Companies in the global green hydrogen sector did not see the year of action they hoped for in 2025. We analyse what the sector needs now.
When we asked top executives in our Power-to-X Leadership Council in early 2025 about their hopes for green hydrogen in 2025, their answer was clear: a year of action.
They argued that governments needed to adapt their support mechanisms to tackle process delays and to judge projects by viability before cost. They also discussed how it would be vital to develop the physical infrastructure needed to bring projects to fruition.
However, that wish has gone largely unfulfilled, as we highlight in our white paper that summarises key discussion points at the four Power-to-X Leadership Council meetings this year. Progress to expand green hydrogen has slowed after the initial enthusiasm at the start of the decade, with developers struggling to make final investment decisions at their projects and the global green hydrogen project pipeline shrinking in 2025.
Here are six lessons from a year of stalled progress:
1) Ambition is not translating into delivery
Governments are not backing up ambitious targets for green hydrogen production with the relevant support or regulatory clarity needed to drive delivery, even in regions such as Europe and the UK.
For example, the UK’s Hydrogen Allocation Round 2 process in April fell short of its target of 875MW of low-carbon hydrogen capacity, as only 27 developments totalling 765MW were shortlisted. Meanwhile, projects totalling 2.3GW were awarded support in the second European Hydrogen Bank auction but 1.9GW of those ultimately withdrew.
The key issues include low strike prices that do not match the risk profile of an emerging technology, and the difficulty of developing projects in both the UK and European Union that are both compliant with subsidy regimes and appealing to investors. More work is needed to remove obstacles to development and simplify subsidy eligibility criteria.
2) Offtakers remain cautious
The scarcity of long-term creditworthy offtake deals continues to delay green hydrogen’s expansion. Potential offtakers are waiting for the market to prove itself and mature, but this cannot happen unless early-stage projects are made bankable by agreements that bring revenue certainty. They also see little benefit in early adoption of green hydrogen.
However, in Europe, full implementation of the Renewable Energy Directive (RED III) into the national law of European Union member states could help kickstart offtake in the region by imposing quotas for green hydrogen use in sectors including industry and transport. Some developers are also shifting strategy to pursue high-value offtake deals that would improve the financial viability of their hydrogen production schemes.
3) Industry is shifting focus towards priority end-users
Developers are increasingly focused on producing green hydrogen for use in robust markets such as green fertiliser and green steel manufacturing. This is a change from earlier in the decade where green hydrogen’s potential was touted in a wide range of industries, including those where it would be an unrealistic and expensive solution.
This makes strategic sense, but experts in the Leadership Council have argued that demand for green hydrogen must be stimulated beyond ‘easy win’ sectors. This is vital to grow production volumes needed to make technology more efficient and cut costs.
4) Upfront costs have been underestimated
Developers have argued that the shortfall of green hydrogen projects moving on to final investment decision is due to high upfront costs, including engineering, procurement and construction (EPC) warranties.
Traditionally, renewables developers are used to working with one EPC contractor but, due to these high upfront costs, they are having to look at open-book and multi-contract agreements to deliver green hydrogen production schemes. This approach is becoming more popular but working with multiple contractors introduces additional risks too.
There are also gaps in public funding for pre-operational projects, which is a headache for companies that have underestimated upfront costs. In response, some developers are seeing success in using portfolio models to mitigate upfront cost risks.
5) Coordinating PPAs at the same time as offtake is a sensitive balancing act
Developers need affordable renewable power if green hydrogen production projects are going to make financial sense. This is challenging because green hydrogen developers are struggling to compete with large technology and industrial firms for power purchase agreements (PPAs) because hydrogen producers are not seen as highly creditworthy by the electricity vendors.
In addition, hydrogen producers can struggle to secure a PPA even when they are seen as credible as local PPA markets struggle to provide enough power for a typical hydrogen project. This means green hydrogen developers are exposed to risks within the power transmission system, including grid connection delays.
6) Business cases are stronger than before
Despite a difficult and slow year, experts at the Power-to-X Leadership Council said that the failure of speculative projects with weak business cases should raise confidence in the viability of those that remain. This should help rebuild confidence in green hydrogen and provide a foundation of solid and practical projects that can be the basis of growth.
One proposal to accelerate the rollout of green hydrogen is that policymakers should focus on those projects that are most ready to be deployed by prioritising them in the queues for approval. This could help take green hydrogen down the cost curve and make the technology commercially viable.
For sustainable growth, green hydrogen developers must seek to pursue projects with the strongest business cases to take them past FID and into deployment. This needs policymakers to respond to this year’s slowdown to create firm mandates and steady demand signals. The industry will hope for a better year in 2026.
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