Europe’s hydrogen industry entered 2024 with optimism, dubbing it the “year for action.” Yet, despite notable achievements—such as major projects reaching final investment decisions (FIDs), EU policy updates, and significant funding announcements—progress has been slower than anticipated.
With the midpoint to 2030 approaching, a recalibration of expectations is necessary. The European hydrogen project pipeline currently stands at 145 GW(LHV), but 20% of these projects—totaling 29.2 GW(LHV)—have been canceled or stalled due to high production costs, funding shortages, and weak demand. As 2025 approaches, the industry is looking to four key developments to drive progress: larger-scale FIDs, greater regulatory clarity, innovative risk management, and more targeted subsidies.
Larger-Scale FIDs: Building on Lessons Learned
Westwood anticipates that 2025 will see a similar number of FIDs as 2024, but with a focus on larger-scale projects. In 2024, nine projects reached FID, supported by significant funding and confirmed offtake agreements with local companies in hard-to-abate sectors. These projects, such as those in Germany and the Netherlands, have set a precedent for scaling up. For example, the 500 MW green hydrogen project in the Port of Rotterdam and the 1 GW electrolyzer project in Spain are expected to advance in 2025. These initiatives reflect a growing confidence in the market, driven by lessons learned from smaller-scale projects and the increasing availability of funding.
However, the transition to larger-scale projects is not without challenges. High capital expenditures (CAPEX) and the need for robust infrastructure remain significant barriers. According to Westwood, the success of these projects will depend on their ability to secure long-term offtake agreements and navigate complex regulatory environments.
Regulatory Clarity
The EU’s stringent requirements for Renewable Fuels of Non-Biological Origin (RFNBOs) have been a point of contention. Critics, including German Chancellor Olaf Scholz, argue that the additionality, time-matching, and geographic correlation rules inflate costs and hinder competitiveness. The European Court of Auditors (ECA) further criticized the EU’s ambitious targets—10 million tonnes (Mt) of domestic hydrogen production and 10 Mt of imports by 2030—as unrealistic due to unclear methodologies and a lack of binding national goals.
In 2025, the focus will be on implementing existing regulations rather than revising them. The finalization of the EU’s Delegated Act on low-carbon hydrogen, expected in 2025, will provide much-needed clarity on emissions calculation methodologies. Additionally, the Renewable Energy Directive III (RED III) mandates that member states transpose RFNBO targets into national law by May 2025. With 61% of Europe’s hydrogen pipeline targeting industrial use, and smaller shares allocated to transport (7%) and aviation (3%), aligning project priorities with RED III objectives will be critical.
In the UK, updates on the Hydrogen to Power Business Model (H2P BM) and hydrogen heating strategies are expected in 2025. However, these measures are unlikely to deliver immediate impacts, as they require further technological maturity and infrastructure development.
Adapting to Market Realities
The slow growth of the hydrogen market has placed significant pressure on technology providers. For instance, Johnson Matthey delayed the start-up of its catalyst-coated membrane factory in Royston, England, while Nel temporarily halted production at its 1 GW alkaline electrolyzer factory in Heroya, Norway. These setbacks highlight the challenges of scaling up in an uncertain market.
In response, innovative risk-sharing models are emerging. Topsoe’s partnership with New Energy Risk (NER) offers performance insurance for its solid-oxide electrolyzers, mitigating risks during commissioning and operations. Similarly, Sunfire secured €200 million in financing, with 80% guaranteed by the German government, to eliminate the need for cash collateral on customer payments. These models enhance project bankability and provide a blueprint for addressing financial and operational risks.
However, questions remain about the sustainability of these approaches, particularly as European manufacturers face competition from lower-cost Chinese electrolyzers. The industry will need to continue innovating to remain competitive and resilient.
Targeted Subsidies: Bridging the Cost Gap
Subsidies have played a crucial role in advancing Europe’s hydrogen market, and this trend is expected to intensify in 2025. The EU’s €2 billion European Hydrogen Bank (EHB) auction, launched in December 2024, includes €200 million dedicated to maritime hydrogen fuels. The results of this auction, to be announced in spring 2025, will provide a clearer picture of the market’s direction.
National subsidies are also expected to increase, with a focus on core sectors such as e-fuels, derivatives, and industrial decarbonization. For example, Germany’s H2Global initiative and France’s hydrogen support schemes are set to expand in 2025. These targeted subsidies aim to bridge the cost gap between renewable/low-carbon hydrogen and fossil-based hydrogen, making projects more economically viable.
The coming year will test the industry’s ability to adapt and innovate in the face of persistent hurdles. With 2030 targets looming, 2025 must be a year of decisive action and measurable progress.
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