Governments should consider increasing export credit and concessional lending to the hydrogen sector to address the “cost gap” between fossil fuel and low-emissions production, the International Energy Agency (IEA) has said.
Demand for hydrogen has grown around 2% since 2023, in line with rising global energy demand, the IEA said in a February 10 paper. The majority of demand is from refineries, chemical production and the iron and steel sector.
But despite ambitious government commitments to low-emissions production and a “vigorous response” from the private sector, the paper said hydrogen used in those sectors was almost entirely produced from fossil fuels.
“This has fostered a gloomier outlook among government and industry, feeding fears that the sector has stalled and concerns that hydrogen has simply gone through another ‘hype’ cycle,” it said.
Experts have previously raised concerns that generating hydrogen fuel from renewable sources requires vast amounts of electricity that cannot be supplied without significant investment in upgrading infrastructure.
However, the IEA said a “closer look at the data shows that rather than stalling or faltering, the sector is still progressing and reaching important milestones, even though they do not match the high expectations from the early 2020s”.
Low-emissions production has risen to an estimated 1 megatonnes last year, double the figure from 2020, putting it on a similar trajectory to other clean energy sources.
In addition, it said an analysis of the likelihood announced projects will become available by 2030 suggests an additional 6 megatonnes could be operational within the next five years.
One issue is the high production cost of low-emissions hydrogen compared to that from natural gas and coal. Investment is held back by uncertainty over whether long-term demand will remain stable and predictable, and government efforts to stimulate demand “have yielded mixed results so far”.
“Realising these projects will depend on policy action to address key barriers, particularly support for closing the cost gap with hydrogen from unabated fossil fuels and measures to stimulate demand in sectors where hydrogen is already used, such as the refining and the chemical industry,” the agency said.
On the supply side, the paper suggested that governments could look to close the cost gap by providing grants and subsidies to low-emissions hydrogen production.
“Loan guarantees, concessional loans, export credit facilities and public equity investments can also be useful to reduce investment risks,” it said.
The export credit agency sector has become more active in green hydrogen projects. In October, Danish agency EIFO provided a £16.5mn guarantee for a £27mn Barclays loan to GeoPura, which has developed a facility near Lincoln in the East Midlands.
In 2022, Dutch export credit agency Atradius DSB backed a facility supporting the construction of a green ammonia and hydrogen production facility in Morocco.
Some transactions have run into difficulties, however. In 2024, H2 Green Steel – now called Stegra – sealed a Euler Hermes-backed loan for a steel manufacturing project in Sweden that would incorporate green hydrogen, but the company has since run into financial difficulties.
Meanwhile, the IEA said governments could bolster demand for low-emissions hydrogen through quotas, mandates and carbon contracts for difference, as well as public procurement programmes in heavy industries.
The World Trade Organization and International Renewable Energy Agency previously called on government reforms to support a rapid scale-up of green hydrogen production, including policies to facilitate trade in equipment and services.
