- High production costs and weak off-taker demand continue to slow green hydrogen deployment globally.
- Policy uncertainty in the US, high costs in Europe and aggressive scale up in China are redefining competitive dynamics.
- Long term prospects remain intact, but the market is entering a more pragmatic and selective growth phase.
IDTechEx’s report Materials for Green Hydrogen Production 2026-2036: Technologies, Players, Forecasts highlights the key players, technologies, and advanced materials and components driving green hydrogen production.
Green hydrogen has long been promoted as a critical pillar of the global energy transition, attracting significant investment and political attention over the past decade. However, a slowdown in market momentum and the cancellation or delay of several high profile projects are prompting a reassessment across the industry. Stakeholders are increasingly questioning whether green hydrogen can scale at pace or whether earlier expectations were overly optimistic.
At the core of the challenge is cost. While conventional grey hydrogen can be produced for as little as one to two US dollars per kilogram, green hydrogen typically costs between five and ten US dollars per kilogram. This price gap continues to limit competitiveness across most end use applications. Independent analysis from IDTechEx shows that renewable electricity accounts for up to eighty percent of total production costs, with high capital expenditure further inflating project economics. Although electrolyser technologies continue to improve incrementally, these advances have not yet delivered the step change cost reductions once expected from large scale deployment.
High costs have translated directly into weak off taker demand. While electrolyser manufacturers have rapidly expanded production capacity into the hundreds of megawatts and gigawatt range, customer appetite has lagged. Many potential buyers remain unwilling to pay a premium for green hydrogen, opting instead for cheaper grey or blue alternatives. This imbalance has resulted in significant overcapacity across the electrolyser market and has contributed to declining valuations and profitability among major original equipment manufacturers since 2021.
Government support remains a key variable, but its impact varies sharply by region. In the United States, recent policy signals point to a less favourable environment for green hydrogen. The introduction of the One Big Beautiful Bill Act has accelerated timelines for the Clean Hydrogen Production Tax Credit, requiring projects to begin construction before 2028. At the same time, enhanced incentives for carbon capture under the Carbon Oxide Sequestration Tax Credit favour blue hydrogen and carbon capture applications over green hydrogen. Additional risks, including suspended funding and higher costs for imported equipment, further complicate the outlook for developers. As a result, some project sponsors are reconsidering their strategies, either fast tracking projects to meet tighter deadlines or pivoting towards blue hydrogen pathways.
Europe remains a global centre for electrolyser innovation, with many leading technology and materials companies headquartered in the region. The European Union continues to promote green hydrogen as part of its broader decarbonisation strategy. However, high labour costs, expensive renewable power and regulatory complexity are slowing market development. Industry feedback suggests that the current regulatory framework, combined with slow implementation, can increase production costs by as much as forty percent. While greater clarity is expected, uncertainty continues to weigh on investment decisions.
China, by contrast, is emerging as the global manufacturing hub for electrolysers. Supported by a complete domestic supply chain, low labour costs and advanced manufacturing automation, Chinese companies are producing systems at significantly lower cost than many international competitors. Major players are now expanding beyond the domestic market, with Europe a key target. This is intensifying competition and prompting European firms to differentiate through higher performance technologies or to pursue strategic collaboration with Chinese manufacturers.
Despite these near term headwinds, the long-term outlook for green hydrogen remains positive. Market growth is becoming more measured and realistic, driven by advances in materials, manufacturing and emerging industrial applications rather than hype. As countries move closer to their net zero targets, green hydrogen is expected to play an increasingly important role in decarbonising hard to abate sectors. For the energy sector, including in Africa, the focus is shifting from ambition to execution, with cost reduction, policy stability and bankable demand now at the centre of the conversation.
Author: Bryan Groenendaal
