Markets
Why hydrogen projects stall
There is a widely repeated statistic in this industry to the effect that only a small fraction of announced hydrogen capacity has reached a final investment decision. The number moves depending on who is counting and what they count, so it is not worth quoting precisely. The pattern behind it is worth understanding exactly, because it is remarkably consistent.
The projects are not failing on engineering
It is tempting to assume that a technology this new fails on technical grounds. In practice the engineering is rarely the blocker. Electrolysis is a commercial technology with multiple mature vendors. Ammonia synthesis has been done at industrial scale for over a century. Storage, compression and shipping are all well understood.
What stops projects is that somebody has to buy the output, and in most cases nobody has agreed to.
The offtake gap
The structural problem is that announced production capacity vastly exceeds contracted demand. This is not a forecasting disagreement; it is a category error that gets repeated in business cases. An announcement is a statement of intent, frequently made to secure land, attention, policy support or a place in a queue. A contract is a counterparty accepting an obligation.
A production project with no contracted buyer cannot be financed. Not because lenders are unimaginative, but because the asset has no revenue and there is no merchant market deep enough to assume one into existence. This is the difference between molecular energy and renewable power, where a grid connection and a wholesale market provide a default buyer. Hydrogen has no equivalent.
So the sequence that fails looks like this: identify a cheap renewable resource, size a plant against it, model a production cost, announce, seek finance, discover that the price the model produces is above what any identified buyer will pay, and stall.
Why the buyers are harder to find than expected
The demand side of this industry is more complicated than the supply side, and it gets less attention.
Ambition is not a mandate. A great many organisations have public decarbonisation commitments. Far fewer have a procurement mandate, an approved budget line and an internal route to sign a fifteen-year contract for a premium input. Producers routinely mistake the first for the third, spend months in enthusiastic conversations, and conclude the market is not ready when in fact the targeting was wrong.
Certification is binary. A buyer bound by a scheme threshold cannot accept product that misses it, at any price. Certification regimes across the EU, UK, US and Asia are not aligned, so a project designed for one market can be ineligible in another. Discovering this after engineering is committed is expensive and fairly common.
The price ceiling is set by substitution, not by ambition. An industrial buyer’s willingness to pay is anchored to what they currently pay for the grey equivalent, plus whatever premium regulation or their own customers force. That ceiling is frequently below the production cost floor of a project designed without reference to it.
The other components that go missing
Offtake is the most common gap but not the only one. A project reaching FID needs, at minimum:
- Offtake — a buyer, at a price, on a term
- Technology — selected, priced and available on the project’s timeline
- EPC — a contractor able to deliver at this scale
- Capital — equity and debt, with an acceptable risk allocation
- Infrastructure — power, water, grid, storage, port or pipeline
- Permits — on a timeline compatible with the funding window
Any one of these missing stops the project. What makes this hard is that they are interdependent: the technology choice changes the delivered cost, which changes which buyers are reachable, which changes the volume, which changes the infrastructure requirement, which changes the capital need. Fixing them in the wrong order means reworking the ones already fixed.
Infrastructure deserves a specific mention because it is so consistently underestimated. Grid connection queues in several markets are now longer than the development timeline a project has assumed. Water in arid regions is frequently a harder constraint than electricity. Neither is usually funded by the production project, and neither is something a developer can solve alone.
What actually unblocks a project
The honest answer is that somebody has to assemble the counterparties, and that is a different activity from analysis.
More studies do not fix a missing buyer. An excellent feasibility study on a project with no offtake produces a well-documented stall. Yet the instinct when a project stops is frequently to commission more analysis, because analysis is procurable and counterparties are not.
What changes the outcome is:
- Diagnose the binding constraint honestly. Usually offtake or capital. Working the easy gaps while the binding one stays open is how years disappear.
- Start the buyer conversation early enough to let it shape the project. Volume, certification basis, delivery point and timing are all negotiable before the design is frozen and mostly not afterwards.
- Target buyers with a mechanism, not an ambition. Existing consumers of the grey molecule — refineries, ammonia producers, chemical plants — have budgets, procurement processes and technical capability. They are unglamorous and they can actually contract.
- Keep the commercial case live. Every component that lands changes the economics. A case that was filed after the feasibility study is out of date by the time the first term sheet arrives.
The uncomfortable implication
If the binding constraint is commercial rather than technical, then the capability a project needs is commercial: knowing who the buyers actually are, which of them can transact, what they are bound by, and how to reach them. That is not what most technical advisers sell and it is not what most developers have in house.
It is what MolecularX is built to do — which is why project development here means identifying the missing component and helping assemble it, and why buyer discovery is a service rather than an assumption.
None of this makes a bad project good. A project whose delivered cost is structurally above every reachable buyer’s ceiling should stop, and finding that out during pre-feasibility is the cheapest outcome available to it. But a great many projects are not structurally uneconomic. They are simply unassembled.
Questions
Why do most announced hydrogen projects never get built?
Overwhelmingly because they have no contracted offtake. Announced capacity vastly exceeds contracted demand, and a production project without a buyer cannot be financed at any level of engineering quality. Policy uncertainty, infrastructure gaps and cost inflation all contribute, but the missing buyer is the constraint that stops the most projects.
What is the difference between announced and contracted hydrogen capacity?
Announced capacity is a public statement of intent, often made to secure land, attention or policy support. Contracted capacity is volume somebody has committed to buy. The gap between them is very large, and any market analysis that treats announcements as demand will produce plants without customers.
When should a hydrogen project start looking for buyers?
Much earlier than most do. Buyer conversations shape the project — volume, certification basis, delivery point, timing — and beginning them after the design is fixed removes the flexibility needed to actually reach an agreement.
What are you trying to achieve?
If any of the above applies to your situation, the useful next step is a short conversation about what you provide, what you need and where you operate.