PEM Hydrogen Electrolysers and Europe’s Grid-Constrained Renewable Transition

Introduction

Europe’s renewable energy transition has reached a decisive juncture. As highlighted in the attached research, the continent is no longer constrained primarily by the pace of renewable deployment or the availability of capital for wind and solar projects. Instead, the bottleneck lies in the electricity grid itself. Transmission and distribution networks, once considered supportive infrastructure, have now become the defining ceiling for renewable expansion. The ability to connect new projects to the grid, rather than the willingness to build them, determines whether Europe can meet its ambitious climate and energy targets.

This essay explores how Proton Exchange Membrane (PEM) hydrogen electrolysers can be integrated into this grid-constrained landscape. By converting surplus renewable electricity into hydrogen, PEM systems offer a pathway to relieve congestion, monetise otherwise stranded electrons, and provide flexible demand that aligns with system needs. The discussion builds directly on the themes of the attached policy research—queue congestion, fiscal dilemmas, social costs of curtailment, and regulatory reform—while illustrating with real-world case studies and technical benchmarks. The goal is to show that PEM electrolysers are not peripheral technologies but central actors in Europe’s evolving energy narrative.

The plant is the largest of its kind i Europe Photo: Refhyne.eu

Grid Access as the Decisive Constraint

The attached research rightly identifies that Europe has entered a phase where “the grid decides the upper limit.” Transmission operators such as Elia in Belgium have reported that queues for renewable and storage projects have grown far beyond actual system needs. This is not a temporary engineering issue but a structural mismatch between the speed of renewable investment and the slower rhythm of grid expansion.

Traditional queue mechanisms—“first-come, first-served”—have exacerbated the problem. Developers submit applications not necessarily with the intent to build immediately but to secure scarce interconnection rights. The result is a distorted signal: speculative projects occupy capacity while shovel-ready projects languish. In the Netherlands, developers face multi-year waits; in Slovakia, reserved capacity sits idle; in Germany, storage applications exceed planned grid expansion. These examples illustrate that grid scarcity has become systemic, not localised.

In this environment, PEM electrolysers can play a transformative role. By absorbing surplus electricity at congested nodes and converting it into hydrogen, they bypass the need for immediate transmission capacity. Hydrogen can be stored, transported via pipelines, or consumed locally in industry and mobility. Thus, PEM systems convert grid bottlenecks into opportunities, turning stranded electrons into molecules that carry value across sectors.

Social Costs of Congestion and the Case for Electrolysers

The research notes that congestion imposes quantifiable social costs. ACER estimates billions of euros annually in redispatch and curtailment. When low-cost renewable electricity cannot reach demand centres, the system resorts to higher-cost generation, raising overall expenses. More critically, curtailment undermines the efficiency of renewable investment: projects that could generate clean power are forced to idle, wasting both capital and carbon reduction potential.

PEM electrolysers directly address this inefficiency. Their ability to ramp quickly and operate flexibly allows them to absorb electricity during periods of curtailment or negative prices. Instead of shutting down turbines or panels, operators can channel output into hydrogen production. This hydrogen can then serve industrial processes, mobility fleets, or be injected into gas grids. In effect, electrolysers transform curtailment from a loss into a productive output.

Real-world projects demonstrate this potential. The HyBalance project in Denmark, a 1.2 MW PEM electrolyser, was designed explicitly to absorb surplus wind power and provide balancing services. By operating during periods of excess generation, it reduced curtailment while supplying hydrogen for mobility and industry. Similarly, Iberdrola’s Puertollano project in Spain co-locates a 20 MW PEM electrolyser with solar PV, ensuring that surplus generation is converted into ammonia feedstock rather than wasted. These examples show that electrolysers can reduce the social costs of congestion while creating new value chains.

Fiscal Constraints and the Investment Dilemma

The attached research highlights the immense fiscal challenge of grid expansion. The European Commission estimates €1.2 trillion in investment needs by 2040. Yet raising tariffs to recover these costs faces political and economic limits. Higher transmission fees could undermine industrial competitiveness and burden households. Grid operators like Elia face a dilemma: they must invest heavily but cannot guarantee full cost recovery through traditional tariff mechanisms.

PEM electrolysers offer partial relief to this dilemma. By creating alternative pathways for renewable integration, they reduce the pressure on grid expansion. Instead of requiring every new megawatt of wind or solar to be transmitted across long distances, electrolysers enable local consumption and conversion. This does not eliminate the need for grid investment but moderates its scale and urgency.

Moreover, electrolysers shift part of the cost burden from grid tariffs to hydrogen value chains. Industrial consumers, mobility operators, and pipeline networks pay for hydrogen, creating revenue streams independent of electricity tariffs. Policy instruments such as Contracts for Difference (CfDs) for hydrogen, Renewable Fuels of Non-Biological Origin (RFNBO) certification, and overriding public interest status further enhance bankability. In this way, electrolysers diversify the financing base for Europe’s energy transition.

Policy Reform: From “First-Come” to “First-Ready”

One of the most significant insights in the attached research is the shift from “first-come, first-served” to “first-ready, first-served.” Elia has proposed that interconnection rights should be allocated not based on application timing but on project readiness—permits, financing, equipment procurement. This reform aims to filter out speculative applications and prioritise projects with real delivery capacity.

PEM electrolysers align well with this reform. Electrolyser projects can demonstrate readiness by securing industrial offtake agreements, land, water supply, and permits. Their modular nature allows them to be deployed faster than large-scale generation projects. By meeting readiness criteria, electrolysers can secure priority access, positioning themselves as system resources rather than speculative ventures.

Furthermore, electrolysers embody the policy shift toward system value. They provide flexibility, reduce curtailment, and support industrial decarbonisation. Regulators increasingly recognise that assets which contribute to system stability deserve priority. Thus, PEM projects stand to benefit from reforms that reward readiness and system contribution.

Impact on Existing Renewable Operators

For existing wind and solar operators, grid congestion changes the risk profile. As the research notes, the core risk shifts from price volatility to output realisation. Curtailment means that theoretical generation does not translate into actual sales. This risk cannot be fully hedged through contracts or derivatives because it is physical, not financial.

Electrolysers mitigate this risk. By co-locating with renewable assets, they provide an outlet for surplus generation. Operators can convert curtailed electricity into hydrogen, securing revenue even when the grid cannot absorb output. This creates a more stable income stream and reduces exposure to curtailment.

The REFHYNE project in Germany illustrates this dynamic. A 10 MW PEM electrolyser at Shell’s Rhineland refinery absorbs renewable electricity and produces hydrogen for industrial use. By doing so, it stabilises revenue for renewable operators and provides green feedstock for the refinery. The planned 100 MW REFHYNE II expansion underscores the scalability of this model.

Impact on Future Developers

For future developers, grid access becomes a precondition rather than a constraint. As the research notes, interconnection is now a “front-loaded gatekeeper” for project success. Developers must secure permits, financing, and equipment early to demonstrate readiness. This raises entry barriers and accelerates industry consolidation.

Electrolysers reshape this landscape. By offering alternative pathways for renewable integration, they reduce dependence on grid access. Developers can design projects that combine generation with electrolysis, ensuring that output has a productive outlet even if transmission capacity is limited. This model emphasises local consumption, industrial integration, and hydrogen value chains.

The NortH2 project in the Netherlands exemplifies this approach. By combining offshore wind with large-scale hydrogen production, it bypasses onshore grid bottlenecks and creates a continental-scale hydrogen supply. This demonstrates how electrolysers can redefine project development strategies in a grid-constrained environment.

Storage and System Resource Recognition

The attached research notes that Elia views large-scale battery storage as a system resource rather than a speculative asset. Electrolysers deserve similar recognition. By providing flexibility, absorbing surplus, and supporting industrial demand, they contribute directly to system stability.

Regulators are beginning to acknowledge this. Electrolysers may receive priority access, reduced network charges, or eligibility for flexibility markets. Their role extends beyond market participation to system contribution. This recognition enhances their policy support and financial viability.

The H2Future project in Austria illustrates this. A 6 MW PEM electrolyser at voestalpine’s steel plant not only supplies hydrogen but also provides frequency response services. By participating in grid balancing, it demonstrates that electrolysers can be integral system resources.

Technical and Economic Benchmarks

PEM electrolysers operate with efficiencies of 60–70% (LHV), consuming ~50–60 kWh per kilogram of hydrogen. They ramp within seconds, tolerate frequent cycling, and operate efficiently at partial loads. These characteristics make them ideal for integrating variable renewables.

Costs remain significant but are declining. Capex ranges from €800–1200 per kW, with expectations of further reductions as scale increases. Operating costs are dominated by electricity prices.

References:

2.refhyne.eu: Progress – REFHYNE 2 Project  2.refhyne.eu: REFHYNE End of Project Press Release (2024)  refhyne.eu: REFHYNE – Clean Refinery Hydrogen for Europe  ACER: ACER 2024 Market Monitoring Report Infographic  strategicenergy.eu: ACER warns grid congestion limits renewable integration (2025)  ACER: ACER Monitoring Report on Cross-Zonal Electricity Trade (2025) Hovogen(2025)