Green hydrogen has been promised as the next major clean energy carrier for the coming decades and has been the subject of intense hype over the past few years. However, the recent slowdown in market growth and the cancellation of numerous green hydrogen projects have raised significant doubts. This has led to increasing skepticism within the industry: will green hydrogen eventually materialize as a cornerstone of the energy transition, or will it become another overhyped technology that fails to scale?
In this new release from market intelligence firm IDTechEx, technology analyst Dr Cherie Wong explains the key market trends and regional developments that could shape the future of the green hydrogen market.
Green hydrogen has been promised as the next major clean energy carrier for the coming decades and has been the subject of intense hype over the past few years. However, the recent slowdown in market growth and the cancellation of numerous green hydrogen projects have raised significant doubts. This has led to increasing skepticism within the industry: will green hydrogen eventually materialize as a cornerstone of the energy transition, or will it become another overhyped technology that fails to scale?
Cost emains the largest barrier to Green Hydrogen adoption
The fundamental challenge facing green hydrogen remains its high cost. While grey hydrogen typically costs only US$1-2/kg, green hydrogen production costs range from US$5-10/kg, making it economically uncompetitive in most applications. IDTechEx’s independent report Green Hydrogen Production & Electrolyzer Market 2024-2034: Technologies, Players, Forecasts benchmarks key green hydrogen technologies and provides cost analysis for different electrolyzer technologies and production pathways.
According to IDTechEx’s assessment, expensive renewable electricity accounts for 60-80% of total production costs, with high capital expenditure requirements further driving overall costs. Although technological improvements in electrolyzer stacks are continuing, such as incremental efficiency gains and more compact designs, they have not delivered the step-change cost reductions that were once anticipated from economies of scale.
Weak offtaker demand and market overcapacity
High production costs have directly translated into weak offtaker demand. While electrolyzer manufacturers have built the capacity to produce systems ranging from hundreds of MW to several GW, the market has struggled to find customers willing to pay the green premium. Many instead opt for cheaper alternatives such as grey or blue hydrogen that fall short of strict green standards.
Many potential offtakers remain unconvinced that green hydrogen costs will fall sufficiently in the near term. As a result, demand has lagged far behind installed and planned electrolyzer manufacturing capacity, resulting in a significant overcapacity across the market. This imbalance is evident across multiple electrolyzer technologies and is reflected in the declining stock prices and profitability of major electrolyzer original equipment manufacturers (OEMs) since 2021.
In theory, high costs and infrastructure-related risks could be mitigated through government incentives, subsidies, and regulatory support mechanisms. This varies by region with IDTechEx providing insights into different trends in key markets such as the US, Europe and China.
US policy signals put the green hydrogen industry at risk
Recent policy signals from the US administration suggest a less favorable environment for green hydrogen compared with the previous administration under the Inflation Reduction Act (IRA). The newly introduced One Big Beautiful Bill Act (OBBBA) represents a sharp shift in priorities, with green hydrogen receiving reduced support.
Under the OBBBA, the timeline for the Clean Hydrogen Production Tax Credit (Section 45V) has been significantly accelerated, requiring all eligible projects to begin construction before 2028. In addition, the Carbon Oxide Sequestration Tax Credit (Section 45Q) has been increased for point-source carbon capture used in applications such as enhanced oil recovery (EOR). This change sends a clear market signal favoring technologies that capture CO₂ for productive use, a category that inherently does not include green hydrogen.
Beyond the OBBBA, additional political and regulatory signals further increase risks for the US hydrogen industry. These include suspended grants and loans, as well as higher costs for imported equipment. Since much of the green hydrogen supply chain is not localized within the US, these measures disproportionately affect green hydrogen projects, placing them in an increasingly challenging operating environment.
In light of these developments, hydrogen project developers face two primary strategic options: proceed at full speed to meet the accelerated 45V deadline, or pivot toward blue hydrogen, conventional hydrogen production integrated with carbon capture, to access the 45Q incentives instead.
Blue hydrogen may therefore gain a competitive advantage over green hydrogen in the United States, as its tax credit framework is comparatively favorable. However, persistent policy uncertainty and unstable government financial support could slow growth across the broader US hydrogen market. As a result, not only may green hydrogen deployment be constrained, but blue hydrogen projects could also be indirectly affected by overall market instability.
Europe: Leading in technological innovation, but costs remain high amid regulatory uncertainty
Many leading electrolyzer and materials companies are based in Europe, driving innovations in electrolyzer technologies and materials with better performance and efficiency. IDTechEx’s report Materials for Green Hydrogen Production 2026-2036: Technologies, Players, Forecasts highlights the key players, technologies, and advanced materials and components driving green hydrogen production.
Europe is strongly committed to green energy, including green hydrogen, as an alternative to more carbon-intensive solutions. However, high labor costs and expensive renewable energy make it challenging to reduce the cost of green hydrogen production. In addition, IDTechEx interviews with OEMs indicate that the complex and non-linear regulatory framework of RED III, coupled with slow adoption, increases production costs by up to 40%. These factors have contributed to slower-than-expected growth in the European hydrogen market. While greater regulatory clarity is anticipated soon, ongoing uncertainty continues to limit development.
China: Global factory for electrolyzers with low cost, expanding globally
China has numerous projects focused on developing green hydrogen, with major companies such as Sungrow, Peric, and LONGi Hydrogen driving GW-scale projects. While Chinese electrolyzers may not lead in top efficiency or technological innovation, Chinese green hydrogen companies excel in large-scale production and have a complete domestic supply chain. This enables China to produce electrolyzers at a very low cost compared to European manufacturers.
Intense domestic competition is pushing many Chinese electrolyzer manufacturers to expand abroad, with Europe emerging as a key target market. European electrolyzer manufacturers are responding to this competitive pressure in two main ways. Some are focusing on product differentiation, offering higher performance and more efficient systems to stand out in the market. Others are pursuing collaboration or partial integration with Chinese manufacturers. For example, Italian anion exchange membrane (AEM) water electrolyzer developer, Enapter, retained the R&D and production of key stack materials in Europe, while leveraging China’s expertise in balance-of-plant components and system integration.
IDTechEx expects China to continue growing its global market share and to penetrate the European market. As electrolyzers are volume-driven products, China’s complete supply chain, advanced manufacturing automation, and low labor costs enable mass production at highly competitive prices.
Green hydrogen outlook: Uncertainties in short-term, But hold long-term promise
The short- to medium-term outlook for green hydrogen is uncertain due to political and market factors: the US exhibits instability in its green energy strategy, Europe maintains favorable green policies but faces high costs and low demand, and China is prepared to penetrate the global market as a mass producer of electrolyzer technology.
Despite current challenges, IDTechEx remains optimistic about the long-term prospects for green hydrogen. While it may not live up to early hype as a miracle solution to climate change, the market is steadily expanding and maturing, driven by advances in materials and emerging applications. As the 2050 Net Zero deadline approaches, green hydrogen is well-positioned to play a central role in the green energy transition.
