The green hydrogen hype is fading as high costs force the project to be scrapped

Climate-friendly hydrogen has been one of the hottest green energy sectors. Now the reality of high costs is setting in.

In recent months, some of the largest potential developers of this fuel have canceled projects, suspended orders and limited investment plans. Low-emission fuel is simply too expensive to stimulate demand in many economic sectors.

Origin Energy on Thursday canceled a project to produce clean-burning fuel in an industrial area of ​​eastern Australia.

“It has become clear that the hydrogen market is developing slower than anticipated and therefore risks remain, as well as raw material costs and technological advances that need to be overcome,” Origin CEO Frank Calabria said in a statement. “The combination of these factors means we are unable to know the current path to making a final investment decision on the project.”

So-called green hydrogen is produced by using renewable energy to separate hydrogen and oxygen atoms in water. The resulting product could replace fossil-fuel hydrogen currently used in the chemical and oil refining industries, as well as potentially in new applications such as energy storage, steel production and marine fuel.

Origin Energy is just the latest example of a company backtracking on its plans. Earlier this week, Norwegian company Nel ASA, which makes green hydrogen machines, said Mississippi-based Hy Stor Energy had canceled an order for 1 gigawatt equipment. That would be enough to build what is by far the largest project of its kind in the US

According to Michael Liebreich, CEO of Liebreich Associates and managing partner of EcoPragma Capital, in addition to publicly traded company project cancellations, smaller players are likely pursuing many other projects without fanfare.

Still, Liebreich, who is both an analyst and an investor, said this could be a positive reset for the industry, allowing economically sound projects to continue.

“A lot of people just leave, and that’s healthy,” Liebreich said in an interview. “The more realism, the better, because we can focus our time, capital and talent on things that will work, not on what won’t work.”

There are signs that the demand for hydrogen will grow this decade, but only a small part of this demand will be met by clean fuel.

According to the International Energy Agency, clean hydrogen production will increase by more than 40% and reach 1 million tonnes in 2024, although this still only represents about 1% of current global hydrogen demand. The IEA said projects with a further 3.4 million tonnes of capacity must be subject to a final investment decision.