Unlocking green hydrogen projects: overcoming investment barriers
Unlocking Green Hydrogen Projects
How do we create a scalable, self-sufficient and resilient green hydrogen economy?
The world finds itself at a pivotal moment with green hydrogen. The industry is being built from the ground up, with decisions today influencing how well the fuel integrates into the wider economy in the coming decades.
In our Unlocking Green Hydrogen Projects white paper, we explore the key aspects that will determine green hydrogen’s success. It is structured around three central pillars: creating foundational demand, addressing infrastructure and financing uncertainties, and fostering market growth while mitigating risks. These pillars are explored through the lens of the UK’s particular challenges and opportunities, with comparative insights drawn from other European jurisdictions.
In doing so, we identify the fundamental building blocks of a sustainable hydrogen economy and the critical threats that could impede its progress. We also offer practical recommendations for policymakers, investors and industry leaders as they make key decisions that will shape the sector’s future.
For green hydrogen to fulfil its potential as a cornerstone of the global energy transition, the challenge lies in scaling its contribution to decarbonisation efforts. Hugo Lidbetter - Partner, Head of Sustainable Infrastructure, Osborne Clarke UK
Building foundational demand
The UK is focused on scaling hydrogen production to establish a self-sufficient domestic market, insulated from international volatility. Two Hydrogen Allocation Rounds (HARs) are already underway, with plans for annual rounds until 2030 to maintain production momentum. However, scaling production alone is insufficient; a robust hydrogen market requires not just production but also foundational demand.
Germany, a European leader in green hydrogen, has doubled its hydrogen demand targets and prioritised infrastructure development to drive consumption, accepting that imports will play a central role in future supply needs.
The UK's National Energy System Operator (NESO) is developing the first Strategic Spatial Energy Plan (SSEP) to focus on clean energy and hydrogen production. However, green hydrogen's high cost suppresses demand, creating a cycle of investment risk and project delays. Unlike natural gas, green hydrogen is not yet a tradable commodity and suffers from inconsistent categorisation across markets. To address these challenges, the UK government must implement targeted policies, subsidies, and carbon pricing to narrow the cost gap with incumbent fuels.
Overcoming infrastructure and financing challenges
The development of green hydrogen as a viable commodity market in the UK faces significant challenges, particularly in terms of infrastructure and financing. Achieving a balance between supply and demand is crucial, with the UK's cluster-based approach aiming to create localised hubs that can eventually form a cohesive national network. However, this strategy presents scalability challenges and requires careful planning to avoid logistical pitfalls.
Financing these projects is equally challenging, as it is tied to the depth of the demand pool and the creditworthiness of offtakers. The UK must demonstrate sustainable use cases and long-term resilience to attract investment, learning from Germany’s climate contracts and the logistical challenges faced by Spain. Prioritising foundational demand in hard-to-abate sectors and deploying targeted interventions will be essential to reduce risk and build a robust green hydrogen market.
Ecosystem growth and risk mitigation
This analysis delves into the critical aspects of ecosystem growth and risk mitigation within the green hydrogen market. As green hydrogen competes with established renewable energy solutions and cheaper alternatives like grey hydrogen and natural gas, it is essential to evaluate its viability through the lenses of price and technical feasibility.
Green hydrogen producers face significant cost challenges, particularly due to stringent production standards in the European Union and the UK. These standards add complexity and cost, making it crucial to balance ambition with pragmatism to avoid stifling market growth.
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