Green hydrogen up to 20 percent more expensive due to EU criteria

The cost of producing green hydrogen in Germany could rise significantly due to the EU’s criteria for “renewable fuels of non-biological origin” (RFNBOs). At the same time, electricity and CO₂ prices may decline slightly. Hydrogen production could be up to 20 percent more expensive than without the criteria. The tightening of hourly correlation has the greatest impact on costs. The RFNBO criteria also create additional requirements for renewable energy and electrolysis capacity. Furthermore, the criteria make coordination between stakeholders more difficult. The effect is greater for individual operators than from the perspective of the overall system.

This is shown by the study “Green Hydrogen Production under RFNBO criteria – Analyzing the system and business case perspective” by the Institute of Energy Economics (EWI) at the University of Cologne. The study compares the economic effects of the EU criteria with the business challenges faced by electrolysis operators for the first time. The analysis was carried out using two EWI models. The study was funded by the Funding Initiative Hydrogen and Molecules of the Gesellschaft zur Förderung des Energiewirtschaftlichen Instituts an der Universität zu Köln e. V..

EU criteria prevent synergies between the electricity and the hydrogen sector

The EU criteria for green hydrogen stipulate that certain conditions must be met during production:

• Additionality means that the electricity used for electrolysis must come from newly built renewable energy plants.
• Temporal correlation means that green electricity must be generated at the same time as it is used for hydrogen production – in the strictest case, within the same hour.
• Geographical correlation means that electricity generation and hydrogen production must take place in the same electricity bidding zone. These rules are intended to ensure that hydrogen is actually climate-friendly and does not place an additional burden on the electricity grid.

The systemic analysis shows that, assuming constant hydrogen demand, the RFNBO criteria—including hourly correlation—raise the average cost of hydrogen production in Europe by about 8%, slightly less than in Germany. “This increase results from renewable energy plants being built exclusively for hydrogen production, leaving potential synergies with the electricity market untapped,” explains Dr. Ann-Kathrin Klaas, who authored the study with Michaele Diehl, Nada Fadl, Julian Keutz, Tobias Leibfritz, Felix Schäfer, and David Wohlleben. At the same time, stricter RFNBO rules slightly reduce electricity costs, as surplus renewable power is fed back into the market. “However, the overall impact on the European energy system remains marginal,” adds Klaas.

EU criteria increase coordination and marketing costs

The RFNBO criteria may have a stronger impact on individual electrolysis projects. In Germany, hydrogen production costs could be up to 20% higher under these rules compared to unrestricted participation in the electricity market. “Our analysis shows that the correlation design significantly influences the renewable energy mix, electricity trading costs, and consequently hydrogen production costs,” says Dr. Ann-Kathrin Klaas. The criteria may also heighten market risks for hydrogen producers and amplify the effects of weather and price uncertainties.

The analysis was carried out using EWI’s own energy system model HYEBRID . HYEBRID is a linear simulation model that optimizes investment and deployment decisions in the European electricity and hydrogen market. In the second part of the study, EWI’s new SOPHIAA  model is used to optimize the electricity supply of an electrolyzer. The model analyzes the optimal portfolio of power purchase agreements with renewable energy plants and participation in the electricity market.