Today is Hydrogen Day—a moment to spotlight one of the most important and fast-evolving areas in the clean energy transition. Hydrogen is central to how the UK plans to decarbonise heavy industry, transport, and power. It’s also a sector under pressure: facing high costs, uncertain demand, and complex regulation. With the second Hydrogen Allocation Round (HAR2) underway and billions in public and private investment at stake, now is the time to take stock of where things stand, what’s driving progress, and what’s still holding us back.

HAR2 is the UK’s latest move to scale up low-carbon hydrogen. Backed by 15-year contracts, it aims to support up to 875MW of new capacity—bringing us closer to the 10GW target set out in the UK Hydrogen Strategy. Projects like INEOS’s Grangemouth and Uniper’s Humber H2UB show that hydrogen is moving from concept to construction.

But the sector isn’t without growing pains.

What’s Slowing Things Down?

Hydrogen is expensive. Green hydrogen, made using renewable electricity, still costs far more than fossil alternatives. Inflation and supply chain issues have pushed budgets higher than expected, and the cost of electrolysers and infrastructure remains a major barrier. According to Westwood Insight, over 20% of European hydrogen projects have stalled or been cancelled, with high costs cited as the leading cause.

Demand is also uncertain. Developers need long-term buyers, but many potential users aren’t ready to commit, especially at premium prices. Without firm offtake agreements, financing becomes a major challenge.

Policy support is improving, but still patchy. Developers face delays, unclear definitions of “low-carbon hydrogen,” and slow permitting. The Hydrogen Strategy Update to the Market highlights the need for a stable regulatory framework and strategic planning for hydrogen transport and storage infrastructure.

Even with HAR2’s backing, some projects may struggle to meet funding criteria. Many fail to secure public support or find the process too complex to navigate.

And this isn’t just theory. According to Hydrogen Insight, nearly half of the winning projects from the EU’s Hydrogen Bank have already dropped out—despite receiving subsidies. Most couldn’t reach financial close or lock in long-term buyers, showing how fragile the economics still are.

Start-Ups Are Leading the Charge

Interestingly, while larger corporates are pulling back or reprioritising, many hydrogen start-ups are gaining ground. Their advantage? Focus.

Unlike diversified energy giants, start-ups are often built around a single hydrogen technology or application. That clarity allows them to move faster, adapt to policy shifts, and attract mission-driven investment. They’re also more agile when it comes to forming partnerships, securing grants, and navigating early-stage funding rounds.

In a sector where timing, innovation, and resilience matter, start-ups are proving that a pure-play hydrogen strategy can be a strength—not a limitation.

Reasons to Be Hopeful

Despite the setbacks, there’s real momentum.

The UK’s hydrogen clusters, Teesside, the Humber, and South Wales, are attracting serious investment. Electrolyser innovation is helping bring costs down. HAR2 is building a framework that could unlock billions in private capital.

The government’s Hydrogen Infrastructure Strategic Planning policy statement outlines how the National Energy System Operator (NESO) will support long-term planning for hydrogen transport and storage. And there’s growing alignment between government, industry, and investors.

Hydrogen isn’t a silver bullet—but it’s a vital part of the UK’s energy future. HAR2 is a step in the right direction. With the right support, the UK can lead the way in clean hydrogen—powering industry, transport, and homes with a fuel that’s built for the future.

Sources:

• Westwood Insight – Over a fifth of all European Hydrogen projects stalled or cancelled - Westwood

• UK Hydrogen Strategy

• Hydrogen Strategy Update to the Market

• Hydrogen Insight

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