Multiple factors have led developers to abandon announced low-carbon hydrogen projects. Strategy pivot is top among them, accounting for 24% of the cancelled projects and around 6 million tpa of hydrogen capacity. Developers are reconsidering commitments made during the sector’s early, optimistic phase and now are strategically pivoting back towards their core businesses, opting to scale down risky hydrogen investments in favor of more reliable returns. For example, BP and Australia’s Origin Energy have suspended or cancelled multiple projects, often citing the need to cut costs and prioritize core business areas. This retrenchment is understandable given the nascent and complex nature of clean hydrogen; initial targets often outpaced more realistic business and transition models.

Lack of robust demand signals have also led to significant project attrition, accounting for 13% of the project cancellations. Despite ambitious adoption forecasts, especially in markets like the EU, actual market growth has been far more subdued, often due to lower willingness to pay and regulatory uncertainty. Many developers, unable to advance projects without appropriate binding offtake agreements, have understandably suspended or canceled initiatives, instead diverting resources to higher-return sectors. This particularly affects export-oriented projects in regions such as Australia or the Middle East.

While it could be said that the high cost of clean hydrogen has indirectly contributed to the lack of demand and unfavorable returns, it can also be a direct factor for cancellations even with offtakes in place, especially as inflationary pressures alter previous cost estimates. Based on the latest estimates from Rystad Energy’s Hydrogen and Derivative research, the nominal cost of hydrogen in many regions is unlikely to come down in the near term. As the hydrogen industry matures, such corrections are expected—especially in a nascent sector where reference points for cost estimations and inflation impacts are still few and far between.

To bridge cost gaps and help early movers, government support continues to play a crucial role. The sector is highly dependent on subsidies and public grants, so when funding does not materialize or an auction is not won, projects are often axed from the pipeline. Numerous funding mechanisms are available for clean hydrogen projects globally, but not enough to enable all announced projects in the near term. Aside from concrete monetary incentives, certainty in policy support is impactful. In fact, as regulations such as REDIII in the EU started to become law with clear penalties, developers could create a more robust and sustainable business case, evident by final investment decisions of green hydrogen projects for refinery usage.

When projects enter more advanced development phases, they can face cancellation risk from permitting and development-related hurdles. Evidently, close to 20 projects have been cancelled due to challenges in the permitting processes regarding environmental impact, land use, water supply, and desalination, among other reasons. This can be a problem for less experienced developers that do not consider the extent of these requirements before announcement and project design. This issue is of course not unique to hydrogen development, but the scale of infrastructure development required for mega projects means the complexity will increase. And for electrolytic hydrogen, securing renewable and clean power from the grid can also pose a challenge. Large-scale electrolyzers are a huge demand load for the power grid, and the terms for power purchase agreements (PPA) might also be a mismatch with what developers can secure for their offtake deals.

The initial enthusiasm behind clean hydrogen has given way to a more sober view as the sector comes to grips with practical realities. Many of the cancellations and delays now surfacing were, in hindsight, inevitable for such a nascent field. This transitional phase, while challenging, is also necessary for the industry to build on experience and focus on commercially viable projects. Quarterly data reveals that despite the cancellations, new projects are still being announced in many regions, including India and China. Nevertheless, continued progress will require robust government support, real market signals, and greater investment clarity to bridge the growing gap between policy ambition and commercial viability.

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