A state-of-the-art electrolyser manufacturing facility near Hamburg operates at a fraction of its potential. Industrial robots assemble proton exchange membrane electrolysers with precision, yet Quest One’s plant remains understaffed after cutting 20% of its German workforce earlier this year. The reason is stark: demand for the equipment needed to produce green hydrogen has failed to materialize at anticipated levels.
The disparity between expectation and market reality defines Germany’s green hydrogen sector in 2025. Quest One’s executive vice president for customer operations, Nima Pegemanyfar, frames the challenge without ambiguity: the market is not developing organically, and supply capacity far exceeds actual orders.
The Economics of an Immature Market
Green hydrogen, produced through electrolysis powered by renewable electricity, commands prices roughly double what Quest One projects as economically viable. The company targets €4 per kilogram as the threshold for competitiveness, approximately half the current German market price of €8 per kilogram. This pricing gap explains why low-emissions hydrogen accounts for less than 1% of global hydrogen production, a figure encompassing both electrolysis-based green hydrogen and natural gas-derived blue hydrogen with carbon capture.
The economic obstacles extend beyond production costs. Germany has committed substantial resources to hydrogen infrastructure: pipeline networks radiating from Hamburg’s port, underground storage facilities in Lower Saxony’s salt caverns, and international supply chains connecting to India, Saudi Arabia, Chile, and Namibia. Storengy Deutschland’s hydrogen storage project, repurposing existing natural gas infrastructure, will not begin operations until the 2030s at the earliest. The business model depends on converting excess renewable electricity to hydrogen, storing it more than 1,000 meters underground, and deploying it during winter demand peaks.
This infrastructure buildout proceeds despite uncertain demand, creating what amounts to a high-stakes gamble on policy support. German hydrogen companies acknowledge that no alternative pathway exists beyond government intervention through regulation and subsidies.
Misaligned Applications and Efficiency Concerns
The disconnect between hype and practicality extends to proposed hydrogen applications. Christian Stöcker, a professor at Hamburg University of Applied Sciences, criticizes the attention directed toward residential heating and passenger vehicles as use cases. Heat pumps and direct electrification deliver substantially higher efficiency for these applications. The focus on such implementations, he argues, reflects the influence of fossil fuel companies and automakers with vested interests in preserving existing infrastructure and business models.
Quest One’s ownership structure illustrates these industry connections. The company operates as part of the Volkswagen Group through subsidiary Everllence, which Volkswagen is reportedly considering divesting. The automaker declined to confirm these plans, stating only that it is reviewing strategic options for Everllence.
High-temperature industrial processes in chemicals, steel, and shipping represent more defensible applications where hydrogen’s energy density and heat characteristics offer genuine advantages over electrification. Yet market attention and development resources have not concentrated proportionally on these sectors where green hydrogen might achieve competitive positioning against fossil alternatives.
Global Competition and Project Attrition
Chinese manufacturers dominate electrolyser production capacity, accounting for nearly 60% of global manufacturing capability. This creates pressure on German and European producers facing both domestic market weakness and international competition with different cost structures and policy environments.
The Hydrogen Council’s CEO, Ivana Jemelkova, reported that 52 low-carbon and renewable hydrogen projects were cancelled in the 18 months preceding her statement. Norwegian renewable energy company Statkraft exemplifies this trend, announcing in May 2025 that it would halt new green hydrogen project development due to market uncertainty and concentrate resources on fewer technologies.
Jemelkova attempts to reframe this attrition as a natural market correction rather than systemic failure, suggesting that while individual projects falter, the overall sector continues expanding. This interpretation requires accepting significant capital destruction and strategic realignment as normal rather than symptomatic of fundamental misalignment between technological capability, economic viability, and market structure.
Policy Dependence and Weakening Commitments
The German government maintains that hydrogen remains necessary for climate targets, yet has begun moderating its green hydrogen ambitions amid mounting costs. This policy ambivalence creates additional uncertainty for companies that have invested in production, storage, and distribution infrastructure predicated on robust government support.
The international dimension of Germany’s hydrogen strategy introduces further complications. Converting hydrogen to ammonia for liquid transport and subsequent reconversion incurs substantial efficiency losses. Beyond technical inefficiency, concerns exist about ecological and cultural impacts in supplier countries, potentially replicating problematic patterns of resource extraction that exacerbate energy access inequality between producing and consuming nations.
German hydrogen companies increasingly call for enhanced domestic industry protection and energy stability measures to compete with Chinese production dominance. Whether such protectionism can overcome fundamental economic challenges remains uncertain. The sector faces what industry participants characterize as crunch time, where continued delay in market development threatens the viability of existing investments and planned infrastructure. The transition from technological possibility to commercial reality has proven more difficult than the optimistic projections of five years prior suggested.
