Capacity Prices Increase the Cost of Hydrogen Only Slightly

The Federal Network Agency (Bundesnetzagentur, BNetzA) is currently developing a reform of the General Electricity Grid Tariff System (“AgNes”). Electricity suppliers, batteries, and electrolyzers – which have not paid grid fees to date – could in the future contribute to grid financing via a capacity price of 4 to 7 euros per kilowatt per year. EWI shows that this could increase the cost of hydrogen production by up to 32 cents per kilogram, or just under 6 percent.

This is shown in the analysis “Effects of the Grid Tariff Reform on Hydrogen Production Costs” by the Institute of Energy Economics at the University of Cologne (EWI), which was conducted for the Hydrogen and Molecules Funding Initiative of the Society for the Promotion of the Institute of Energy Economics at the University of Cologne e.V. It examines the potential effects of the BNetzA’s current interim AgNes position on the economic viability of electrolyzers. Using the EWI optimization model SOPHIAA, the study analyzes how the planned capacity prices could affect hydrogen production costs.

Higher prices for PPAs from new power plants are driving up costs

The key factor is the electricity supply for electrolyzers: If electrolyzers obtain their electricity through power purchase agreements (PPAs) from existing plants (post-EEG), production costs could rise by up to 10 cents per kilogram of hydrogen – a 2.1 percent increase. If electricity were sourced via PPAs from new plants, the increase could be up to 32 cents (5.7 percent), as capacity prices raise the fixed costs of generation facilities and are reflected in higher PPA prices. The majority of the cost increase for electricity procurement from new plants is thus attributable to capacity prices for renewable energy plants and batteries – that is, to higher electricity procurement costs. For electricity purchased from existing plants (post-EEG), PPA prices remain unaffected by capacity prices for electricity suppliers, based on the assumption that PPA prices for existing plants correspond to market value.

The analysis is based on the AgNes interim position published by BNetzA on 27th of May 2026. The final decision on the new grid tariff system is expected by the end of 2026. According to the draft, electrolyzers which become operational by August 4, 2029, are to be granted protection under the principle of legitimate expectations and would be exempt from all grid tariffs for 20 years. Dynamic grid fees, which may also apply to electrolyzers starting in the mid-2030s, could exceed the cost increases calculated in the analysis, depending on location and design.

Cost increase lower than expected prior to the release of AgNes interim position

Industry associations had warned of higher costs prior to the publication of the AgNes interim statement: The German Hydrogen Association estimated potential cost increases due to grid fees at up to 2 euros per kilogram of hydrogen, while the BDEW estimated 1.5 to 3 euros per kilogram of hydrogen. These cost increases were anticipated based on the assumption that electrolysis plants, like industrial consumers, would have to pay combined capacity and capacity-use charges. However, this does not correspond to the current AgNes interim position, which discusses the exclusive payment of capacity prices. As shown in our analysis, the cost increase resulting from the capacity prices currently planned by the BNetzA would be more moderate.

“The Federal Network Agency’s current proposal would place less of a burden on the ramp-up of domestic electrolysis capacities than the industry had feared. Nevertheless, any increase in hydrogen production costs could reduce the currently still low economic viability of the projects, thereby further delaying the ramp-up of domestic hydrogen production,” says Dr.-Ing. Ann-Kathrin Klaas, Head of Research Area at the EWI, who prepared the analysis together with Dr. Lisa Just, David Wohlleben, and Carina Schmidt.