European Green Hydrogen Industry Faces Cost Surges and Supply Chain Dependencies
The European hydrogen industry is facing significant structural challenges, as revealed by a recent report from the European Commission's Joint Research Centre. The analysis highlights that cost estimates for hydrogen production have been substantially underestimated, with actual capital expenditure reaching up to three times initial forecasts. This increase complicates efforts to scale up green hydrogen as a sustainable energy solution.
Furthermore, the report indicates that Europas capacity for manufacturing electrolysers — devices that split water into hydrogen and oxygen using electricity — far exceeds current market demand. Despite the large number of projects announced, many remain underdeveloped or delayed, owing to uncertain demand and financing difficulties. Some European electrolyser manufacturers have already gone bankrupt, underlining the fragile nature of this emerging industry.
Another critical issue is the limited utilisation of existing facilities, with plants operating at around 10 percent capacity. This underperformance is partly due to oversupply and poor integration of infrastructure, which hinders efficiency and economic viability. The situation is aggravated by the fact that the total investment needed for new hydrogen production facilities has risen sharply, with estimates now suggesting costs of between 2.63 and 3 million euros per megawatt — three times higher than initial expectations.
Despite substantial public funding, market forces alone are insufficient to sustain the sector. The report stresses the importance of sustained government subsidies to close the viability gap and compete with state-supported international players, particularly China. China not only dominates the manufacturing of electrolysers but also controls significant raw material supplies necessary for production. The EU remains heavily dependent on third countries, especially China, for vital materials such as critical minerals, with 37 percent imported from China and only 2 percent produced domestically.
The dominance of China extends beyond raw materials to technological development and manufacturing capacity. While Europe leads in patent filings, China has considerably larger production volumes, with nearly 35 gigawatts of electrolyser capacity operational annually, compared to the EU's 8.9 gigawatts. Many foreign manufacturers have established factories in China, contributing further to this dominance. This situation poses strategic risks to Europe's energy transition, making diversification and supply chain resilience urgent priorities.
Overall, the new report paints a sobering picture of Europes green hydrogen ambitions, highlighting cost overruns, overcapacity, and dependency on external supply chains. Addressing these issues will be essential for realising the regions climate goals and establishing a sustainable industrial decarbonisation pathway.