What is the current state of the European hydrogen investment landscape?

Hydrogen, a hugely important clean fuel and energy vector, is facing a challenging investment climate. While its potential to decarbonise "hard to abate" sectors is undeniable, particularly those that cannot be electrified, the road to widespread adoption is fraught with obstacles.

Osborne Clarke recently moderated a panel discussion on "The ever-evolving green hydrogen investment landscape" at the Energy Transition Forum in Berlin, where we explored three critical areas to unlock the full potential of green hydrogen: foundational demand, infrastructure challenges, and the role of government.

Is hydrogen facing an existential crisis?

The opening question to the panel was direct: "Is hydrogen facing an existential crisis?". The consensus was clear – while hydrogen is not on the brink of extinction, it is at a pivotal juncture where targeted strategies and supportive policies will be crucial for its survival and growth.

Hydrogen's development has often been likened to a "chicken and egg" problem, where production and demand are interdependent. Osborne Clarke's latest white paper, Unlocking Green Hydrogen Projects: Overcoming Investment Barriers, underscores the fundamental importance of demand as an enabler for projects.

Demand-side questions

One of the issues we raised was whether demand has been overlooked in favour of incentivising production. The UK and EU have made significant strides in promoting hydrogen production, but these efforts have sometimes been "demand-blind," not considering the most relevant applications of hydrogen. This has led to a mismatch where hydrogen is produced without a clear route to connecting it to the market that will consume it.

Identifying the key demand sectors is necessary to create a viable and scalable hydrogen market. Current users of grey hydrogen (such as the fertiliser, chemical and refining industries) represent the existing demand case. However, the next wave of adopters – those pursuing green hydrogen as part of their decarbonisation strategies – will drive significant growth. Relevant sectors include heavy transport (aviation and maritime), industry (ceramics, glass, steel) and power generation.

Specific demand-related issues will also need addressing. For instance, the creditworthiness of offtakers, the tenor of contracts, and the willingness to pay a premium for green hydrogen are all critical factors.

In addition, the market's shallowness and illiquidity pose challenges that will have to be overcome to ensure stable demand. This is one of the fundamental concerns for investors, who are wary about offtake risk and transferable demand solutions.

Overcoming infrastructure and technological challenges

A lack of established infrastructure is a significant hindrance to scaling green hydrogen, with a number of project-level and inter-project issues that need addressing.

At the project level, supply chain and project development issues are major barriers. These include skills shortages, technological bottlenecks, and capital expenditure (CAPEX) and operational expenditure (OPEX) constraints.

First-of-a-kind technologies, such as electrolysers, also face challenges related to lack of an operating history and load profile.

Scaling up collections of projects to achieve efficiencies and economies of scale will be essential. Clusters of interlinked projects can serve as enablers, linking supply and demand hubs through transportation networks and a hydrogen backbone.

Storage infrastructure is another critical component. It serves multiple purposes, such as acting as an offtaker of last resort (which addresses the illiquid demand problem), enabling interseasonal storage (which can incentivise greater deployment of renewable technologies), and facilitating hydrogen's use in power generation. Without reliable storage facilities, the hydrogen market cannot achieve the necessary stability and scalability.

The role of government

The government's role in the hydrogen ecosystem is multifaceted, involving both production, infrastructure and demand-side interventions.

Subsidies and revenue support mechanisms are essential to mitigate early stage investment risks, particularly from a debt financing perspective. The form of these subsidies – whether tax credits, development expenditure grants, CAPEX grants, or Contracts for Difference (CfDs) – can significantly affect their effectiveness and the pace of their deployment. Additionally, the cost of hydrogen production is closely tied to renewable energy deployment, being heavily determined by the prevailing cost of power and the flexibility of Power Purchase Agreements that are compatible with the applicable low carbon hydrogen standard.

The government is also able to stimulate demand through both voluntary and non-voluntary measures. Voluntary measures include general policy direction and long-term decarbonisation commitments. Non-voluntary measures, such as mandates, quotas and carbon pricing, can drive demand in specific sectors like existing grey hydrogen users and new users, including green steel, ceramics, and maritime and aviation.

Regulatory barriers that impede the development of green hydrogen projects should be addressed. Current measures may not be sufficient, and policy frameworks need improvement to support investment and to directly address the specifics of a hydrogen project. The panel felt that the urgency of these changes cannot be overstated, as timely intervention is crucial for market growth and to maintain investor confidence at this pivotal moment.

Enabling infrastructure

As the discussion drew to a close, panellists were asked to suggest one immediate change to the hydrogen ecosystem. The responses varied but converged on the need for a combination of enabling infrastructure and facilitative policy. Mandates, quotas and production subsidies are essential to closing the cost gap and driving demand.

Osborne Clarke comment

Despite much concern about the "hydrogen hype" bursting, hydrogen is not facing an existential crisis. It is, though, at a critical juncture. Targeted use cases, enabling infrastructure, and supportive policies are essential for its growth. The panel discussion highlighted the need for a cohesive strategy that addresses demand, infrastructure and government roles. By tackling these areas, the hydrogen market can overcome its current challenges and realise its full potential.

The panel discussion, sponsored by Osborne Clarke, on "The ever-evolving green hydrogen investment landscape" took place at the Energy Transition Forum, part of the Infrastructure Investor Network Global Summit held in Berlin in March 2025.