The great electrification: The power of molecules

The EU’s energy transition is increasingly centered on electricity. Electrification can reduce fossil fuel imports while improving the efficiency of the energy system. This transformation is at the heart of the great electrification: the shift toward electricity as the backbone of a cleaner, more competitive, and more autonomous EU energy system.

However, the EU is starting from a predominantly molecule-based energy system. In 2025, more than three-quarters of EU final energy consumption still came from molecules, such as oil products, natural gas, coal, biofuels, and biogas. Most of these molecules remained fossil-based. The great electrification is therefore not simply about replacing fossil-fired power generation with renewable electricity. It requires a much broader transformation of how energy is produced, transported, and consumed across the transport, building, and industrial sectors.

Direct electrification is generally the preferred option wherever it is technically and economically feasible. Electric technologies generally make much more efficient use of energy than fuel-based alternatives. Direct electrification can therefore reduce fossil fuel consumption and lower the total amount of energy required to provide mobility, heat, and industrial output.

A clear example is a passenger car with an internal combustion engine (ICE). Passenger cars are inherently inefficient in their use of energy from well-to-tank-to-wheel. About 80% of the energy contained in the fuel is lost before it reaches the wheels, meaning that less than one-fifth is ultimately used to propel the vehicle. Among the main powertrain options, synthetic e-fuels perform even less efficiently due to the substantial energy losses incurred during fuel production and subsequent combustion. By contrast, battery electric vehicles (BEVs) are significantly more energy-efficient, with around three-quarters of the input energy being converted into motion. This efficiency advantage is a key factor underpinning the lower energy demand of electrified road transport.

But even in an electricity-led energy system there are applications that need a molecule for its chemical or physical properties. Additionally, a power system increasingly dependent on variable wind and solar generation may need to store large volumes of energy over periods that exceed the technical capabilities of most batteries.

There are also economic reasons why direct electrification will not always be the preferred decarbonization pathway. In some applications, the costs of replacing existing assets, reinforcing electricity networks, or meeting very high peak power demand may outweigh the efficiency benefits of direct electrification. Molecules could provide a more cost-effective solution by using existing infrastructure, offering operational flexibility, and reducing the need for network investments. The great electrification will therefore reduce Europe’s need for fuels, but it will not eliminate it. The remaining demand must increasingly be met by green molecules.

Biomethane and biofuels should meet part of this residual demand. They are already commercially available and can often use existing infrastructure. However, their production depends on finite and geographically dispersed sustainable feedstocks, which may not be sufficient to meet all residual demand from industry, aviation, shipping, and the power system. And while in theory biofuels can meet many existing fuel specifications, they cannot supply specific chemical feedstocks required for certain industries.

This is where PtX becomes relevant. It is the solution that can close these gaps. PtX is a collective term for technologies that convert electricity into hydrogen or a hydrogen derivative. A derivative is another hydrogen-based energy carrier, fuel, or chemical. In the EU, renewable hydrogen and hydrogen derivatives are referred to as renewable fuels of non-biological origin (RFNBOs) if they meet specific requirements. The main route starts with electrolysis, which uses renewable or low-carbon electricity to split water into hydrogen and oxygen. Hydrogen can be consumed directly or used to produce products such as ammonia, methanol, and synthetic aviation fuel.PtX takes the great electrification beyond direct electricity use, unlocking decarbonization in hard-to-electrify sectors.

A key limitation of PtX is the substantial energy loss that occurs during the conversion of electricity into molecules. Unlike direct electrification, which comes with limited losses, PtX relies on a chain of conversion processes that each consume energy. The result is that only a fraction of the original renewable electricity remains available in the final product. These conversion losses are not just a technical detail but fundamentally determine the economics and therefore the deployment potential of PtX.

The first conversion step is electrolysis. Electrolyzer systems typically convert 64% to 76% of the electrical input into hydrogen, depending on the type of electrolyzer. This means that 24% to 36% of the original electricity is lost before the hydrogen leaves the production facility. Additional energy is required for purification, compression, liquefaction, storage, or transport, depending on the intended application and distance to the point of consumption.

Further losses occur when hydrogen is converted into derivative products. For example, the production of electricity-based synthetic aviation fuel (e-SAF) typically retains only around half of the input electricity in the final fuel. The efficiency penalty becomes even larger when downstream handling and end-use conversion losses are included. Another example in which the cumulative conversion losses become particularly substantial is when hydrogen is deployed as a long-duration storage vector and later converted back into electricity during extended periods of low renewable energy availability.

However, energy efficiency alone will not determine the role of PtX. In many applications, the value of a molecule specifically lies in its physical or chemical properties. For example, aviation requires energy-dense liquid fuels, parts of industry use hydrogen as a feedstock, and power systems with high shares of variable renewables may require molecules for long-duration or seasonal storage. In these cases, the efficiency penalty can be justified because PtX provides properties that direct electrification cannot easily deliver. Its role is therefore positioned as a strategic solution for applications where molecules remain indispensable.

A useful starting point for assessing where PtX could play a significant role is Michael Liebreich’s Hydrogen Ladder. The framework ranks potential hydrogen applications according to their likelihood of becoming significant and economically viable users of hydrogen by around 2035. Rather than focusing solely on whether hydrogen can technically be used in a particular sector, the Hydrogen Ladder assesses whether it is likely to offer a competitive decarbonization pathway compared with available alternatives.

The ranking considers cost competitiveness, safety, convenience, critical-material requirements, environmental co-benefits, air pollution, geopolitical factors, and patterns of human behavior. It also reflects fundamental scientific and engineering constraints, including thermodynamics, physics, chemistry, and conversion efficiency. By combining these technical, economic, environmental, and societal considerations, the Hydrogen Ladder provides a useful framework for identifying applications where hydrogen may have a strong competitive rationale and those where direct electrification or other alternatives are likely to be more attractive. However, the rankings should not be interpreted as a forecast. Actual adoption will also depend on local energy costs, infrastructure availability, technological development, and public policy.

The Hydrogen Ladder has also attracted criticism, particularly from parts of the hydrogen industry, for taking a relatively conservative view of hydrogen’s future role in transport, heating, and power generation. Critics argue that the framework places considerable weight on current costs, conversion losses, and competition from direct electrification, potentially underestimating the effects of technological progress, lower hydrogen production costs, infrastructure development, and energy security considerations. However, while these developments could improve hydrogen’s competitiveness, they may not fully offset its fundamental efficiency disadvantages in applications where direct electrification is technically and economically feasible.

The Hydrogen Ladder indicates where hydrogen adoption is most likely, based on the suitability of hydrogen for specific end-use sectors. Connecting these applications to their corresponding PtX value chains helps identify the products with the strongest prospects in the future energy system. For applications in the two highest categories, A and B, the main products are pure hydrogen, ammonia, methanol, and e-SAF. While the final product may differ, every hydrogen-derived product has the same starting point: hydrogen.

The products highlighted in table 1 represent the most important products or fuels expected to support the decarbonization of industry, transport, and energy systems. Understanding their properties, advantages, and limitations provides better insight into their respective roles in the future hydrogen economy and their potential contribution to achieving net-zero emissions. Table 2 summarizes selected positive and negative properties.

Given the substantial opportunities and use cases associated with hydrogen and PtX, it may appear that these technologies have already achieved broad market availability. In reality, renewable hydrogen production in the EU remains negligible, despite ambitious targets and significant public (financial) support. The three main reasons are high costs, a lack of demand, and the slower-than-expected rollout of hydrogen infrastructure.

As mentioned, one reason renewable hydrogen remains unavailable is it’s high cost. The average production cost in the EU was around EUR 7 to EUR 8 per kg in 2024, approximately four times the cost of gray hydrogen. Electricity consumption alone can account for up to half of the production cost, while electrolyzer investment, grid tariffs, financing, and hydrogen transport add to the bill. Subsidies can narrow this gap, but they do not necessarily create a viable market if the remaining premium is still too large for industrial customers to absorb. Moreover, the higher cost of capital and slower-than-expected development of renewable electricity assets and hydrogen infrastructure have eroded the cost reductions anticipated when Europe first formulated its hydrogen ambitions.

A second reason is the lack of demand, largely because the regulatory framework needed to create it is not yet firmly established at the national level. Under the Renewable Energy Directive III (RED III), at least 42% of the gray hydrogen used in industry must be replaced by RFNBOs by 2030, effectively driving the replacement of gray hydrogen. Additionally, RFNBOs must also account for at least 1% of the energy supplied to the transport sector. Member states were required to transpose RED III into national legislation by May 21, 2025. However, implementation has been slow, with 26 member states facing infringement proceedings for failing to notify full transposition by the deadline.

Until national legislation clearly defines which parties must comply, how compliance will be measured and enforced, and what the applicable RFNBO obligations will be, potential users that are in scope have little incentive to commit to renewable hydrogen. Renewable hydrogen producers typically require long-term offtake agreements to secure project financing. Without contracted revenues, projects cannot reach final investment decision, construction is delayed, and renewable hydrogen supply does not materialize.

This is clearly visible in the current installed production capacity in the EU. At around 1% of the REPowerEU ambition, current capacity remains far below the level needed to meet the EU’s ambitions of 10m metric tons of domestic renewable hydrogen production per year by 2030.

A third reason why the hydrogen economy has yet to take off is the slow development of hydrogen infrastructure. Although the EU has drawn up ambitious plans for an extensive network of pipelines, storage facilities, and import terminals, only a limited number of projects are operational or under construction. Most remain at an early planning stage, with progress concentrated in a few countries, particularly Germany and the Netherlands. This reinforces the sector’s chicken-and-egg problem: hydrogen producers and users need reliable infrastructure before committing capital, but infrastructure developers need firm demand, supply commitments, and a regulatory framework before investing. Until this coordination problem is resolved, the gap between ambition and physical delivery will continue to constrain market growth.

PtX will form an important part of Europe’s future energy system, but its role is likely to remain concentrated in applications with few viable alternatives. Direct electrification offers greater energy efficiency and is generally the most attractive decarbonization route where it is technically and economically feasible. Sustainable biofuels and biomethane can meet part of the remaining demand for molecules, although limited feedstock availability and specific product requirements constrain their contribution. PtX can fill the resulting gap by supplying renewable hydrogen, ammonia, methanol, and synthetic fuels to industrial processes such as fertilizer, methanol, and steel production, hydrogenation, hydrocracking, and desulfurization. It could be useful as a clean fuel in aviation and shipping, and it could serve as a long-duration energy storage solution.

The strategic relevance of PtX does not, however, imply near-term commercial maturity. High conversion losses make renewable hydrogen and its derivatives expensive, while uncertain demand, incomplete national implementation of regulation, and the slow development of infrastructure continue to delay investment decisions. These obstacles reinforce one another. Producers depend on long-term purchase commitments, users require reliable and competitively priced supply, and infrastructure developers need sufficient certainty about future volumes. Consequently, the EU’s hydrogen market is likely to develop very slowly and around specific industrial and transport clusters.

As electricity becomes increasingly central to the energy system, molecules are likely to become more targeted and valuable, particularly where their chemical properties, energy density, or storage characteristics cannot easily be replicated by electrons. In this context, PtX is best understood as a strategic solution of last resort: essential where direct electrification and sustainable bioenergy reach their limits, but too energy-intensive and costly to become the dominant decarbonization route across the wider economy.