© Ørsted
Ørsted, the Danish renewable energy giant, has decided to withdraw from several ambitious wind-powered green hydrogen projects in Denmark. The decision, motivated by rising costs and doubts about the economic viability of these ventures, reflects a broader tension within the global renewable energy sector: while green hydrogen is touted as a cornerstone of the future energy system, its current economic reality lags behind its potential.
Ørsted’s foray into green hydrogen was part of its strategy to leverage its offshore wind expertise and help decarbonize heavy industries such as steel, chemicals, and refining. The green hydrogen process, which uses renewable electricity to split water into hydrogen and oxygen through electrolysis, promises to provide a clean alternative to the hydrogen produced from natural gas. Yet, despite its environmental benefits, producing hydrogen from renewable energy is significantly more expensive—around four times the cost of conventional methods that rely on fossil fuels.
The projects that Ørsted has now abandoned in Denmark were central to its broader Power-to-X strategy, aimed at turning surplus renewable electricity into hydrogen for various industrial applications. In particular, Denmark had been seen as a promising hub for green hydrogen development, thanks to its abundant wind resources and strong political support for decarbonization. Yet, the company’s decision to pull back underscores the gap between political ambition and market reality.
The rising costs Ørsted faces are not unique to Denmark. These setbacks echo its recent decision to cancel a similar project at the Humber refinery in the UK, which would have used offshore wind power to produce green hydrogen. Both projects fell victim to higher-than-expected investment costs and the absence of a mature market for hydrogen. As Joerg Kubitza, managing director of Ørsted’s German division, put it: “A project must be economically viable, and this was unfortunately not the case”
These developments are a stark reminder of the challenges the green hydrogen sector faces. Although hydrogen is widely seen as essential for achieving deep decarbonization, particularly in hard-to-abate sectors, the financial hurdles remain steep. Current green hydrogen projects rely heavily on government subsidies or supportive regulatory frameworks to be feasible. The European Union, for example, has made green hydrogen a central plank of its energy transition plans, with billions earmarked to stimulate demand and create the necessary infrastructure.
However, as Ørsted’s retreat suggests, these policies may not be enough to compensate for the underlying cost disadvantages. Hydrogen’s high production costs stem from several factors, including the energy-intensive nature of electrolysis and the intermittent availability of renewable energy sources like wind. Moreover, without a robust market for green hydrogen, companies are hesitant to invest the substantial sums needed to scale up production. Ørsted’s recent $4 billion writedown on its wind projects further signals the financial strain the industry faces.
This decision could serve as a warning for policymakers and industry leaders. While green hydrogen holds enormous promise, particularly in Europe, the current financial and market structures may be inadequate to support its rapid deployment. Without stronger incentives or breakthroughs in production technology, green hydrogen risks remaining an unfulfilled promise in the global race to net-zero emissions.
In the end, Ørsted’s pullback highlights a critical inflection point for the green hydrogen sector. If the economic case for these projects does not improve, many similar initiatives could face the same fate. The future of green hydrogen will depend not only on technological innovation but also on the ability of governments and industries to create an environment in which clean energy solutions can compete on a level playing field.
