Germany risks leaving taxpayers liable for at least 34.7 billion euros in unrecovered hydrogen infrastructure costs by 2055, the Institute for Energy Economics and Financial Analysis (IEEFA) says in a new report, finding the actual regulated cost base is almost 50 billion euros, versus the oft-cited construction figure of 19.8 billion euros.
The difference between a fast and a limited hydrogen uptake scenario amounts to €45 billion in additional public financing needs – around €1,000 per German taxpayer – mainly caused by unrecovered pipeline financing costs, according to IEEFA’s new ‘Rethinking German’s hydrogen-led transition: Demand shortfalls, infrastructure risk and the public cost of overbuilding’ report.
The figure of 19.8 billion euros often quoted for the German hydrogen core network only covers construction costs. Modeling by Fraunhofer Research Institution for Energy Infrastructures and Geotechnologies IEG for the German Federal Network Agency (BNetzA) estimates the entire regulated cost base – including financing costs, recycled old pipeline assets and operating expenses – at almost €50 billion. Grid operators individually foresee at least €5 billion in additional costs due to tenders and project reviews, at a stage when around 4% of the pipeline has been completed.
The German Federal Network Agency (BNetzA) has adopted a transmission tariff cap of €25/kW of booked capacity per year, based on Fraunhofer models. The cap is applied through a state-backed credit facility – the write-off account, pre-financed by the state-owned bank KfW – which covers early revenue shortfalls. The account must be settled by 2055, with the state legally required to cover at least 76% of any unrecovered balance. Under IEEFA’s limited utilization scenario – in which pipeline use peaks at around 20% of network capacity in 2037 – the balance of the depreciation account in 2055 will be €45.7 billion, leaving the state liable for at least €34.7 billion.
When demand is weak, tariff adjustments do not function as a viable recovery mechanism. Fraunhofer identifies fees above €35/kW of booked capacity per year as commercially unviable under the worst-case scenario – the point at which higher rates suppress demand faster than they increase revenues. In a limited-utilization scenario, settling the bill by 2055 would require fees exceeding €100/kW, a level that IEEFA says is incompatible with market participation.
IEEFA’s demand analysis excludes sectors where electrification offers a cheaper path to decarbonisation – heating, transport and most power generation – and makes further adjustments for the import of derivatives that would bypass pipeline infrastructure entirely. IEEFA said German hydrogen demand in 2045 could be at or below the lower end of official scenario ranges.
The monitoring report of the Federal Ministry of Economic Affairs and Energy estimates normative demand scenarios at 163 TWh to 605 TWh in 2045. But IEEFA’s adjusted estimate is near the middle of the exploratory range of 71 TWh to 262 TWh and well below the previous government’s system development strategy range of 360 TWh to 500 TWh.
IEEFA points to early market indicators consistent with this more limited demand outlook. About an eighth of Germany’s 10 GW target for electrolysers by 2030 – around 1.2 GW to 1.3 GW – has made a final investment decision. About 400 km of the hydrogen backbone, about 4% of the planned network, has been completed and pressed, with no supply contracts in place and no customers connected.
IEEFA uses Germany’s emergency liquefied natural gas (LNG) terminal as a cautionary precedent for infrastructure being built ahead of demand. These terminals had an average utilization rate of 36.3% in 2025, and the analysis cited by IEEFA estimates the total public exposure at €17 billion or more. According to the report, the same risk transfer logic now underlies the hydrogen core network, on a larger budget scale and without the justification of an acute supply crisis.
The report identifies blue hydrogen – produced from natural gas with carbon capture and storage – as a composite risk rather than a solution. The German Hydrogen Acceleration Act, which was passed by parliament in February 2026, identified blue hydrogen infrastructure as being of ‘major public interest’. IEEFA said the shift places a second capital-intensive infrastructure system – capacity reform, carbon capture equipment and carbon dioxide transport and storage – on top of the hydrogen backbone, while re-anchoring production in volatile gas markets.
The costs and performance of carbon capture remain highly uncertain, further increasing budgetary risks. The report says the bigger long-term risk to public finances is not a hydrogen network that fails outright, but one that succeeds in part by locking in dependence on gas and encouraging unlimited demand subsidies across the economy.
IEEFA recommends phasing pipeline construction towards confirmed industrial offtake, publishing a transparent amortization path for depreciation accounts with automatic policy revisions triggered if usage falls below defined thresholds, and prioritizing imports of hydrogen derivatives – ammonia, methanol and green iron – for hard-to-abate sectors over domestic pipeline infrastructure.
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