Germany's Hydrogen Dream Is Running Into Reality

When Germany unveiled its National Hydrogen Strategy in 2020, it was one of the most ambitious clean energy plans any major economy had ever proposed. The vision was sweeping: hydrogen would decarbonize heavy industry, power long-haul transport, heat buildings, store renewable energy, and position Germany as a global leader in a new energy economy. Billions of euros were committed. International partnerships were forged. The word "hydrogen" appeared in virtually every German energy policy document for the next five years.

Now, in early 2026, that vision is being subjected to a serious reassessment. Rising costs, slower-than-expected infrastructure deployment, persistent questions about efficiency, and a shifting political landscape have forced German policymakers to confront an uncomfortable question: has the country bet too heavily on hydrogen, and if so, where should it pull back?

What Went Wrong — Or At Least Sideways

To be clear, Germany has not abandoned hydrogen. The element still features prominently in the country's energy transition plans, and significant investments continue to flow. But the unbounded enthusiasm of the early 2020s has given way to a more sober assessment of where hydrogen makes sense and where alternative solutions may be more practical and cost-effective.

The Cost Problem

Green hydrogen — produced by splitting water molecules using renewable electricity — remains stubbornly expensive. Despite years of investment in electrolyzer technology, the cost of green hydrogen in early 2026 sits at roughly 4 to 6 euros per kilogram in most European markets. This is far above the 1.50 to 2.00 euro target that many hydrogen strategies assumed would be achieved by this point.

The reasons for the persistent cost premium are multiple:

  • Electrolyzer costs have declined more slowly than projected, partly due to supply chain constraints and partly because manufacturing scale-up has been slower than anticipated
  • Renewable electricity costs in Germany remain higher than in sunnier and windier countries, making domestic green hydrogen production inherently more expensive
  • Infrastructure costs for transporting and storing hydrogen have proven significantly higher than initial estimates suggested
  • Utilization rates for existing electrolyzer installations have been disappointing, as the intermittent nature of renewable energy means the equipment often sits idle

The Efficiency Question

A more fundamental challenge is thermodynamic. Using renewable electricity to produce hydrogen, then converting that hydrogen back to electricity or heat, involves significant energy losses at each conversion step. The round-trip efficiency of a green hydrogen system is typically 25 to 35 percent, compared to 85 to 95 percent for direct electrification via batteries or heat pumps.

This means that for every unit of renewable energy used to make hydrogen, only about a quarter to a third of that energy is ultimately delivered as useful work. In applications where direct electrification is feasible — passenger cars, residential heating, many industrial processes — hydrogen is simply a less efficient and more expensive option.

German policymakers are increasingly acknowledging this reality and focusing hydrogen investments on applications where direct electrification is genuinely impractical: steel production, chemical feedstocks, long-distance shipping, and seasonal energy storage.

The Infrastructure Lag

Germany's plans called for an extensive hydrogen pipeline network, leveraging both new construction and conversion of existing natural gas pipelines. However, progress has been slower than hoped. Permitting processes have been lengthy, construction costs have escalated, and the chicken-and-egg problem — producers will not build without customers, and customers will not commit without supply infrastructure — has proven difficult to solve.

The planned hydrogen backbone connecting major industrial centres across Germany is now expected to be completed several years behind schedule. This delay has knock-on effects throughout the hydrogen value chain, as companies that had planned to switch to hydrogen are forced to either wait or pursue alternative decarbonization pathways.

The Political Dimension

Germany's hydrogen rethink is also shaped by domestic politics. The country's governing coalition has faced criticism for the high costs of the energy transition, and hydrogen — with its large public subsidies and uncertain timelines — has become a convenient target. Opposition parties have questioned whether taxpayer money is being spent wisely, and some have called for redirecting hydrogen funding to more proven technologies like battery storage and grid expansion.

The business community is divided. Large industrial companies like ThyssenKrupp and BASF, which see hydrogen as essential for decarbonizing processes that cannot be easily electrified, continue to advocate strongly for hydrogen support. Smaller companies and the renewable energy industry, however, increasingly argue that the fastest and cheapest path to decarbonization runs through direct electrification, and that hydrogen should be reserved for truly hard-to-abate sectors.

What the Rethink Looks Like in Practice

The emerging German approach is not an abandonment of hydrogen but rather a prioritization. Key elements include:

  • Narrowing the scope: Scaling back plans to use hydrogen for residential heating and passenger transport, where heat pumps and batteries are proving more economical
  • Focusing on imports: Accepting that Germany will need to import most of its hydrogen from countries with cheaper renewable energy, rather than producing it domestically
  • Prioritizing industrial use: Concentrating hydrogen support on steel, chemicals, and refining — sectors where there are few viable alternatives
  • Accelerating infrastructure: Streamlining the permitting and construction process for the hydrogen pipeline network to reduce delays

Implications for Europe and Beyond

Germany's hydrogen rethink has implications that extend well beyond its borders. As Europe's largest economy and a linchpin of EU industrial policy, Germany's strategic direction heavily influences the continent's energy transition. If Germany scales back its hydrogen ambitions, it could affect investment decisions across Europe, influence EU hydrogen regulation, and shift the balance of policy support toward alternative decarbonization technologies.

For countries that had positioned themselves as potential hydrogen exporters to Germany — including Morocco, Chile, Australia, and several Gulf states — the rethink introduces uncertainty about the size of the future European hydrogen market and the pace at which it will develop.

The lesson from Germany's experience is not that hydrogen has no role in the energy transition. It clearly does, in specific applications where alternatives are lacking. The lesson is that the role is more limited than the initial hype suggested, and that policymakers need to be disciplined about where public money is directed to ensure it delivers the greatest decarbonization impact per euro spent.