The problem is this effectively means every hydrogen project must wait until there is new unsubsidized renewable electricity to support the process.

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Europe can be faster if additionality is tied to the European governance regulation. Member states are required to deliver their renewable energy share to meet the EU-wide target of 40% renewables by 2030. Additionality should be considered ‘given’ if the Member State hosting the project is on-track to meet its target. Alternatively, the EU could also introduce a ‘first mover’ period with a more flexible rulebook until the initial 6GW target is met.

The desire to become self-sufficient in energy is understandable – but hardly realistic. Let’s not forget, our prosperity is built on trade – and energy is no different. Rather than thriving for self-sufficiency, Europe should aim at achieving strategic energy autonomy. This should build on the accelerated deployment of domestic renewable energy and energy imports.

“Let’s not forget, our prosperity is built on trade – and energy is no different. Rather than thriving for self-sufficiency, Europe should aim at achieving strategic energy autonomy…”

Energy imports must be sufficiently diversified so that the loss of a supplier neither restricts political leeway nor jeopardises the security of supply. At the same time, imports should progressively transition from fossil to renewable; hydrogen derived fuels make this possible already today. The reward will be more competitiveness, less CO2, and more security.

The biggest barrier: competitiveness

Long-term, the global trade of hydrogen and derived fuels needs to replace the trade of fossil fuels. The biggest barrier to this hydrogen economy is cost. For all offtake industries, cost is a major factor and today, fossil fuels are available at much lower price levels. Technology providers need to lower the cost of hydrogen production on an industrial scale, but this requires support from governments.

The Fit-for-55 package includes quotas that will, once finally negotiated and introduced, drive a steep market ramp-up with costs of non-compliance until 2030. Quotas for Renewable Fuels of Non-Biological Origin (RFNBOs), which includes hydrogen and hydrogen derivatives, are the most effective instruments to ramp up green hydrogen and derived fuels and are needed to incentivise investments. They are needed in the medium term to get industrial scale projects off the ground. Although in the long-term, carbon pricing will be the foundation for fuel parity between renewables and fossil fuels, it will not bridge the gap in the medium term.

Only once the clean hydrogen market is mature will carbon pricing replace funding schemes and quotas as the central steering instrument for investments.

The EU Emissions Trading Scheme (ETS) accompanies the market ramp-up of sustainable fuels and clean hydrogen in industry. It is Europe’s decisive instrument for pricing CO2 emissions. The extension of the ETS to maritime transport and the introduction of emissions trading to fuels in the road and building sectors significantly contributes towards price parity between climate-neutral and fossil fuels in the medium to long-term. To accelerate deployment starting today, however, there is a need for other instruments such as quotas and funding.

The EU Energy Taxation Directive (ETD) is another important control for a hydrogen economy. It proposes the exemption of carbon-neutral fuels from taxation, supporting their uptake and helping achieve price parity with traditional carbon fuels and is the strongest carbon-pricing lever for achieving price parity between climate-neutral and fossil fuels.

If all goes as planned, together the ETS and the ETD can make e-fuels cost competitive by 2030. Assuming an ETS allowance price of 80€/tCO2, production costs for fossil diesel of 40 cents/litre, and that e-fuels have a tax benefit vis-à-vis fossil fuels of 65 cents/litre (as in Germany), e-fuels will achieve price parity with fossil fuels at a production cost level of 1.23 €/litre e-fuel. If Europe succeeds with the ramp-up envisaged in its Hydrogen Strategy, estimates show that e-fuels will be able to be produced for 1.10-1.50 €/litre by the end of the decade.

In other words, if both the ETS and ETD pull in the same direction, e-fuels can become competitive with fossil fuels for the European market.


There is no silver bullet and no crystal ball. This is a story of transition and creating a competitive, sustainable market. Answers for the planet come from multiple new energies and new technologies. Hydrogen will play a big part – the real question is how quickly we can get there, and this is dependent on many factors.

There are many levers to creating a hydrogen economy and we are in a global race to lower emissions and make hydrogen competitive but, as technology costs come down and CO2 pricing goes up, there is a basis for a sustainable market and the replacement of fossil fuels.

For Europe to be a leader in the hydrogen and decarbonization race, rather than a spectator, upcoming legislation needs to enable, not inhibit, investment in hydrogen technology.