Commercialising Hydrogen Projects

From molecule to contract

A hydrogen project becomes financeable when five questions have written answers. Most projects can answer two of them at the point where they seek investment.

Hydrogen has an offtake problem, not a technology problem

Electrolysers work. Compression works. Storage and logistics work. What is scarce is a buyer willing to commit for long enough and at a price high enough to finance the asset. Every serious hydrogen conversation eventually arrives at that sentence, usually later than it should.

The structural reason is simple. An industrial buyer is being asked to switch a working input for a more expensive one, with a supplier who does not yet exist, on the strength of a schedule that depends on authorities and grid operators. That is not a sustainability decision. It is a supply security decision with a price tag.

One credible anchor customer changes a project more than another round of feasibility studies.

Who actually buys hydrogen

Not every decarbonisation candidate is a commercial buyer. The useful segmentation is by what the molecule replaces and how painful the alternative is.

• —Existing hydrogen users — refining, chemicals, glass, metals — who already buy the molecule and are switching source rather than process. The shortest path to a signature.
• —Heat-intensive processes without an electrification route, where hydrogen is the only technically credible option and the debate is about price, not principle.
• —Mobility and logistics fleets, where the decision is often driven by a public tender or a corporate commitment with a date attached.
• —Grid and energy-system players using hydrogen for flexibility, where the revenue model depends on regulation that is still moving.

Within each buyer, the conversation that matters is with procurement and plant management. Innovation departments are helpful for access and useless for volume: they do not hold the budget that signs a ten-year supply contract.

What makes demand bankable

A letter of intent is a meeting note with a logo. Lenders and investment committees look for five attributes, and the absence of any one of them reopens the whole discussion.

• —Volume that matches the plant's economics, not a pilot quantity attached to a full-scale asset.
• —Duration long enough to amortise — in practice five to fifteen years depending on the structure.
• —A price mechanism, not a price: indexation to power, inflation or a reference fuel, with a floor that protects the project.
• —Take-or-pay or an equivalent commitment, because the buyer's flexibility is the project's risk.
• —Remedies both ways: what the buyer receives if you are late, what you receive if they do not take.

Negotiating this is uncomfortable for a young company. It is also the single highest-value activity in the entire development process. A project with a mediocre site and an excellent contract gets financed. The reverse rarely does.

Talking about price the way the buyer does

Producers talk about levelised cost. Buyers talk about delivered cost at the burner or the process inlet, compared with what they pay today, adjusted for the cost of interruption.

• —Power price and its structure dominate the production cost. Whoever controls a good power contract controls the conversation.
• —Utilisation matters more than nameplate efficiency. A well-run plant at high hours beats a better plant at low hours.
• —Logistics, compression and storage are not rounding errors. They frequently decide whether the delivered price is competitive.
• —Regulatory value — quota compliance, carbon cost avoided, funding pass-through — belongs in the buyer's calculation, not only in yours.

Presenting the cost stack transparently is a commercial advantage. Industrial buyers are used to suppliers who hide the build-up, and they discount the number accordingly.

Sequencing: what has to be locked first

Project development is an exercise in sequencing. The goal is to spend the least money required to remove the biggest uncertainty, in the right order.

• —Site and grid: without a dated connection path, nothing else is worth engineering.
• —Power: the supply structure determines the cost floor and therefore the addressable buyers.
• —Anchor offtake: a term sheet with one serious buyer reframes every subsequent conversation, including with authorities.
• —Permits: run in parallel from an early stage, with local support organised deliberately rather than hoped for.
• —Funding: equity and subsidy applications shaped around the structure above, not the other way round.

The common failure is engineering first because it feels like progress. Detailed design on an unconfirmed site with unconfirmed demand is the most expensive form of optimism in this industry.

Using public funding without becoming dependent on it

Public funding shapes almost every European hydrogen project. It is a legitimate commercial instrument and should be treated like one: understood in mechanics, applied for professionally, and never assumed.

Two disciplines protect the project. First, model a case in which the funding arrives twelve months late and a case in which it is reduced; if either kills the project, the structure is too fragile to present to investors. Second, keep the commercial story independent of the subsidy. A buyer who only signs because the project is subsidised is not a customer, they are a co-applicant.

Stakeholders decide more than the technology does

Hydrogen projects are local. Municipalities, permitting authorities, grid operators, neighbours, regional politics and industrial partners all carry veto power in some form. This work cannot be delegated to a consultancy in the final quarter.

Running the Hydrogen Energy Cluster in Mecklenburg-Vorpommern taught me the practical version: the organisations that move fastest are the ones already in a working relationship with the people they will need. Building that relationship costs little before the project and is unbuyable once the permit is in question.

Commercial readiness check

• —Can you name three buyers, their sponsor, and their decision calendar?
• —Can you state delivered price at the buyer's inlet, and defend each element?
• —Do you have a term sheet with volume, duration, indexation and remedies?
• —Is there a dated grid connection path and a permitting plan with local support?
• —Does the project survive a twelve-month funding delay?
• —Is there one person accountable for commercial delivery, not a committee?

Six yes answers means the project is fundable. Three means the next six months belong to the commercial team, not to engineering.

The team the project actually needs

Hydrogen developers are usually strong in engineering and project development and thin in commercial capability. That imbalance shows up in the investment committee, where the questions are about contracts, counterparties and price risk rather than about stack efficiency.

• —A commercial lead who can sit with industrial procurement and negotiate a supply contract, not present a technology roadmap.
• —Someone accountable for the power supply strategy, because it sets the cost floor for everything else.
• —Permitting and stakeholder capability with genuine local relationships, engaged from the first month.
• —Finance capability able to translate the contract structure into a model a lender recognises.

Four capable people covering these areas move a project further in a year than a large engineering team working on an unsigned concept.

Frequently asked questions