Renewable hydrogen advancing in Europe despite high-profile project failures

Momentum is building for renewable hydrogen projects in Europe, despite recent high-profile cancellations and setbacks, as state-backed subsidy support auctions and end-user mandates underpin final investment decisions.

More plants have reached positive FIDs than have been scrapped, S&P Global Commodity Insights data showed, though the share of announced projects to progress to FID remains small.

Experts attribute project failures to natural attrition in the nascent clean hydrogen sector.

"In a sense, I am not surprised by what I see in the marketplace," Energy Transitions Commission Chair Adair Turner told Commodity Insights.

The ETC sees slow growth in low-carbon hydrogen to 2030, with a more rapid ramp-up in 2030-40, Turner said in an interview.

Despite jitters from late 2024 project cancellations, the industry is poised at a critical threshold, with policy frameworks and funding taking firmer shape.

Over 3 GW of electrolysis capacity has passed FID in Europe, to produce 415,000 mt/year of renewable hydrogen, according to Commodity Insights data, compared with 2 GW of cancellations.

Carbon capture-enabled hydrogen projects have fared less well, with 1.5 million mt/year of cancellations overshadowing 400,000 mt/year of FIDs.

But advanced-stage projects including FID total 3.8 million mt/year across renewable and low-carbon projects, with 2.4 million mt/year from blue hydrogen.

Data analyzed by European law firm Fieldfisher, including from Pitchbook Data, identifies $1.13 billion in low-carbon hydrogen investments in Europe in 2024, up from $550 million in 2023.

European hydrogen projects:

*Excludes large-scale Hydeal project

Source: S&P Global Commodity Insights

Subsidy support

The EU is paving the way with grant support. Its first European Hydrogen Bank subsidy auction, awarded in 2024 at 37-48 euro cents/kg, will support 1.5 GW of electrolysis across six projects based in the low-cost renewable generation regions of the Nordics and Iberia.

The second auction, with a budget of up to Eur1.2 billion ($1.26 billion) and a price ceiling of Eur4/kg, closes Feb. 20.

In the UK, the government has awarded the first contracts under its debut hydrogen allocation round (HAR1), with the remaining winning project awards under the 125-MW round expected in the coming weeks.

The UK will also support the country's first two blue hydrogen plants through its Track 1 industrial cluster decarbonization program.

The bilaterally negotiated strike prices for HAR1 have proved more expensive per kilogram, with an average strike price of GBP9.50/kg.

The following three to six months will be crucial for the industry in the UK, Hydrogen UK Chief Executive Clare Jackson told Commodity Insights.

"What we saw in 2024 was perhaps not the pace we would have liked," Jackson said in a January interview. "We need to see an acceleration in the pace, both for the hydrogen allocation rounds and the Track CCUS cluster process, but also in terms of infrastructure as well."

Jackson cautioned that more funding than the GBP22 billion already allocated over 25 years for three Track 1 projects offered grants plus the associated CO2 infrastructure would be needed for the remaining Track 1 projects, the Track 1 extension and Track 2.

She said blue hydrogen production would dominate through to 2030, with green production gaining prominence thereafter, driven by the Labour government's clean power 2030 plans.

State support models

Governments are adjusting subsidy support models in response to early rounds.

The EU has lowered its price ceiling for the second hydrogen bank auction, though it is still substantially above the first round's clearing price.

It has also adjusted the rules for its "auction as a service" model, under which member states can subsidize projects within their jurisdiction under the same framework.

Germany withdrew from the first round after the pilot auction set a limit of three times the level of the winning bid for state support, thereby excluding the German projects that bid.

"The pilot round revealed a significant need to revise the tender design," a spokesperson for the German Ministry of Economic Affairs and Climate Action told Commodity Insights, welcoming the European Commission's changes.

The EC will instead set out capacity limits to help safeguard competition.

The German ministry confirmed the Eur350 million funding remained available for hydrogen project support, but forthcoming elections have cast doubt on the country's green spending agenda.

Elsewhere in Europe, there is a cautious mood in the Netherlands as it consults on transposing the revised EU Renewable Energy Directive into national law, with industry representatives warning against diluting renewable hydrogen targets.

In the UK, low-carbon hydrogen producers have little incentive to sell above the natural gas floor price, with producers recouping only 10% of the sales price premium above that level.

Hydrogen UK is calling for changes to future allocation rounds, including price indexation, inclusion of risk-taking intermediaries and guidance on blending for hydrogen, which would lower project risk and costs.

European hydrogen support auctions:

Sources: S&P Global Commodity Insights, European Commission, UK government, The Netherlands Enterprise Agency (RVO), The Danish Energy Agency