Nel ASA's Alkaline Electrolyzer Scale-Up: Can Growth Outpace Liquidity Risks?

Nel ASA's final investment decision marks a pivotal step for its electrolyzer business. The company commits to scaling production capacity to 4 gigawatts annually by 2027, starting with a 1 gigawatt facility at Herøya, Norway. The EU Innovation Fund's EUR 135 million grant-covering 60% of capital costs-slashes upfront investment from NOK 300 million to a more manageable level, accelerating deployment timelines. This funding also supports operational expenses for its next-generation alkaline electrolyzer platform, aiming to cut hydrogen production costs and meet growing demand according to Nel's announcement.

Global electrolyzer markets are expanding rapidly, projected to surge from $4.7 billion in 2024 to $42.4 billion by 2034. Policy-driven demand for green hydrogen, particularly in renewable energy and industrial sectors, underpins this growth. According to market analysis, the U.S. and Europe's hydrogen hub initiatives, coupled with incentives like the EU Innovation Fund, create fertile ground for manufacturers like Nel to capture market share. However, competition is intensifying. Chinese firms dominate 60% of global electrolyzer capacity, pressuring prices and margins for non-Chinese producers already grappling with financial constraints as reported by the IEA.

Nel's cost-reduction targets-critical for competing with fossil-based hydrogen-face regulatory and infrastructure hurdles. While EU policies aim to narrow price gaps by 2030, delays in hydrogen infrastructure rollout and persistent cost disparities could temper demand. Investors should note that Nel's ability to execute its production targets and navigate geopolitical trade policies will determine its success in this crowded, capital-intensive market.

Order Intake and Scaling Progress

Moving beyond the macro demand narrative, the next layer of scrutiny is how Nel's order book and scaling milestones translate into real commercial traction.

Nel reported a 13% year-over-year rise in Q4 2024 order intake, reaching NOK 148 million, yet the company's order backlog fell 23% to NOK 1.61 billion, marking both as partial indicators of commercial traction according to financial results.

Adding a notable validation, Nel secured a EUR 5 million firm order for 10 megawatts of alkaline electrolyser equipment from Samsung C&T for a nuclear-powered hydrogen pilot in South Korea as announced in a press release. The project, set to use components manufactured at Nel's automated Herøya facility, underscores client confidence in the technology and production scale.

Scaling progress, however, remains uneven. The Alkaline division generated NOK 19 million of EBITDA in Q4 2024, while the PEM division posted a NOK 22 million loss, highlighting the challenge of balancing product portfolio expansion with profitable execution.

CEO statements reflect confidence in maintaining market leadership despite these mixed signals, noting reduced cash burn and a 50% planned cut to 2025 capital spending. Yet cash reserves slipped to NOK 1.88 billion from NOK 3.36 billion a year earlier, leaving the company under pressure to convert orders into cash flow.

While the Samsung order is a milestone, the contraction in backlog suggests ongoing execution constraints, and the cash burn reduction, though positive, underscores the need for continued scaling momentum to sustain market leadership.

Liquidity Strain and Financial Constraints

Nel ASA's cash reserves plummeted by NOK 1.48 billion in Q4 2024, falling to NOK 1.88 billion from NOK 3.36 billion a year earlier according to financial results. This sharp decline coincides with a persistent negative free cash flow of -NOK 792 million through the first three quarters of 2024, reflecting ongoing liquidity pressure. To address this, management announced a 50% reduction in 2025 capital spending, signaling a deliberate pullback from aggressive expansion plans outlined in the prior section.

Despite these frugal measures, the company's order backlog contracted 23% to NOK 1.61 billion, underscoring weaker near-term demand. The CEO acknowledged progress in reducing cash burn but emphasized that maintaining hydrogen market leadership will require navigating tighter funding constraints. While Nel's Q4 revenue held steady YoY, the combination of thinning cash buffers and shrinking order pipelines raises questions about its ability to sustain growth ambitions without external financing or operational breakthroughs.

Competitive and Regulatory Risks

Several major green hydrogen projects were canceled in 2024, including Fortescue's 80 MW Arizona plant and Stanwell's 2.88 GW Gladstone project, due to unmet demand, high costs, and policy uncertainties. These cancellations reveal a major scaling challenge: even proven electrolyzer technology struggles commercially without binding offtake agreements or stable policy frameworks. The industry is now prioritizing smaller, demand-backed projects, signaling a shift from hype-driven expansion to pragmatic development. This trend pressures all players, including technology leaders like Nel ASA, ITM Power, and Siemens.

U.S. projects face compounded regulatory hurdles. Developers must navigate permits from multiple agencies like DOE, EPA, and DOT, plus compliance with NEPA and ESA requirements. State regulations further complicate deployment, creating a fragmented approval landscape. While the Hydrogen Interagency Task Force recently invested $62 million to streamline permitting, evolving policies and complex compliance requirements continue to erode project viability and financial predictability, regardless of technological maturity.

Nel ASA's focus on 10 MW alkaline projects contrasts sharply with ITM Power's 100 MW UK facility emphasizing PEM scalability and Siemens' integrated renewables approach. While this diversity reflects technological specialization, it also highlights commercial frictions. ITM's large-scale UK site faces significant planning complexities, and Siemens' integration strategy demands capital-intensive coordination with renewable developers. For developers, these competitive approaches intensify margin pressures amid regulatory uncertainty and scaling challenges, making project economics fragile despite technical strengths. The path to commercial viability remains obscured by policy volatility and the high costs of navigating fragmented regulatory systems.

Scenarios, Valuation and Catalysts

Building on the liquidity pressures highlighted recently, Nel faces two distinct future paths shaped by policy and execution. The first path hinges on successful 2026 electrolyzer deployments, which could unlock cash flow improvements through EU hydrogen bank disbursements. According to Nel's announcement, the EU Innovation Fund has already provided a EUR 135 million grant covering 60% of CAPEX and operational costs for Nel's Next Generation Pressurized Alkaline electrolyzer platform, reducing initial capital outlays for 1 GW capacity from an estimated NOK 300 million. This support aims to enable 4 GW of annual output by 2027, targeting lower hydrogen production costs and commercial deliveries starting in 2026, as part of the EU Hydrogen Strategy's push for renewable hydrogen as outlined in the EU Observatory. A key catalyst here is the implementation of EU certification standards for low-carbon hydrogen by 2026, which would streamline market access and enhance competitiveness as reported by CINEA. However, this path faces real risks: technical hurdles and high production costs could delay deployments, and regulatory alignment by 2026 remains uncertain, potentially stalling cash flow benefits.

The alternative path involves continued losses, with Nel reporting a negative free cash flow of -174.21 million NOK for Q3 2024 and -792.29 million NOK year-to-date, highlighting ongoing liquidity challenges as shown in financial data. If electrolyzer projects fail to materialize, this cash burn could force asset sales or dilutive financing to sustain operations. A potential catalyst offering some offset is the U.S. hydrogen hub approvals and streamlining efforts under the National Clean Hydrogen Strategy, led by the Hydrogen Interagency Task Force, which includes a $62 million investment to address permitting and safety issues as reported by the CATF. Yet, this path is fraught with complexity: regulatory variability across states and federal agency approvals could lead to delays, and the U.S. framework lacks guaranteed funding timelines, increasing execution risks.

Maintaining a balanced view, Nel's valuation anchors are currently grounded in its cash burn trajectory rather than speculative upside. The year-to-date cash flow of -792.29 million NOK represents a significant near-term risk, though the EU grant could mitigate this if deployments succeed. For investors, this means the company's future hinges on navigating both policy catalysts and operational frictions, with the EU hydrogen bank disbursements offering a potential light at the end of the tunnel, but only if regulatory and technical milestones are met without further delay.