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MUFG sees pickup in hydrogen financing in 2026

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Funding for green hydrogen projects is expected to pick up in 2026 after slowing in the last 12 months as projects have been reassessed for commercial viability amid increased geopolitical turbulence. 

More than 74 countries are trying to gain a foothold in the low-carbon hydrogen sector, which will play a supporting role in decarbonisation and achieving net zero plans, according to a white paper by MUFG. 

Global demand for clean hydrogen is projected to reach 585m tonnes per annum by 2050, but demand for clean hydrogen as an opportunity in the energy transition remains low due to uncertainty about the sector's development. 

Developers and governments are pushing to create a mature market and full value chain for the hydrogen sector with support mechanisms targeting hydrogen production with initiatives to bolster supply.  

But higher inflation and interest rates, global energy market volatility, constrained supply chains, and higher than anticipated renewables prices have taken a toll on sentiment and offtakers willing to sign long-term contracts remain in short supply. 

Success will rely on the ability to access financing and MUFG is seeing a new round of financing requests that could point to a possible revival. 

"As we get more traction on green hydrogen projects, we're starting to see clients coming to us for early-stage advice on how to put financing together, so maybe in the next year or more they should actually start approaching debt markets and bank markets," said Andrew Doyle, a director in energy structured finance at MUFG.  

"I think we're quite close to seeing some tangible deals in the hydrogen space from early and small projects coming to market that should be in the 250MW–500MW range," he said, adding that a 500MW project might need US$1bn–$1.5bn of capex, or more if including renewable assets within the project's scope.

The International Energy Agency was tracking more than 2,200 hydrogen projects in planning, construction and commissioning, which showed a 12-month increase of more than 40%, the whitepaper said.

But only 434 of the projects, representing US$75bn in committed investment, had reached a final investment decision by September as delivery stalled ahead of the US election in November.

US blue not green 

President Donald Trump has weakened the economic case further for green hydrogen made from renewable energy by cancelling tax credits and imposing trade tariffs. Much of the planned low-carbon hydrogen in the US will now be blue hydrogen, which is made from natural gas plus carbon capture and storage for the CO2 by product.  

"It has become a lot more difficult to get support for green hydrogen in the US, I think the feeling is that blue hydrogen and ammonia will continue to benefit from support from carbon capture and storage. Maybe some green hydrogen and ammonia projects can't get done in the US but we still expect a number of large blue projects to go forward," Doyle said. 

Despite the uncertainty in the US, the EU, UK and the Middle East are emerging as new points of industrial development, but even there progress remains slower than expected. 

MUFG said the priority for the hydrogen sector is ensuring that projects make it to completion and is calling for support mechanisms to be refined to stimulate offtake demand, as the lack of offtakers remains the major challenge to unlocking financing. 

"Banks are looking at green hydrogen projects and saying that they need to have long-term creditworthy offtakers to help facilitate the finance and without those that's probably why it's difficult to close these deals because the offtakers are still not coming with the length of contracts to support the transaction," Doyle said.