Developers have increasingly abandoned low-carbon hydrogen projects, citing various challenges that have led to significant cancellations and delays. A strategic shift in focus, which accounts for approximately 48% of cancelled capacity and around 6 million tons per annum (tpa) of hydrogen potential, is at the forefront of this trend. Industry players are reassessing commitments made during the sector’s earlier, more optimistic phase, opting to concentrate on their core businesses instead of pursuing risky hydrogen investments.
Major players such as BP and Australia’s Origin Energy have announced suspensions or cancellations of multiple hydrogen projects. These decisions often come with the rationale of cutting costs and prioritizing established business areas. This retreat reflects the complex and nascent nature of the clean hydrogen sector, where initial targets frequently exceeded feasible business and transition models.
Demand signals, or the lack thereof, have significantly impacted project viability, contributing to approximately 13% of project cancellations. Despite ambitious growth forecasts in regions like the European Union, actual market development has been slower than expected. Factors such as lower willingness to pay and regulatory uncertainty have hindered progress. Developers have found it increasingly difficult to advance projects without binding offtake agreements, leading many to redirect resources towards sectors with more reliable returns.
The high cost of clean hydrogen has compounded these challenges. While it can be argued that the cost indirectly affects demand, it has also directly influenced cancellations, even when offtakes were secured. Inflationary pressures have altered earlier cost estimates, raising concerns among investors. According to the latest data from Rystad Energy, the nominal cost of hydrogen in various regions is unlikely to decrease significantly in the near term.
Government support remains crucial in bridging cost gaps and assisting early movers in the hydrogen sector. Many projects rely heavily on subsidies and public grants. When funding does not materialize or when developers fail to secure auction wins, projects often face cancellation. Although numerous funding mechanisms exist globally, they are insufficient to support all announced projects in the immediate future.
Policy clarity plays a significant role in the success of clean hydrogen initiatives. For instance, regulations like REDIII in the EU have provided a framework for developers to create more robust business cases, leading to final investment decisions for green hydrogen projects aimed at refinery usage.
As projects progress into advanced development phases, they encounter further risks related to permitting and environmental considerations. Close to 20 projects have been cancelled due to challenges surrounding environmental impact assessments, land use, and water supply. Such issues are particularly daunting for less experienced developers who may not fully appreciate the necessary requirements before project announcements.
The scale of infrastructure development required for large hydrogen projects adds to this complexity. For electrolytic hydrogen production, securing renewable energy from the grid poses additional challenges. Large-scale electrolyzers demand significant power, and the terms of power purchase agreements (PPAs) may not align with developers’ needs for their offtake deals.
The initial excitement surrounding clean hydrogen has now transformed into a more pragmatic approach as the sector confronts its realities. Many cancellations and delays now emerging were, in hindsight, inevitable for such an immature industry. This transitional phase, while difficult, is necessary for establishing a foundation of experience and focusing on commercially viable projects.
Despite these setbacks, new projects continue to be announced in regions such as India and China. Continued progress in the hydrogen sector will depend on robust government support, clear market signals, and enhanced investment clarity. Addressing the growing divide between policy ambitions and commercial viability will be essential for the future of clean hydrogen initiatives.
