Underperformance of the EU Hydrogen Mechanism Highlights Funding and Market Challenges
The European Union's flagship initiative to promote green hydrogen through the European Hydrogen Bank is currently facing significant challenges, with nearly 80 per cent of its available funding remaining unallocated.
This setback has exposed widespread issues in scaling up hydrogen projects within Europe, despite the initial optimism surrounding the efforts to close the gap between production costs and market prices. Only six projects received a total of 270 million euros, out of an authorized budget of 1.2 billion euros, revealing a stark discrepancy in expected versus realized commitments.
Industry insiders contend that the lack of project commitments is not due to a dearth of applicants but is primarily driven by the stringent requirements of adherence to financial guarantees, which many firms find difficult to satisfy. Companies report that competing projects often drop out when faced with the demands to provide guarantees covering 8 per cent of the aid requested, which must be supported by banks and insurance companies.
Experts such as Javier Ferrer from McKinsey and Company highlight that the absence of initial financial guarantees in early project stages allows less mature projects to pass initial screenings. However, when it comes to securing actual financial backing, many such projects falter, unable to meet the strict financial conditions.
Analysts point out that the current investor skepticism is rooted in the realization that green hydrogen is not only a question of ambition but also of economic viability at prevailing costs. Oceane Balbinot-Viale of Credit Mutuel Asset Management notes that the market outlook is now characterized by cautious realization rather than optimism, with only certain types of projects—those with low-cost renewable energy and assured demand—likely to move forward.
The overall market momentum is weakening, driven by structural and cyclical factors. As Ferrer observes, recent discourse has shifted from sustainability to concerns over energy security, cost competitiveness, and the financial sustainability of hydrogen projects. Without firm supply agreements and bankable projects, moving from pipeline to realizable projects remains challenging.
However, there are positive signs with some large-scale investment decisions exceeding 100 megawatts occurring in Spain, alongside efforts to weed out non-viable projects. Such adjustments are viewed as essential steps towards establishing a more resilient and credible green hydrogen market, with prospects for stabilizing the industry as project realization improves.