Locking in significant longer-term growth will require further action in three key areas: costs, technology and the wider regulatory environment.
Tackling costs to secure offtakers
The major hurdle for European refiners is the cost of producing green hydrogen , which remains significantly higher than for traditional hydrogen production units. Renewable electricity sourcing is the overwhelming driver of these high costs, though the levelised cost of renewable electricity in Europe is forecast to decline one-fifth by the end of this decade. Automated manufacturing, standardisation and efficiency improvements will also help drive cost reductions for electrolyser stacks.
Accessing low-cost renewables and operating electrolysers at high utilisation levels are essential, with the latest market signals offering encouraging signs. The European Commission launched its European Hydrogen Bank in 2023 to support domestic production of green hydrogen. The most recent auction results reveal how costs have changed since the pilot auction was awarded in 2024.
The average levelised cost of hydrogen (LCOH) across all bids from the second-round auction, which closed in February 2025, fell 18% to US$8.35/kgH2, with average bids in Germany falling more than 55%. The results also provide offtake prices that each end-use sector is willing to pay. Here, refineries were among the highest, at a weighted average of US$9.23/kgH2, demonstrating a willingness to pay a premium to meet regulatory mandates. Wood Mackenzie’s asset-level modelling of projects targeting the refining sector in Europe produces an LCOH of US$7.04 to US$8.30/kg – reinforcing the progress in this sector.
Cost reductions also hinge on ongoing project deployment, which should enable improvements in project delivery and operation. Critically, many European refiners are now looking to produce green hydrogen on site to decarbonise their refinery operations and supply fuels compliant with RED III. By producing their own green hydrogen, refiners can guarantee offtake and overcome a significant challenge facing many other project developers.
Technology risks and competing technologies
Developers continue to wrestle with contingency costs for these first-of-a-kind projects, with lenders, in turn, applying a risk premium. Reducing premiums relies on successful technology deployment and the developers’ ability to demonstrate timely commissioning and operational reliability. Accelerating the deployment of such capital-intensive technology is difficult, illustrating why government support is so essential early on.
Chinese-made electrolysers are competing with Western technology. Yet, to date, post-FID European projects have opted for Western electrolysers. Others, however, are weighing up the benefits of the upfront capital cost savings offered by Chinese alkaline electrolysers. Electrolyser manufacturers face stiff competition, which promises lower project costs, but it’s piling the financial pressure on many of them, with some already failing.
Green hydrogen is not the only route open to refiners, though, and alternative paths to decarbonisation are gaining traction. Carbon capture and storage will be more suitable for some. This can help to manage emissions across the broader refinery complex. It can also support a switch to blue hydrogen, although for European refiners, this will not directly contribute to their RED III targets.
Policy and regulatory uncertainty
The EU’s RED III legislation is an important part of the push to grow the green hydrogen economy in Europe, with both Repsol and TotalEnergies confirming in recent earnings calls that green hydrogen is the most competitive route to regulatory compliance. Member states have been slow to convert the ambition of RED III into national law, however, which has slowed green hydrogen project development across most of the EU. As of August 2025, national legislative adoption was as follows:
Figure 3: EU countries are dragging their heels on adopting RED III
