Shift in approaches mainly leads to the cancellation of low-carbon hydrogen projects

In a recent report, energy research company Rystad Energy has highlighted several challenges facing the hydrogen industry. The nominal cost of hydrogen in many regions is unlikely to come down in the near term, making projects financially unviable.

The high cost of clean hydrogen can directly contribute to cancellations, even with offtakes in place. Inflationary pressures can alter previous cost estimates for hydrogen projects, further exacerbating the financial strain.

Moreover, the terms for power purchase agreements (PPA) might not align with what developers can secure for their offtake deals, adding to the difficulty of making projects profitable.

Environmental impact, land use, water supply, and desalination are among the reasons for permitting cancellations, which have resulted in close to 20 hydrogen projects being cancelled.

Securing renewable and clean power for electrolytic hydrogen from the grid can pose a challenge, as large-scale electrolysers are a huge demand load for the power grid.

The nascent and complex nature of clean hydrogen is another factor contributing to project cancellations. Developers are diverting resources to higher-return sectors due to hydrogen project cancellations.

The attrition of hydrogen projects is significant, with around 13% being cancelled due to lack of robust demand signals. Lack of binding offtake agreements is particularly problematic for export-oriented projects in regions such as Australia and the Middle East.

Continued progress in the hydrogen industry requires robust government support, real market signals, and greater investment clarity. The research from Rystad Energy indicates that lack of robust demand signals and strategic changes are the main reasons for low-carbon hydrogen project cancellations.

Notably, BP and Australia's Origin Energy have suspended or cancelled multiple hydrogen projects due to cost-cutting and prioritizing core areas. Many developers have also suspended or cancelled hydrogen projects due to the inability to advance without appropriate binding offtake agreements.

However, there is no specific information available about companies that have changed their business models in recent years and as a result have cancelled their investments in low-carbon hydrogen projects. Developers' strategic changes account for 24% of low-carbon hydrogen project cancellations, representing approximately 6 million tonnes per annum of hydrogen capacity.

Despite these challenges, the high cost of clean hydrogen can indirectly contribute to the lack of demand and unfavourable returns, creating a self-perpetuating cycle. The energy industry will need to address these issues to ensure the successful transition to clean hydrogen as a viable energy source.

Shift in approaches mainly leads to the cancellation of low-carbon hydrogen projects