Competitiveness: Sovereignty Has a Cost, but It Has No Price

The global electrolyser sector is witnessing a rapid transformation, with Europe leading the charge. However, the landscape is shifting, and Europe’s leadership is under serious threat, particularly from China. Without immediate actions, Europe risks losing its leadership in this strategic technology with implications for the whole renewable hydrogen value chain.

Europe has been pioneering and developing cutting-edge electrolyser technologies. Billions in public financing have been invested into research, development and demonstration with the result that today nine out of fifteen globally leading electrolyser manufacturers are located in Europe. However, the world is catching up, and Europe is losing momentum.

China, in particular, is making significant strides. According to the International Energy Agency, in 2021 China accounted one-third of global electrolyser manufacturing capacity[1]. By the end of 2024, China is expected to have more than 40GW of manufacturing capacity — well over half the projected global capacity of 71GW[2]. In contrast, Europe holds around 25% of the world’s manufacturing capacity.

In Europe, the development of the renewable hydrogen market has been slower than anticipated. Inflation and rising interest rates have hindered the business case of projects, many of which are now delayed. Public financing has so far been insufficient to unlock large-scale offtaker investments. Sluggish orders mean European electrolyser manufacturers cannot scale up production and bring costs down. This hampers the continent’s ability to build its own resilient value chain and take global leadership in renewable hydrogen.

With a global clean hydrogen market worth hundreds of billions by 2030, competition will only become fiercer in the future. However, European electrolyser manufacturers will only be able to scale up with a true global level-playing field. While the EU continues to champion the rules of free trade on its single market, a recent TNO study[3] pointed out that Chinese manufacturers benefit from long-term deferred payment and zero interest state-backed loans. These provide a strong competitive advantage to boost exports to foreign countries. European companies also face obstacles accessing the Chinese market. They encounter compulsory joint venture requirements, local production requirements, and preferential treatment of local competitors in government tenders and by Chinese state-owned enterprises. Reciprocity is lacking.

If nothing changes, the market position of European manufacturers could deteriorate quickly. In a recent meeting with a delegation of CEOs of the Renewable Hydrogen Coalition, European Commission Executive Vice-President Maroš Šefčovič acknowledged that as competition dynamics have shifted, so should the rules.

As part of its flagship European Hydrogen Bank, a promising first-of-its-kind European-wide support scheme to deploy renewable hydrogen, the European Commission is considering taking measures. Yet proposals made so far are timid, may add complexity and fall short of solving the immediate threat. Waiting for over-reliance to happen before taking action is hardly compatible with any industrial leadership ambition. Proactivity is required, not reactivity.

In a joint letter, 20 European electrolyser companies urge the European Commission President Ursula von der Leyen to consider all available levers of action. Introducing a resilience criterion through the Hydrogen Bank would be a decisive step in the right direction, giving European players time to scale and addressing the current market distortion caused by disproportionate state-backed price-pressure. Yet leveraging public procurement will only do so much. Europe must adopt a holistic approach to address unfair competition and ensure a level playing field both internally and globally. If it does not, are policymakers ready to accept Europe simply becoming an incubator of technologies for the rest of the world?

The implications for Europe if it loses this sector should not be underestimated. European project developers may face fewer choice for equipment sourcing and higher prices. Worse, with escalating geopolitical tensions, technology supply disruptions may occur. These factors would ultimately make renewable hydrogen costlier in Europe.

The EU single market should be more than just a market. It should ensure project developers can rely on a resilient value chain and help create jobs that bring critical know-how and expertise in Europe. This will make our continent an attractive place to invest, whether for European or foreign companies. EU taxpayers’ money should play a key role there.

Europe’s leadership in electrolyser technology and renewable hydrogen is under threat, but it is not too late to act. By bolstering its own manufacturing capacities and protecting its single market against unfair competition, Europe can reduce dependencies, enhance its strategic autonomy, and foster the development of a homegrown renewable hydrogen value chain, delivering jobs and social welfare for Europeans. The race is on, and Europe must do whatever it takes to maintain and strengthen its position. Doing more of the same in a world that has changed will simply not work.

[1] International Energy Agency, Global Hydrogen Review 2021.

[2] According to statistics from BloombergNEF (BNEF) and Citigroup published in Hydrogen Insight, August 2023.

[3] TNO (2024), The EU’s China challenge Rethinking offshore wind and electrolysis strategy.

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