The ACER report finds that while electrolyser deployment expanded in 2024, with installed capacity rising 51% to a total of 308 MW, this level of build-out is still far from the EU’s target of 6 GW of renewable hydrogen electrolyser capacity by 2024 and 40 GW by 2030.  

It also reports that renewable hydrogen remained four times more expensive than fossil-based hydrogen in 2024, with average production costs at around €8/kg, while ‘near to mid-term cost reduction prospects’ are ‘uncertain’. This persistent cost gap, combined with incomplete transposition of EU legislation into local law, such as the amended Renewable Energy Directive (RED III), is undermining investor confidence and slowing the pace of development, suggests the study. Only two member states have fully transposed the updated Directive so far, according to the report.

Electricity prices remain a decisive factor in hydrogen’s viability, notes ACER, with electricity supply costs accounting for up to half of renewable hydrogen production costs, even before grid tariffs are included. The Agency argues that faster decarbonisation of the power sector is essential to lowering overall input costs for electrolysers. At the same time, rising electricity network tariffs threaten to add further pressure.  

ACER’s separate 2024 report on network infrastructure shows that electricity network costs could increase by 50–100% by 2050, depending on future investment requirements and demand patterns. With electricity tariffs representing a substantial share of hydrogen production costs, these projected increases pose a material risk to market competitiveness, warns the Agency.

Infrastructure planning is another emerging challenge, according to the report. Hydrogen networks are expected to play a pivotal role in connecting supply and demand, but ACER says that infrastructure must be built in line with actual market development to avoid creating stranded assets. Network planning must be adaptive rather than speculative, drawing on the latest data about demand growth, industrial offtake and regional energy transitions, it adds.

The report also assesses the potential role of low-carbon hydrogen produced from methane with carbon capture. ACER notes that this route could offer production costs roughly half those of renewable hydrogen, making it attractive for early scale-up. However, the Agency notes cost and technical uncertainties.  

Funding availability has improved, with the European Commission allocating more than €20bn to hydrogen initiatives, according to the report. However, ACER says that implementation lags persist and accelerating the allocation of funding to advanced projects will be key to increasing scale-up.

To address these barriers, ACER calls for accelerated transposition of the amended Renewable Energy Directive, clearer national demand targets and the introduction of effective incentives to mobilise investment. It also urges member states to swiftly implement the 2024 Hydrogen and Gas Decarbonisation Package to enable infrastructure deployment and establish a well-functioning hydrogen market.  

It adds that faster permitting and grid connection processes for electrolysers and renewable generation are needed to support supply growth, while reforms to electricity tariffs and grid incentives could improve electrolyser utilisation and optimise siting decisions.  

ACER further advises that policymakers assess the risks associated with low-carbon hydrogen and ensure that hydrogen network development is aligned with realistic market prospects. Cross-border coordination on risk-sharing will be crucial to avoiding inefficient infrastructure build-out, it says.