The chicken-and-egg dilemma of clean mobility: How Europe can build a coherent network of hydrogen refueling stations at scale

Alexandru Floristean

FiveT Hydrogen Operating Partner

Nicolas Brahy

GeneralCounsel, Head of Public Affairs and ESG at Hy24, and FiveT Hydrogen Founding member

On March 28, 2023, the European Union took the historic decision to mandate, by law, that all new cars and utility vehicles registered from 2035 onwards must be zero-emission. Other jurisdictions are also following suit. These measures, brought about by the unequivocal need to ensure the decarbonization of our economies, will change the way we meet our mobility needs and will bring about a fundamental transformation of the automotive industry.

As reliance on a single zero-emission solution would be both dangerous and insufficient to satisfy the diverse demands and needs of mobility users and consumers, around the world, clean hydrogen has become a pillar of the future vision of the energy transition. The essential role it can play in ensuring the full decarbonization of the transport sector is becoming increasingly evident. But turning that vision into reality, and ushering in a carbon-neutral society, requires overcoming a series of “chicken-and-egg” dilemmas: What needs to come first: supply or demand? production, infrastructure, or end-user equipment?

And there’s no better example to illustrate this gap than the deployment of hydrogen refueling stations. If we don’t have H2 vehicles, we won’t need H2 fueling stations, the logic goes, but if we don’t have H2 fueling stations, nobody will be able to use an H2 vehicle.

Still, there’s little doubt that decision-makers are committed to building hydrogen ecosystems at scale. The European Union has set ambitious goals with its RePowerEU plan to produce 10 million tons of green hydrogen on its soil and import another 10 million tons from the outside. While the bloc will ensure a boost in supply, it also needs to spur demand — even more so as new applications for hydrogen are emerging. In fact, the revised Renewable Energy Directive foresees binding consumption targets for renewable hydrogen in both the industrial sector as well as in transportation. In this context, making H2-powered mobility viable will be key.

Clean hydrogen has the potential to help drive the decarbonization of transportation across Europe. But for this market to thrive, the deployment of infrastructure — and in particular, a coherent and widespread network of hydrogen refueling stations — is critical. These are necessary to serve heavy and intensive mobility, which cannot be decarbonized only with battery electric vehicles.

Meanwhile, the United States’ Inflation Reduction Act (IRA), the planned Canadian investment tax credits for hydrogen and Japan’s Green Transformation (GX) plan have made it more urgent than ever for the EU to act and commit to financing the necessary infrastructure to meet future demand. The private investment sector has already initiated a dialogue with all the players in the ecosystem to propose solutions for financing and deploying such critical infrastructures, but clear and strong support at the European level is equally crucial. 

One measure has the potential to solve the dilemma that has been jeopardizing all initiatives for a decade: the Alternative Fuels Regulation or AFIR. On March 27, 2023, after years of discussions and months of negotiations within the European trialogue (between EU Commission, Parliament, and Council), a provisional agreement was reached, providing clarity on the minimum targets for developing a network of hydrogen refueling stations in Europe in the coming years.

Ending the “chicken-and-egg” dilemma 

Despite its Fit for 55 package and the strategic direction provided by the REPowerEU plan, the European Union has been struggling to translate its vision into concrete action and compete with the United States and the rest of the world following the passage of the IRA and other public policy measures foreseen in advanced jurisdictions. “The shockwave is so intense that several industrial projects, which had been in the works in Europe for two years, are being put on hold, with their location to be reconsidered,” warned Hy24 CEO Pierre-Etienne Franc in a recent opinion piece for Financial Times.

The gap between vision and reality can be seen across Europe. In order to accelerate the shift to zero-emission mobility, on March 28, 2023, the EU finally agreed to end the sale of all new CO2-emitting cars and vans by 2035. But infrastructure that would support electric and hydrogen vehicles — both crucial for the energy transition — is still lacking. There are only a few years to deploy these infrastructures, which are also the backbone of the decarbonization of all mobility sectors, including maritime and aviation. In terms of mobility infrastructure, while the European Union has been maturing its vision for some time, its position as a worldwide leader in this field is at risk, unless large-scale deployment starts now.

On March 27, 2023, the European trialogue on the adoption of the Alternative Fuels Infrastructure Regulation (AFIR) bore its first fruits. EU institutions have been negotiating this essential regulation for years. The core provision of the AFIR is a mandate for member states to develop a network of charging stations (for BEV) and hydrogen filling stations that would ensure a minimum amount of coverage to allow uninterrupted mobility across the entire European territory.

The provisional agreement of the AFIR, reached at the end of March includes clear targets and criteria for HRS:

  • The construction of a hydrogen station with a 700-bar dispenser every 200 km on the TEN-T core network by the end of 2030, as well as a hydrogen refueling station at each urban node.
  • Stations with a daily supply capacity of minimum one ton of hydrogen / day for all road transport modes.

Member States are now required to organise the deployment of a minimum network , bearing in mind that the text provides for a possible review in 2025. The European TEN-T regulation, revised in 2021, is the basis of the European transport infrastructure policy with the Core Network (main trans-European motorways), the Comprehensive Network and 424 urban nodes. Placing a station every 200 km on the Core Network represents c. 233 stations so together with the ones in the Urban Nodes, we expect in total a minimum network of 657 stations across Europe.

AFIR deal reached on March 27

AFIR deal reached on March 27

Why has it taken so much time to come to an agreement? Because the various institutions — the European Parliament, the European Commission and member states — were failing to agree on key points, from the number of stations of this pan-European network to its characteristics. The Parliament’s proposal to deploy about 1,500 hydrogen stations was the most aligned with the EU’s decarbonization targets, but Member States were trying to find compromises according to their differing national strategies.

FiveT Hydrogen and Hy24 are supporting the adoption of targets that would enable installation of a sufficient number of hydrogen refueling stations across the EU. The AFIR has mandated the construction of at least 657 hydrogen stations, which represents less than 1% of the current gasoline network in Europe. These are just drops of water in an ocean of oil, given the challenges of decarbonization and sovereignty faced by the transport and industry sectors.

“The well-known chicken-and-egg dilemma has been given a clear answer: Infrastructure must come first, if we want a massive deployment as required by the EU decarbonization . It is now time to get to work and ensure that infrastructure gets built quickly, at scale and on solid foundations.”

Alexandru Floristean, FiveT Hydrogen Operating Partner

The short-term challenges…

Issues of costs and duration were at the heart of member states’ hesitation to agree to a binding regulation. What exactly will they have to finance? For how much and how long? To answer these questions, we must make a distinction between the short term (the deployment of the first stations), and the medium term (the expansion of the network).

As highlighted in a report from the Centre for European Policy Studies (CEPS) think tank, with support from Hy24, the first development phase presents three main difficulties: high upfront investment costs (CAPEX) for the first stations, high purchasing costs of hydrogen and initial underutilization due to the low number of H2-powered vehicles deployed.

At the core of the “chicken-and-egg” dilemma is the limited number of hydrogen-powered vehicles deployed, resulting in certain underutilization of the stations during their first operating years — thus significantly limiting the generation of revenues. The report shows that industrial partnerships between hydrogen producers and car manufacturers to build and operate the stations could address this issue, however such a solution would be limited to local implementation and therefore not fitted for large-scale deployment. 

… and the mechanism to overcome them

Thus, as the report highlights, public support mechanisms are needed to “catalyze capital” and overcome these three inevitable but temporary challenges related to the first phase of deployment: “Although cost reductions through learning curves and economies of scale are expected to substantially improve hydrogen refueling stations’ profitability in the medium to long term, public support will most likely be required to catalyze capital into hydrogen infrastructure in its early development stages, and tackle the so-called chicken-and-egg problem.”

Capacity to tackle challenges faced by first HRS

However, not all mechanisms are adapted, and it is crucial to implement tailored solutions. The CEPS report shows that neither CAPEX subsidies, to cover the initial investment costs of the stations, nor hydrogen price subsidies, that would reduce operating costs but would not be effective due to the insufficient hydrogen sales volume in the short term are suitable support mechanisms for developing a large-scale network of hydrogen refueling stations.

The report highlights instead “capacity payment,” also called “availability payment” — a mechanism already successfully used in several sectors, notably power plants. Under this scheme, the infrastructure operator receives a guaranteed revenue stream from the government, in exchange for building and operating the refueling station. Combined with the revenue generated by the sale of hydrogen, this would help the operator face the high CAPEX and hydrogen costs. The payment would only be temporary and decrease as traffic increases. Two potential downsides to be taken into account to adjust the mechanism: the relatively high initial costs for governments and lack of incentives for operators to increase sales over time. 

Once these three temporary difficulties are overcome, network expansion will be easier. Hydrogen refueling stations can operate according to the same business model as current petrol stations: the facilities can be operated by the market without any excess intervention of the public authorities.

A necessary network for heavy mobility

The deployment of this infrastructure is particularly important for one section of the mobility sector: heavy-duty vehicles. According to a report from the European Automobile Manufacturers' Association (ACEA), trucks carry 77% of all goods transported by land in the EU, while the sector is responsible for just over a quarter of the greenhouse gas emissions from road transport, and about 6% of total EU GHG emissions.

This means that, in order to reach its net zero target by 2050, all freight trucks sold on European soil will need to be powered either by electric batteries or hydrogen. An electric fleet solely made of EVs won’t be able on its own to decarbonize the sector — and hydrogen has a crucial role to play, mainly for questions of use (charging time, autonomy) and technology (autonomy and weight of batteries).

The need for zero-emission heavy duty vehicles (HDVs) and the charging/refueling infrastructure is becoming even more pressing as the European Commission announced stronger CO2 emission standards for new heavy-duty vehicles from 2030 onwards. Under the proposal, which is undergoing negotiations at EU level, CO2 emissions would have to be reduced on average compared to 2019 levels by 45% in 2030, 65% in 2035 and 90% in 2040 onwards for all new vehicles.

Even with the EU’s current CO2 standards, set at a 30% reduction by 2030 for new heavy-duty vehicles, ACEA estimates that the sector requires a fleet of at least 50,000 hydrogen-powered vehicles to be in operation before the seven-year target, as well as about 1,500 H2 stations with a capacity of 2 tons per day. Under the new proposal of a 45% CO2 reduction by 2030, the bloc will require at least 70,000 H2 trucks and 2,100 refueling stations — more than triple the amount mandated by the Alternative Fuels Infrastructure Regulation. That is why the EU needs to deploy a coherent infrastructure network via AFIR without delays, if it expects to meet its targets. 

Recent announcements by manufacturers, Stellantis and Hyvia in France for instance, indicate that about 50,000 hydrogen-powered commercial vehicles will be on the roads of the European Union by 2030, if the distribution and refueling infrastructures are established quickly enough. 

The implementation of a coherent network of hydrogen refueling stations will have a positive impact not just on the mobility sector but overall H2 ecosystem. This is only one of the steps, albeit an essential one, in order to develop the necessary infrastructure which enables a fully decarbonized economy.

Although the AFIR provisional agreement provides for a number of hydrogen stations below what the actors of the hydrogen ecosystem recommended, and below the initial proposal of the European Commission and the position expressed by the EU Parliament, we should welcome this decision which we hope will finally accelerate the deployment of the stations that are essential for the advent of zero emission mobility.”

Nicolas Brahy, General Counsel, Head of Public Affairs and ESG at Hy24, FiveT Hydrogen Founding member

Hy24 and FiveT Hydrogen call on all actors, both private and public, along the whole value chain to work together to make H2 mobility a reality at scale — and that means accelerating both the chicken and egg.