Green hydrogen: separating the durable opportunity from the noise

The cost problem is real but tractable

The fundamental challenge for green hydrogen is cost. Producing hydrogen by electrolysis using renewable electricity is currently more expensive than producing it from natural gas, even accounting for the carbon cost of the latter. The gap varies by geography — smaller where renewable electricity is cheap and abundant — but it is real and material in most markets.

The cost trajectory is, however, favourable. Electrolyser costs have fallen significantly and are expected to continue falling as manufacturing scales. Renewable electricity costs continue to decline. The combination means that green hydrogen cost parity with grey hydrogen is achievable in favourable locations within a reasonable planning horizon — though the timeline varies significantly by geography and application.

The mistake is to treat the cost trajectory as uniform. The economics of green hydrogen in a location with abundant cheap renewable electricity and proximity to industrial demand are fundamentally different from the economics in a location that lacks one or both of those conditions. Strategies built on global average cost projections will misallocate capital.

Where the durable opportunity sits

The durable opportunity is in hard-to-abate sectors where there is no credible alternative decarbonisation pathway. Steel production via direct reduction, ammonia synthesis and certain chemical processes are the clearest examples. In these applications, hydrogen is not competing with electrification — it is the only viable low-carbon option. The demand is real, the volumes are large, and willingness to pay a green premium is growing as corporate decarbonisation commitments harden.

Heavy transport — long-haul trucking, shipping, aviation — is more contested. Hydrogen fuel cells compete with battery electric in trucking, and the outcome will vary by route length and infrastructure availability. In shipping and aviation, synthetic fuels produced from green hydrogen are a credible pathway, but the economics are challenging and the timeline is long. These are real opportunities, but they require more careful analysis than the headline project announcements suggest.

Power generation and grid balancing are the most speculative near-term applications. Using green hydrogen for seasonal energy storage or peaking power is technically feasible but economically marginal in most markets. Round-trip efficiency losses are significant and the capital cost of the required infrastructure is high. This does not mean the application has no future, but it should not be the primary basis for near-term investment decisions.

The project pipeline problem

The gap between announced green hydrogen projects and projects that will reach final investment decision is large. Many announced projects are at an early stage of development, with uncertain offtake agreements, unresolved financing structures and optimistic cost assumptions. The history of large-scale energy infrastructure projects suggests that a significant fraction of the announced pipeline will be delayed, restructured or cancelled.

This matters for corporate strategy in two ways. Companies planning to source green hydrogen from announced projects need to assess the credibility of those projects carefully — not just the headline capacity and cost figures, but the offtake structure, the financing, the regulatory approvals and the developer's track record. Companies considering investing in green hydrogen production need to be realistic about the timeline to first production and the risks that could extend it.

A framework for corporate decisions

The right framework starts with the specific use case. Is the application one where hydrogen is the only credible decarbonisation pathway, or is it competing with electrification or other alternatives? If it is competing, what are the conditions under which hydrogen wins — and are those conditions likely to hold in the relevant geography and timeline?

The second question is geography. The economics of green hydrogen are highly location-dependent. A strategy that works in a location with abundant cheap renewables and strong policy support may not work elsewhere. Corporate strategies that treat green hydrogen as a uniform global opportunity will make poor capital allocation decisions.

The third question is value chain position. In most energy transition markets, the technology itself will become commoditised. Durable competitive advantage will sit in specific value chain positions — project development capability, long-term offtake relationships, grid integration expertise, or the industrial processes that consume the hydrogen. Identifying where value will concentrate requires understanding the full chain, not just the production technology.

Green hydrogen is a real and significant opportunity in specific applications and geographies. It is not a uniform global opportunity, and the announced project pipeline significantly overstates near-term commercial reality. The companies that will benefit most are those that approach it with geographic and application specificity, a realistic view of the cost trajectory, and a clear theory of where in the value chain they intend to capture value.