We began 2024 with optimism, calling it the “year for action” for the European hydrogen industry. And while there were notable achievements – major projects reaching FID; EU policy updates; significant funding announcements – much of the year was characterised by slow progress and lingering uncertainty. As we approach the midpoint to the next decade, to which regional and national targets and mandates are benchmarked to, it may be time to recalibrate expectations and redefine what progress looks like in this complex market.
Across the 12 major European markets tracked by Westwood[1], the hydrogen project pipeline currently totals 145 GW(LHV), including CCS-enabled, electrolytic, and methane pyrolysis production pathways. As highlighted in our Westwood Insight published last month, around 20% of the European hydrogen pipeline has been cancelled or stalled, made up of 23 projects with a combined capacity of 29.2 GW(LHV). The three primary reasons for these setbacks are: high production costs and economic challenges, failure to obtain funding, and a lack of demand.
This underscores the urgent need for key developments across the industry to convert the ambitious project pipeline into operational reality – so what developments are we waiting for in 2025? Westwood expects there to be:
- The same number of FIDs, but of larger scale
- Greater regulatory clarity
- More innovation to manage project risks
- More subsidies, with (importantly) more targeted subsidies
Let’s explore each of these in turn.
1. The same number of FIDs, but of larger scale
Based on factors such as target sectors, government support and awarded funding, Westwood anticipates the number of FIDs in 2025 to be comparable to the nine taken in 2024, though with potential for larger-scale projects. Notable highlights include:
Notable Projects to Watch in 2025
Source: Westwood Hydrogen
These projects share key traits with those that reached FID in 2024: secured funding at significant levels and confirmed offtake agreements with a local company in a hard-to-abate sector. With lessons learned from smaller-scale projects, we should expect an uptick in larger-scale FIDs in 2025, which is crucial for meeting hydrogen targets.
2. Greater regulatory clarity
EU policies for renewable hydrogen production, particularly the stringent requirements for Renewable Fuels of Non-Biological Origin (RFNBOs), have drawn significant criticism. Strict additionality, time matching and geographic correlation requirements have been labelled as overly strict and bureaucratic by figures like German Chancelor Olaf Scholz, who argue these policies inflate costs and hinder competitiveness. In July 2024, the European Court of Auditors (ECA) also criticised the EU’s ambitious 10Mt production and 10Mt import targets, calling them unrealistic due to the unclear methodology and a lack of binding national goals. Only Germany has set import targets, although its political instability, including elections set for 23 February, adds uncertainty.
We do not expect a revision to these regulations in 2025 as this would undo years of progress and exacerbate delays. Developers need clear, stable policies to move forward. Instead, governments should focus on implementing frameworks that drive meaningful progress.
The European Commission’s September 2024 draft Delegated Act of ‘low-carbon hydrogen’ offered some clarity by providing emissions calculation methodologies for low-carbon gases. However, finalising these rules – expected in 2025 – will be critical to provide the regulatory certainty needed for projects to advance in this space.
The EU’s Renewable Energy Directive III (RED III) mandates RFNBO hydrogen adoption across industries, transport and aviation, with member states required to transpose these targets into national law by 21 May 2025. Within the project pipelines across European major countries1, Westwood’s analysis shows that 61% targets industrial use, while transport and aviation account for 7% and 3%, respectively. Prioritising projects in these key sectors will be crucial to meeting RED III objectives.
Meanwhile, in the UK, the industry awaits updates on the Hydrogen to Power Business Model (H2P BM), transmission-level gas grid blending, and hydrogen heating strategies, all due in 2025. However, these measures are unlikely to deliver significant impacts this year. According to DESNZ[2] the H2P will require further technological maturity, infrastructure development, and reduction in CAPEX and financing costs before it can compete effectively – achieving this progress would require considerable accelerated efforts. Hydrogen heating has also faced significant challenges, with three pilot projects cancelled to date amidst growing opposition.
Clear, decisive action on practical, uniform, demand-focussed regulations is essential to translate Europe’s ambitions into tangible progress. The EU, for example, should go beyond merely providing guidance and actively support the development of national strategies. Countries like Italy already grappling with complex administrative policies, face a double bottleneck of EU and national bureaucracy, which could delay hydrogen development. Using 2025 to create a more uniform regulatory framework could simplify the development process across European markets and drive progress more effectively.
3. More innovation to manage project risks
Technology providers have been under significant pressure due to the market’s slow growth. For example, Johnson Matthey faced calls from its largest shareholder, Standard Investments, to limit hydrogen investments until a clear path to profitability is determined. This came after the company delayed the start-up of its catalyst-coated membrane factory in Royston, England. Nel also temporarily halted production at its flagship 1 GW alkaline electrolyser factory in Heroya, Norway earlier this month, due to slower-than-anticipated market growth.
Despite these setbacks, innovative approaches emerged in early January to provide the certainty developers and investors need to advance projects to FID. Topsoe has partnered with New Energy Risk (NER) to offer performance insurance for its solid-oxide electrolysers. This insurance mitigates risks during commissioning, ramp-up and operations, ensuring stable cash flow and covering debt servicing costs in case of underperformance issues. By transferring risks to insurers, the initiative enhances bankability and enables higher debt ratios and/or lower costs of debt.
Sunfire secured €200mn in financing led by Commerzbank, with 80% guaranteed by the German federal government and the Free State of Saxony. This arrangement eliminates the need for cash collateral on advanced customer payments, allowing Sunfire to focus on fulfilling orders, scaling operations and executing projects simultaneously.
These strategies demonstrate how companies are adapting to market challenges and creating greater chances of progress. Looking ahead to 2025, we can expect further innovation as the industry seeks to address persistent hurdles. However, questions remain about the sustainability of these approaches, particularly as electrolyser manufacturers grapple with substantial losses to date and the looming competitive threat from lower-cost Chinese electrolysers. By reducing risks and improving financial stability, initiatives like those from Topsoe and Sunfire provide examples of new risk-sharing and financing models. These models will be crucial in creating a more resilient and viable environment for project development amidst an uncertain market landscape.
4. More subsidies, with (importantly) more targeted subsidies
Efforts to support the European hydrogen market have been advancing through targeted subsidies and auctions aimed at boosting development in critical sectors – a trend we expect to continue throughout 2025.
The EU has contributed to this effort with the launch of its €2bn European Hydrogen Bank (EHB) auction in December, which includes a dedicated €200mn to support projects producing maritime hydrogen fuels. Following closure of the process in February, the successful winners will be announced in Spring 2025.
A series of national subsidies are also expected this year, which are set to increase subsidies available that target core sectors including e-fuels, derivatives and industrial decarbonisation:
Key National Subsidies in 2025 Targeting Core Sectors
Source: Westwood Hydrogen
These initiatives reflect a growing alignment of subsidy mechanisms with strategic goals, such as targeting specific industries and improving market resilience. We should expect this trend to continue, with subsidies like these helping to bridge the cost gap between renewable/low-carbon hydrogen production and existing fossil-hydrogen.
Jun Sasamura, Manager – Hydrogen
[email protected]
Ben Clark, Senior Analyst – Hydrogen & CCUS
[email protected]
