The hydrogen market is continuing to show signs of progress and is at a "pivotal though still challenging stage", said analysts at Jefferies following a conversation with the chief of hydrogen operations at European energy titan RWE's generation arm.
Hydrogen remains strategically important for industrial decarbonisation and system efficiency, said Dr Sopna Sury, but costs and policy could change the direction of the market, with blue hydrogen a case in point.
Blue hydrogen is made by splitting natural gas into hydrogen and carbon dioxide, with the CO2 emissions gathered using a ‘carbon capture’ process.
It currently faces various bumps in the road, while there may also be a significant roadblock in the near future.
At present, carbon capture and storage (CCS) infrastructure is still not yet fully developed, Sury said, while capital cost estimates for CCS and CO₂ transport remain high.
Thirdly, blue hydrogen still costs more than natural gas, so it requires a reliable CO₂ price signal or additional incentives to be viable, she added.
And the entire feasibility of blue hydrogen could be put into question in Europe by the upcoming 'low-carbon hydrogen delegated act' from the European Commission.
Sury pointed to a leaked draft that suggested very strict CO₂ footprint thresholds, which could make it nearly impossible for many blue hydrogen projects to qualify as “low carbon” under EU definitions.
While she said “any colour helps” in the hydrogen transition, regulatory clarity is critical for investor confidence.
Green hydrogen adoption is also progressing slowly, Sury added, with about 50% of production costs regulatory, including constraints under the RED II Delegated Act, while weak demand signals and low CO₂ prices further discourage investment.
Jefferies noted that Sury had highlighted that despite the continued challenging market backdrop, there have been positive developments recently, such as the long-term offtake agreement between RWE and TotalEnergies, infrastructure advancements, as well as regulatory and market signals.
"The strategic case for hydrogen remains robust, according to Dr Sopna, particularly for industrial decarbonization, energy resilience, and system cost efficiency. The pace of adoption remains slow due to regulatory complexity, high production costs, and insufficient demand-side incentives."
Sury's RWE Generation SE is responsible for conventional and green power generation in RWE AG’s European portfolio. It is developing hydrogen storage and electrolyser projects, including hydrogen cavern storage in Lingen, Germany.