Germany has scrapped plans to allocate €350 million ($368 million) to support hydrogen projects, complicating its drive to meet clean fuel transition goals.

The funding was part of the European Hydrogen Bank program, which allows national subsidies to be used to support the start-up of the hydrogen industry. But Germany and the European Commission have failed to reach an agreement on the terms of the funding, meaning the money will either be diverted to other green projects or returned to the federal budget.

The decision was made due to “very strict requirements,” the German economy ministry said in an email.

The challenges of hydrogen support
Green hydrogen, produced using renewable energy sources, is a key part of the European Union’s strategy to reduce carbon emissions in key sectors such as heavy industry. But the first tenders for the hydrogen bank in April, in which companies competed for a fixed subsidy per kilogram produced, favored countries with abundant renewable energy, such as Finland and Spain.

Berlin has been given the go-ahead to distribute its own subsidies to companies that fail to win bids, provided they meet an EU-imposed price cap of €1.44 per kilogram of hydrogen. But many companies have deemed this too low given Germany’s high production costs due to high electricity prices.

“While we understand the goal of this cap to avoid over-funding projects and distorting the market, this step has not been beneficial for German companies,” said Kirsten Andre, president of the German Energy Association (BDEW).

Hydrogen targets postponed
Europe’s largest economy aims to produce 10 gigawatts of hydrogen by the end of the decade, but several studies have shown that this target looks too ambitious. The German Economy Ministry recently acknowledged that “market developments suggest that some of this production capacity could be postponed to later years.”