Global Hydrogen Project Viability: Navigating Demand and Capital Risks in the Green Energy Transition

The global hydrogen market is at a pivotal juncture, poised to play a central role in the energy transition. However, its viability hinges on balancing robust demand forecasts with the inherent capital risks of green hydrogen megaprojects. This analysis examines the interplay between market dynamics and financial challenges, drawing on recent data to assess the sector's potential and pitfalls.

Demand Forecasting: A Market on the Rise

Global hydrogen demand is projected to grow steadily, with the market size expanding from USD 129.67 billion in 2025 to USD 153.47 billion by 2035, reflecting a compound annual growth rate (CAGR) of 1.7% according to Business Research Insights' forecast. This growth is driven by three pillars: government policies (45%), industrial decarbonization (35%), and transportation adoption (20%), the forecast notes. The Asia-Pacific region leads with a 40% market share, followed by Europe (35%) and North America (20%), per the same figures.

Key sectors driving demand include oil refining, ammonia production, methanol manufacturing, and steelmaking, where hydrogen is critical for reducing carbon footprints, as described in the forecast. Meanwhile, green hydrogen—produced via water electrolysis and renewable energy—is gaining traction, though captive hydrogen (70% of the market) remains dominant over merchant hydrogen (20%), again reflected in the market projections.

Capital Risks: The Iron Law of Megaprojects

Despite optimistic forecasts, green hydrogen projects face significant capital risks. Policy uncertainty, cost overruns, and technological unprovenness are persistent challenges. Historical data reveals that over 50% of pioneering energy projects fail to meet production targets at startup, often due to untested technologies and site-specific complexities, according to a recent risk assessment framework. The “iron law” of megaprojects—over budget, over time, under benefits—further compounds these risks, as that framework emphasizes.

A widening gap between announced and realized projects underscores these challenges. For instance, actual green hydrogen capacity installed in 2022–2023 fell far short of initial projections, attributed to high costs, limited demand, and insufficient policy implementation. A Fitch Ratings analysis highlights that price and cost risks are slowing project development, emphasizing the need for stable financing and market conditions.

Case studies from developing economies, such as Brazil's Ceará state, reveal additional risks. While green hydrogen hubs could spur local development, there is a danger that short-term benefits will accrue to developed nations, which import hydrogen and export technology, according to a Climatic Change study. Such projects may delay local energy transitions and increase external dependency, underscoring the need for equitable governance frameworks, the study notes.

Mitigation Strategies: Blended Finance and Risk-Sharing

To address these challenges, developers and financiers are adopting innovative strategies. Blended finance—combining public and private capital—reduces risk and lowers the cost of capital, particularly in high-risk markets, according to an RMI briefing. Public-private partnerships (PPPs) further enable risk-sharing and resource pooling, enhancing project viability.

De-risking instruments, such as government loan guarantees and long-term offtake agreements, are critical for stabilizing revenue streams and reducing exposure to market volatility, the RMI briefing explains. The OECD emphasizes that credible offtakers and contracts are essential for lowering financing costs and aligning investor expectations with the long-term nature of green energy projects.

Investor expectations are also shifting. Developers are moving away from tech-startup-style returns toward models prioritizing refinancing and operational efficiencies, as discussed in the RMI briefing. Policy interventions, including subsidies and penalties, are further leveling the playing field between green hydrogen and fossil-based alternatives.

Conclusion: A Delicate Balance

The hydrogen market's potential is undeniable, but its success depends on navigating a complex web of demand drivers and capital risks. While demand is set to grow, developers must prioritize risk mitigation through innovative financing, strategic partnerships, and equitable governance. Investors, in turn, must balance optimism with caution, recognizing that the path to decarbonization is as much about financial resilience as technological innovation.