Procurement Challenges and Strategies in Hydrogen’s Future

The hydrogen industry stands at a pivotal moment, balancing optimism for its role in decarbonisation with economic and policy challenges.

Procurement strategies are now crucial in navigating high costs, technological advancements and investment risks. Industry leaders from S&P Global and bp discuss hydrogen’s trajectory and the procurement decisions shaping its future.

Procurement and cost barriers in hydrogen development

Hydrogen's role in decarbonisation is widely recognised, particularly in industrial applications, but its expansion depends on overcoming financial and technical barriers.

By 2024, new project announcements had dropped by over 80% globally, reflecting a shift from rapid expansion to cautious execution. Procurement decisions are now central to determining which projects proceed and how they are structured.

Eugenia Belloni Pocorob, Lead H2 and CC(U)S for the Netherlands at bp, emphasises the importance of targeted procurement strategies: “Decarbonising refinery fuel is essential and low-carbon hydrogen provides a clear pathway.” However, she acknowledges that technical and financial challenges remain substantial.

Aviation is another sector considering hydrogen, with airline manufacturers exploring hydrogen-based solutions beyond sustainable aviation fuel (SAF).

Amit Rao, Principal Consultant at S&P Global, highlights how procurement of emerging technologies is shaping this shift: “It may seem far-fetched now, but technological advances happen rapidly.”

The high costs of hydrogen projects, including carbon capture and storage (CCS), present significant procurement challenges. Amit explains: “The scale of capital required for CCS projects is enormous. We have already seen major industry players reconsider their green commitments. The question is: where will the funding come from, and who will drive the transition?”

Traditional investors remain cautious about engaging in projects with long payback periods.

Eugenia notes that the procurement process must adapt to attract long-term investors: “The appetite for quick returns does not align with the realities of hydrogen investment. We need a different type of investor — one willing to take a long-term view.”

Government support and procurement strategies

Government policies play a decisive role in shaping procurement strategies for hydrogen projects.

In the UK, competition frameworks have helped mitigate investment risks by aligning the entire hydrogen value chain. This structured approach makes projects more financially viable and provides a clear framework for procurement decisions.

Global geopolitical factors also influence procurement strategies. Policy changes in the US and trade conflicts could impact hydrogen investment worldwide.

Rising defence spending in Europe may divert government budgets away from energy transition initiatives, affecting future procurement decisions.

Amit warns that shifting US policies could have widespread consequences: “We need to wait out the Trump presidency to gain clarity on the long-term outlook. Over the next four years, we are likely to see renewed trade conflicts — not just with China, but across the board. The US is moving towards decoupling from global markets, which will have profound implications for European industry.”

Budget constraints in Europe could also influence procurement strategies in hydrogen development. Amit continues: “If governments allocate 3% or more of GDP to defence, other sectors will inevitably face budgetary constraints.”

Market adjustments and the future of hydrogen procurement

Despite the challenges, the industry remains cautiously optimistic about hydrogen’s future. While the number of projects has decreased, those moving into construction signal tangible progress.

Procurement strategies are evolving to focus on risk management, policy alignment and securing long-term investments.

Eugenia highlights the shift: “We may have gone from 30 projects to fewer than five, but the fact that some are now moving into construction is significant. The energy transition is not just theoretical — we are starting to see real implementation.”

Matt echoes this sentiment: “The projects we have in place are gaining traction. The policy framework is set, and the risk profile has improved. This momentum will carry through to SAF and other hydrogen-linked sectors.”

Hydrogen is unlikely to be a universal solution for industrial decarbonisation, but its role in the energy transition is becoming more defined. Procurement decisions, investment strategies and government policies will determine the extent of its success.

The industry’s ability to secure funding, manage costs and navigate policy challenges will be crucial in shaping hydrogen’s future.

As the sector moves forward, targeted procurement strategies will be vital in balancing technological ambitions with economic realities.

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