The past year has marked a turning point for the global green hydrogen sector, as escalating costs, weak demand, and uncertain policy frameworks have forced many flagship projects into delay or outright cancellation.
Once heralded as the cornerstone of the global energy transition, the industry is now learning that producing and moving hydrogen at scale remains far more expensive than initially imagined.
According to the International Energy Agency’s Global Hydrogen Review 2025, electricity accounts for between 50 and 60 per cent of the total cost of producing hydrogen from electrolysers.
When renewable power prices surge, project economics collapse.
The IEA estimates the levelised cost of green hydrogen (LCOH) has risen between 25 and 40 per cent since 2022, driven by inflation, supply chain shortages, and higher interest rates.
BloombergNEF places global production costs at US$3.7 to US$11.7 per kilogram, depending on renewable power prices, electrolyser efficiency and financing conditions.
Transporting hydrogen adds another layer of cost and complexity.
The IEA notes that pipelines remain the cheapest option for short to medium distances—typically under 2,500 kilometres—but most export projects depend on shipping hydrogen as ammonia or a liquid organic carrier.
Converting hydrogen into ammonia and then back again can add as much as US$1.9 to US$2.5 per kilogram to delivered costs, according to IEA estimates.
Port handling and storage can push that even higher, making long-distance exports uncompetitive without subsidies.
Several high-profile projects have already buckled under these pressures. In Australia, the A$50 billion Australian Renewable Energy Hub (AREH) lost BP as a partner in mid-2025 after cost estimates soared and offtake agreements failed to materialise.
The A$15 billion Desert Bloom Hydrogen project in the Northern Territory has been shelved indefinitely, while the Whyalla state hydrogen power project was cancelled after auditors revealed that more than A$285 million had been spent without achieving construction.
Reuters reported that Trafigura’s A$750 million Port Pirie electrolyser was also abandoned earlier this year, part of a “global retreat” from overly ambitious green hydrogen projects.
Namibia has felt similar tremors.
In September 2025, German energy utility RWE withdrew from its non-binding offtake agreement with Hyphen Hydrogen Energy, citing slower-than-expected European demand for hydrogen and ammonia.
The company had initially planned to buy 300,000 tonnes of green ammonia per year from Hyphen’s US$10 billion project.
According to RWE’s statement, the decision came after a “review of relevant projects” as the European hydrogen derivatives market developed more slowly than forecast.
Policy uncertainty has compounded financial strain.
In Europe, the EU Hydrogen Bank’s inaugural auction 2024 drew strong bids, but half the shortlisted developers have since postponed final investment decisions because of cost inflation and certification delays.
In the United States, the Department of Energy is reassessing funding for several of the seven regional hydrogen hubs announced under its US$7 billion clean hydrogen programme.
European technology supplier thyssenkrupp Nucera withdrew from multiple US projects in August 2025, citing “a changed legislative and financing environment.”
Community and regulatory resistance have also emerged as new cost factors.
In Namibia, traditional leaders protested the Hyphen project’s location inside Tsau Khaeb National Park, claiming it overlapped ancestral Nama lands. Although RWE denied a link between these complaints and its withdrawal, the controversy illustrated how environmental and social opposition can complicate permitting and delay investment.
Similar tensions have appeared in Kenya and Morocco, where community consent and water scarcity are becoming decisive for investors.
Underlying these problems is a fundamental economic reality. Green hydrogen’s dependence on cheap renewable electricity makes it vulnerable to market swings.
When power prices rise, hydrogen becomes uncompetitive against fossil-based alternatives. BloombergNEF estimates that electricity alone can account for as much as 70 per cent of hydrogen production costs.
Industrial buyers in steel, fertiliser and transport remain unwilling to commit to long-term purchase contracts when the green premium doubles or triples the cost of grey hydrogen.
Financing institutions have responded by tightening lending standards. The IEA says higher interest rates and policy uncertainty have forced banks to demand stronger guarantees before releasing funds. In effect, developers are trapped between reluctant buyers and cautious lenders.
There are, however, isolated bright spots. In Germany, developers behind the Lubmin floating ammonia terminal claim they could deliver hydrogen between US$3 and US$3.50 per kilogram by 2027, assuming lower renewable prices and efficient conversion. Japan and South Korea continue to subsidise import terminals and ammonia co-firing in thermal power plants, while the United States retains some of the world’s most generous hydrogen tax credits—up to US$3 per kilogram under the Inflation Reduction Act.
Still, the sector’s fundamentals remain strained. For current inputs, production costs of around US$4 to US$7 per kilogram must be combined with an additional US$2 per kilogram for conversion and shipping.
Delivered hydrogen could cost US$6 to US$9 per kilogram in Europe or Asia, far above grey hydrogen’s average of about US$1.50 per kilogram.
Most export-oriented projects will stay in limbo without new policy incentives, such as guaranteed price floors or carbon border adjustments.
The IEA’s 2025 data show that more than a thousand low-carbon hydrogen projects have been announced globally, but fewer than 15 per cent have reached financing or construction.
The gap between aspiration and reality remains wide. Hydrogen will still play a role in decarbonising heavy industry and transport, but for now, the green hydrogen revolution is confronting its most expensive truth: clean molecules cannot travel the world without cheap power, clear laws, and political will to absorb the cost.
