The European Union's ambitious drive to establish a leading green hydrogen economy is encountering significant headwinds, primarily stemming from prohibitively high electricity costs and a critical deficit in long-term offtake agreements. This dual challenge is not only impeding the deployment of large-scale green hydrogen projects but also directly undermining the development of a competitive European electrolyzer manufacturing base, a cornerstone of the bloc's energy transition strategy.

Industry analysts point to the continent's elevated power prices, particularly compared to regions like North America or the Middle East, as a major deterrent for green hydrogen production. Electrolysis, the process of splitting water using renewable electricity to produce green hydrogen, is highly energy-intensive. Consequently, the economic viability of European projects is severely strained, making the produced hydrogen uncompetitive against fossil-derived alternatives or even green hydrogen imported from lower-cost geographies. This cost disadvantage creates a substantial barrier for potential industrial consumers who require cost-effective, reliable supply to justify switching from established feedstocks.

Compounding the cost issue is the pervasive lack of robust, long-duration offtake agreements. Project developers and investors require certainty of demand to secure financing for multi-billion-euro green hydrogen facilities. Without commitments from major industrial players—such as steelmakers, chemical producers, or fertilizer manufacturers—to purchase large volumes over periods of 10-15 years or more, the financial risk remains too high. This "chicken and egg" scenario, where producers hesitate to build without demand and consumers hesitate to commit without guaranteed supply at competitive prices, is stifling market growth.

The implications extend directly to Europe's aspirations in electrolyzer manufacturing. While European firms possess significant technological expertise, the slow domestic market uptake for green hydrogen translates into insufficient demand for locally produced electrolyzers. This puts European manufacturers at a distinct disadvantage against rapidly scaling Chinese competitors, who benefit from lower production costs and a burgeoning domestic market. Experts fear that without a robust internal market, Europe's electrolyzer industry could struggle to achieve the economies of scale necessary to compete globally, potentially leading to increased reliance on imports and a loss of strategic industrial capacity.

Despite the current setbacks, proponents of green hydrogen remain optimistic, viewing it as an indispensable element for decarbonizing hard-to-abate sectors and enhancing Europe's energy security and industrial competitiveness. However, skeptics caution that without significant policy interventions—such as targeted subsidies, carbon contracts for difference, or more stringent carbon pricing—to bridge the economic gap and stimulate demand, Europe risks falling short of its ambitious hydrogen targets and ceding leadership in this crucial clean energy technology. The coming years will be critical in determining whether the bloc can overcome these fundamental challenges and realize its green hydrogen potential.