Clean hydrogen struggles to attract financiers amid demand and policy uncertainties

Low-carbon hydrogen continues to face major financial obstacles despite its potential role in industrial decarbonization. According to an analysis published by the Oxford Institute for Energy Studies (OIES) and ING, demand and public policy risk constitute the main barriers to obtaining financing. The International Energy Agency (IEA) has revised downward its low-carbon hydrogen supply forecast to approximately 37 million tonnes by 2030, compared to an initial estimate of 150 million tonnes needed to meet net-zero targets. This revision reflects project cancellations, cost challenges, and regulatory uncertainties hindering sector development. Insufficient offtake contracts The study highlights that 94% of global clean hydrogen project capacity has no identified buyer. Among the remaining 6%, only 13% of volumes benefit from binding offtake agreements, according to BloombergNEF data cited in the report. Other commitments are distributed between memoranda of understanding (29%), pre-contractual agreements (15%), self-consumption (23%), and unspecified arrangements (20%). This absence of contracted revenues complicates access to traditional project finance, which relies on cash flow predictability. Lenders typically require take-or-pay contracts exceeding ten years with investment-grade counterparties. These clauses oblige the buyer to pay for a minimum contracted quantity, regardless of physical offtake. This mechanism, inherited from liquefied natural gas (LNG) markets, decouples project revenues from short-term demand fluctuations. The study notes that some European projects have reached final investment decision with five to seven-year contracts, but with higher equity contributions of approximately 50%. A persistent cost gap with fossil fuels Renewable hydrogen production cost remains significantly higher than conventional hydrogen or direct fossil fuel equivalents. This gap results from several interconnected factors: the relatively high price of renewable electricity, the nascent stage of electrolyser manufacturing, and the lack of established infrastructure for large-scale production and distribution. The study notes that while solar and wind power costs have declined significantly, the levelised cost of green hydrogen has decreased more slowly. The NEOM Green Hydrogen project in Saudi Arabia illustrates the conditions required to achieve financial close. With an investment of USD 8.4 billion, this project benefited from a 30-year fixed-price offtake agreement concluded with Air Products, the study indicates. This structure transferred price risk to the buyer, making financing accessible to commercial banks. The study specifies however that NEOM constitutes an atypical case, benefiting from exceptional sovereign support, integrated planning, and a particular strategic positioning. The decisive role of public policies Regulatory uncertainty constitutes the second risk factor identified by surveyed financiers. The hydrogen sector remains subject to a patchwork of regulations, standards, and certification requirements varying considerably between countries and even within regions. Divergent definitions of "green" hydrogen illustrate this fragmentation. The European Union imposes detailed "additionality" and "temporal matching" requirements for renewable electricity, while the United States favors production-based tax credits. The study mentions the cancellation of Air Products' project in Massena, New York State, after a regulatory change rendered its hydroelectric power supply ineligible for American clean hydrogen tax credits. This 35-tonne-per-day project was nonetheless fully developed. ArcelorMittal has also postponed the conversion of two German steel plants to hydrogen, citing "unclear regulatory conditions." The Australian Asian Renewable Energy Hub suffered a major setback following BP's withdrawal, its main partner, following modifications to environmental regulations and political leadership changes. Public support mechanisms Contract for difference (CfD) mechanisms appear as the most effective support instruments, according to the authors. These contracts guarantee a fixed "strike price" and pay or receive the difference relative to a market reference price, thus stabilizing cash flows. The British Low Carbon Hydrogen Agreement model bridges the gap between production cost and hydrogen selling price, with a floor indexed to natural gas prices. This mechanism provides lenders with revenue visibility allowing debt sizing based on the guaranteed price. The study compares the effectiveness of different support mechanisms. Tax credits and investment subsidies can be helpful but prove less effective for early-stage hydrogen projects as they do not cover market price risk nor sufficiently secure buyers' positions. The first allocation rounds of the European Hydrogen Bank, which provide subsidies in the form of fixed premiums per kilogram produced, saw several projects return their allocation for failing to lower the selling price sufficiently to attract buyers. Blended finance as a mobilization lever Blended finance structures combine public and private resources to mitigate risks and improve investment bankability. These arrangements allocate first-loss or concessional capital from governments, development banks, or climate funds, thus protecting commercial investors against early-stage risks. The Hydrogen Energy Supply Chain (HESC) project between Australia and Japan obtained funding from Australian, Victorian, and Japanese governments alongside industrial partners like Kawasaki Heavy Industries. This concessional public capital absorbed first-loss risk, making the project acceptable for private investment in its pilot phase. Public-private partnerships (PPPs) also unlock significant capital by combining public financing with private sector expertise. The European Hydrogen Bank's "Auctions-as-a-Service" mechanism allows national governments to co-finance projects via a unified European platform, thus reducing risks for private developers through fixed premium subsidies. Export credit agencies also play a role in projects targeting international markets, by guaranteeing sovereign and counterparty risks. Essential coordination across the value chain The study also identifies "project-on-project" risk, when production depends on transport or storage infrastructure managed by separate entities. Delays or failures in these interdependent projects can hinder the commissioning and operation of a hydrogen plant. The European Hydrogen Backbone, a 53,000 km cross-border pipeline network, requires unprecedented coordination among dozens of operators and regulators. Any delay on a section would risk stranding connected production assets, the report specifies. The H2Med project, a pipeline linking Portugal, Spain, and France, is expected to rely on capacity reservation commitments from shippers to support its estimated EUR 2.5 billion investment, following the financing model of major gas pipelines. Japan's hydrogen import strategy encounters difficulties synchronizing the development of liquefaction facilities in exporting countries with receiving terminals and distribution networks in Japan, creating coordination risks that delay final investment decisions. Maturing technological risks Many hydrogen production, storage, and utilization technologies remain at early stages of commercial deployment. The 10 MW Refhyne PEM electrolyser at Shell's Rheinland refinery generates valuable operational data on efficiency, maintenance cycles, and integration challenges. The H2Future project in Austria, a 6 MW PEM electrolyser at Voestalpine's Linz steelworks, continues to operate as a demonstration facility, illustrating financiers' cautious approach given limited industrial track record. Lenders typically require a minimum technology readiness level, a verifiable track record for the specific technology, robust manufacturer performance warranties, and adherence to emerging technical standards. In practice, formal technology readiness labels often count less than evidence of commercial deployment at scale: the number and size of reference plants in operation, installed megawatt capacity, cumulative operating hours, and a proven fleet track record. Lessons from successful and abandoned projects Projects that have reached final investment decision share several common characteristics, according to the analysis: stable policy support, solid offtake agreements, and value chain integration from the design stage. The German HySCALE initiative demonstrates how co-locating hydrogen production with industrial buyers in chemical parks reduces infrastructure costs and mitigates transport risks. Stegra, formerly H2 Green Steel, secured green steel pre-sales from automotive manufacturers before finalizing financing for its hydrogen production facility. Conversely, failed projects generally suffer from policy ambiguity, regulatory inconsistency, or poor coordination along the value chain. The absence of robust demand creation mechanisms, including blending mandates, carbon pricing, or green public procurement programs, leaves developers facing unmanageable price and volume risks that deter financiers. The persistent cost gap with fossil fuels makes these conditions difficult to circumvent for mobilizing private capital at scale. The study concludes that hydrogen's bankability challenge is not insurmountable but transitional, reflecting a sector moving from aspiration to institutionalization. Projects combining credible offtake frameworks, coherent policy, and innovative but disciplined financing will define the pace of this transition.

DAL Structures Financing for 100 MW of Germany’s Largest Battery Storage Project

Germany and Denmark Agree on 3 GW Bornholm Offshore Wind Project

National Grid and TenneT Germany Launch GriffinLink, a 2 GW Offshore Wind Interconnector

Enery Secures Over €250 Million to Develop 300 MW of Solar in Central Europe

SSE Renewables Launches Construction of Two 42 MW Wind Farms in Teruel, Spain

Gabon: Bourdon Oil Project Advances Toward Final Investment Decision

Clean hydrogen struggles to attract financiers amid demand and policy uncertainties

MAX Power Announces First Subsurface Natural Hydrogen Discovery in Canada in Saskatchewan

World Economic Forum Designates Envision’s Green Hydrogen Project in China as Global Benchmark

AES Andes Abandons Green Hydrogen Project in Chile to Prioritize Renewables

Continuer votre lecture

Annuel

290€/an

Mensuel

29€/mois

DAL Structures Financing for 100 MW of Germany’s Largest Battery Storage Project

Germany and Denmark Agree on 3 GW Bornholm Offshore Wind Project

National Grid and TenneT Germany Launch GriffinLink, a 2 GW Offshore Wind Interconnector

Enery Secures Over €250 Million to Develop 300 MW of Solar in Central Europe

SSE Renewables Launches Construction of Two 42 MW Wind Farms in Teruel, Spain

Gabon: Bourdon Oil Project Advances Toward Final Investment Decision

À propos

Nos Offres

Partenariat

Partenariat

Welcome Back!

Create New Account!

Retrieve your password

Are you sure want to unlock this post?

Are you sure want to cancel subscription?

Clean hydrogen struggles to attract financiers amid demand and policy uncertainties

RelatedPosts

Continuer votre lecture

Annuel

290€/an

Mensuel

29€/mois

Subscribe

Buy Article

À propos

Nos Offres

Partenariat

Partenariat

Welcome Back!

Create New Account!

Retrieve your password

Are you sure want to unlock this post?

Are you sure want to cancel subscription?