What Makes Hydrogen Projects So Hard to Finance?

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Hydrogen energy is often called the fuel of the future, promising clean power for everything from cars to factories. But here's the catch: despite all the hype and potential, getting investors to fund hydrogen projects remains incredibly challenging. Few recent comprehensive studies reveals the complex web of factors that make or break investment decisions in this promising yet puzzling sector.

A Very Short History of the Hydrogen Economy

The idea of using hydrogen as an energy source isn’t new. Scientists have known since the 1800s that hydrogen can power engines and produce electricity. In the 1970s, the oil crisis sparked new interest in hydrogen as an alternative fuel. However, high costs and a lack of infrastructure slowed progress. In recent years, as climate change concerns have grown, countries and companies have renewed their push for a “hydrogen economy”—a world where hydrogen is a major, clean energy source for transport, industry, and homes. Despite the excitement, turning this vision into reality has proven challenging, especially when it comes to attracting investment.

Why Hydrogen Investment is a Tough Sell

Imagine you're an investor with millions to spend. You hear about hydrogen's amazing potential to fight climate change and revolutionize energy. Sounds great, right? But then you dig deeper and discover a maze of challenges that make even the most optimistic investor think twice.

The transition to a hydrogen economy isn't happening overnight, and one of the biggest roadblocks is getting people and companies to actually invest their money [1]. According to recent research, public and investor acceptance can be a major barrier to hydrogen development [1]. This isn't just about having good technology – it's about convincing real people with real money that hydrogen is worth the risk.

The Chicken and Egg Dilemma in Hydrogen Investment

Here's where things get really tricky. The hydrogen industry faces what experts call a "chicken and egg dilemma." Investors won't fund hydrogen projects because there isn't enough demand or infrastructure. But there can't be enough demand or infrastructure without sufficient investment. It's a frustrating cycle that keeps the industry stuck in neutral [2].

This dilemma shows up everywhere in the hydrogen sector. For example, companies won't invest in hydrogen fuel stations because there aren't enough hydrogen cars on the road. But car manufacturers hesitate to mass-produce hydrogen vehicles because there aren't enough refuelling stations. Meanwhile, energy companies hold back on building hydrogen production facilities because there isn't enough guaranteed demand from both transportation and industrial users.

What Actually Drives Investment Decisions?

Research using advanced statistical modelling has identified several key factors that influence whether someone will invest in hydrogen energy projects [1]. Think of these as the main ingredients in the investment decision recipe.

The Power of Perceived Benefits

Not surprisingly, when investors see clear benefits from hydrogen projects, they're more likely to put their money down [1]. But here's what's interesting – these benefits go beyond just making money. Investors also consider the positive environmental impact and the potential to be part of solving the climate crisis. The study found that perceived benefits have a strong positive direct effect on investment intentions [1].

This makes sense when you think about it. If an investor believes a hydrogen project will not only generate returns but also contribute to a cleaner planet, that's a pretty compelling combination. The challenge for hydrogen companies is clearly communicating these benefits in ways that investors can easily understand and quantify.

The Cost Concern Factor

On the flip side, perceived costs create a major roadblock for hydrogen investments [1]. This isn't just about the upfront money needed – it's about all the hidden expenses, risks, and uncertainties that come with emerging technology.

Hydrogen projects often require massive initial investments with uncertain payback periods. The technology is still evolving, regulations are unclear in many places, and market demand remains unpredictable. When investors add up all these cost-related concerns, many decide to wait and see rather than jump in early.

Environmental and Social Awareness: The Double-Edged Sword

Here's where things get interesting. The research shows that environmental and social concerns actually boost investment interest in hydrogen projects [1]. This might seem obvious, but it's actually quite remarkable. It means that investors aren't just thinking about profits – they're genuinely motivated by the desire to support sustainable energy solutions.

Environmental and social concerns have both direct and indirect effects on investment intentions [1]. Directly, environmentally conscious investors actively seek out hydrogen opportunities. Indirectly, these concerns influence how investors perceive the benefits and long-term viability of hydrogen projects.

The Knowledge Gap Problem

One of the most crucial findings is the role of expert knowledge and awareness in investment decisions [1]. Simply put, the more investors understand about hydrogen technology and markets, the more likely they are to invest. But here's the problem – there's still a significant knowledge gap in the investor community.

Many potential investors have heard about hydrogen's potential but don't really understand the technology, the market dynamics, or the realistic timeline for returns. This knowledge gap creates hesitation and leads to a wait-and-see approach that slows down the entire industry.

Expert knowledge and awareness influence investment intentions indirectly by shaping how investors perceive both benefits and costs [1]. When investors have better information, they can more accurately assess opportunities and risks, leading to more confident investment decisions.

The Government Factor: Critical but Indirect Influence

Government involvement plays a fascinating role in hydrogen investment decisions. While government policies and support don't directly make investors write checks, they have a powerful indirect influence on investment intentions [1].

Think about it this way: when governments create clear hydrogen strategies, offer meaningful incentives, and establish supportive regulations, they reduce uncertainty for investors. This government backing makes hydrogen projects look less risky and more likely to succeed over the long term.

The research emphasizes that governments are responsible for setting targets and long-term strategies, strengthening demand formations, preparing the ground for safe investment environments, and supporting information sharing [1]. Without this governmental foundation, private investment in hydrogen remains much more challenging.

Social Pressure and Investment Decisions

Another subtle but important factor is what researchers call "subjective norms" – basically, what other people think and expect [1]. In the investment world, this translates to peer pressure and industry trends.

When influential investors, industry leaders, or respected institutions start backing hydrogen projects, it creates a snowball effect. Other investors don't want to miss out on the next big thing, and they also don't want to be seen as ignoring important environmental and social trends.

This social influence operates indirectly, affecting how investors perceive the wisdom and timing of hydrogen investments [1]. It's not the primary driver of investment decisions, but it can tip the scales for investors who are already on the fence.

Breaking Through Investment Barriers

So how can the hydrogen industry overcome these investment challenges? The research suggests several practical approaches.

First, the industry needs to do a better job of educating potential investors about hydrogen technology and market opportunities. This means moving beyond technical jargon and presenting clear, compelling business cases that non-experts can understand and evaluate.

Second, companies need to work harder to clearly communicate the benefits of hydrogen investments while honestly addressing the costs and risks. Transparency builds trust, and trust is essential for attracting investment in emerging technologies.

Third, continued government support and clear policy frameworks are crucial for reducing investment uncertainty. When investors can count on stable, long-term government backing, they're much more likely to commit significant resources to hydrogen projects.

Breaking the Chicken and Egg Cycle

Ultimately, overcoming the chicken and egg dilemma requires coordinated action from multiple stakeholders. Governments can help by providing initial demand through public sector adoption and strategic incentives. Early-adopting companies can create demonstration projects that prove the technology works. And innovative financing mechanisms can help spread risks and rewards more effectively.

The research shows that investment intentions in hydrogen are influenced by a complex mix of perceived benefits, costs, environmental concerns, knowledge levels, government support, and social pressures1. Understanding these factors gives the hydrogen industry a roadmap for attracting the investment it needs to reach its enormous potential.

Conclusion: The Investment Puzzle is Solvable

While hydrogen projects face significant financing challenges, they're not insurmountable. The key is understanding what really drives investment decisions and addressing those factors systematically. As the research demonstrates, investors are motivated by more than just profits – they want to see clear benefits, manageable costs, strong government support, and compelling environmental impact [1].

The chicken and egg dilemma that has long plagued the hydrogen industry can be broken, but it requires coordinated effort from technology developers, government policymakers, and the investment community. By addressing the knowledge gaps, clarifying the benefits, managing the costs, and creating supportive policy environments, the hydrogen sector can finally unlock the investment it needs to transform our energy future.

The transition to a hydrogen economy won't happen overnight, but with better understanding of what makes investors tick, it can happen much faster than many people think.

Ates, E. B., & Calik, E. (2025). Revealing factors influencing hydrogen energy investments using PLS-SEM. International Journal of Hydrogen Energy, 98, 230-241.

Zhang, T., Qadrdan, M., Wu, J., Couraud, B., Stringer, M., Walker, S., ... & Strbac, G. (2025). A systematic review of modelling methods for studying the integration of hydrogen into energy systems. Renewable and Sustainable Energy Reviews, 208, 114964.