September 2025
August continued the trend of mixed progress and setbacks in Europe’s hydrogen market. In this edition of Hydrogen Compass, we cover how industrial trials in the UK and feasibility studies for cross-border pipelines signal momentum, yet infrastructure delays and regulatory and funding uncertainty continue to hamper timely project development.
From data centres challenging hydrogen’s role, to withdrawals from EU subsidy auctions, and reforms in UK permitting rules, developments in August reflect the tension between visible advances and the structural hurdles still slowing large-scale developments for the European hydrogen market.
The next edition will be published in October. In the meantime, if you have any comments or feedback, please do reach out to Jun Sasamura ([email protected]).
Data centres: opportunity or competition?
The rapid growth of data centres is creating both opportunities and risks for the European hydrogen market. In the UK, BP’s 1.2GW H2 Teesside CCS-enabled hydrogen project was thrown into uncertainty in August after the site’s owner, South Tees Group (STG), secured planning permission to develop a large data centre on the same land. BP can only proceed if the Department for Energy Security and Net Zero (DESNZ) issues a compulsory purchase order, requiring proof of a ‘compelling case in the public interest.’ STG argues that a data centre is more closely aligned with government plans to triple UK data centre capacity by 2030 and has already attracted commercial interest, while H2 Teesside has faced delays since its 2021 announcement.
While DESNZ is expected to make a decision by the end of October, this case raises the question of whether hydrogen projects and data centres will compete for limited land, infrastructure, and renewable power supply in the UK.
However, data centres could present a significant demand source for hydrogen. Their projected electricity consumption is considerable, and companies such as Google and Amazon are already securing long-term renewable power purchase agreements (PPAs) to decarbonise. Yet the intermittency of renewables and the limitations of battery storage create an opportunity for longer-duration solutions. Hydrogen could potentially support this need as low- or zero-carbon fuel for backup power.
Emerging partnerships are beginning to explore this potential. In August, Rolls-Royce Power Systems partnered with e-fuels producer Ineratec to supply renewable hydrogen-based ‘e-diesel’ for backup generators at data centres in Germany. Ineratec’s recently operational 4.62 MW(LHV) electrolytic hydrogen project, Era One, is Germany’s first large-scale e-fuels facility and serves as a pilot for scaling climate-neutral alternative fuels. The collaboration, though in its early stages, highlights hydrogen’s potential to provide cleaner alternatives for the reliable power data centres require.
European Hydrogen Bank: projects withdraw
The credibility of the European Hydrogen Bank (EHB) has come under scrutiny after three projects – Zeevonk, Project Catalina, and H2-Hub Lubmin – withdrew from the second auction in August, leaving around €600 million in subsidies unused. H2-Hub Lubmin has faced regulatory uncertainty, as Germany has yet to transpose the EU’s Renewable Energy Directive III into national law. Without clarity, Deutsche ReGas was not able to lock in long-term supply contracts with industrial customers. They have, however, kept the project on its strategic roadmap but signalled it may only reapply in future auction rounds once the policy environment stabilises.
These withdrawals highlight shortcomings in the auction design, including lenient entry requirements, lack of penalties, and insufficient mechanisms to ensure demand certainty or have a more targeted approach to specific sectors. The third auction, expected later this year with a €1 billion budget, will broaden eligibility to include low-carbon hydrogen beyond the strict EU RFNBO definition. Given the limited success so far, the results will be closely watched as a test of whether the EHB can evolve into a credible driver of Europe’s hydrogen market.
Pipeline infrastructure: connecting projects and markets
Hydrogen pipeline infrastructure is a critical enabler for the European hydrogen market, linking production sites with demand centres. Without it, many projects cannot secure the market access or revenue certainty needed to progress, as shown by the Zeevonk electrolytic hydrogen project in the Netherlands. Originally planned at 1GW of capacity by 2029, Vattenfall and Copenhagen Infrastructure Partners (CIP) announced in August that Zeevonk has been delayed to 2033 and scaled down to 500MW because of the postponed Delta Rhine Corridor pipeline. As a result, the developers withdrew during grant negotiations from the European Hydrogen Bank’s second auction after determining that they could not meet the programme’s fixed 2030 operational deadline. CIP’s 500MW Project Catalina, also withdrew, since the planned Spanish ‘Hydrogen Backbone’ pipeline still lacks permits and a final investment decision. This illustrates the challenge that project developers are facing when managing project-on-project risks like associated pipeline infrastructure.
Pipeline operators also require early certainty from hydrogen producers and consumers. Thyssengass, for example, launched a feasibility study in August on extending Germany’s planned 9,040km hydrogen pipeline network to supply Neuss and Düsseldorf. They emphasised that future hydrogen users must declare demand early so it can be integrated into Germany’s upcoming hydrogen and gas network development plan, due mid-2026. This coordination is essential to ensure that regions beyond the main grid will have access to renewable hydrogen.
The fundamental challenge is aligning projects and infrastructure timelines. Large-scale pipeline networks require significant time and capital to be developed, while project developers need certainty that transport capacity is available before firming up investment, and vice versa. Overcoming this mismatch will be important to address for the future development of European hydrogen.
Progress for cross-border pipelines
Despite timeline challenges, cross-border projects are advancing. A consortium of European gas transmission operators completed a feasibility study for the 3,400km SunsHyne Corridor, linking North Africa with central and western Europe by 2030. With 85% of the route expected to repurpose existing gas pipelines, it could transport up to five million tonnes of hydrogen annually, supporting demand hubs such as Germany. Gasgrid Finland has also moved its national hydrogen backbone to the environmental impact assessment stage, evaluating routes and environmental impacts across five regions while consulting stakeholders before final permits are granted.
UK progresses trials and policy reform
In August, Aluminium recycler Novelis successfully trialled hydrogen at its Latchford plant in northern England, replacing natural gas with blends from 30% to 100%. Backed by a £4.6 million government grant, the trial processed several hundred tonnes of scrap aluminium and demonstrated that dual-fuel burners can operate safely and flexibly while maintaining consistent product quality. The company now faces the challenge of securing reliable access to renewable hydrogen, either through an on-site electrolyser or the planned HyNet pipeline, which is not expected to be operational before 2031.
On the policy side, the government launched a consultation to reform permitting rules for renewable hydrogen and industrial use, aiming to accelerate deployment. Proposals include simplified procedures for smaller-scale projects, streamlined timelines, and new permit types to make it easier for industrial plants to switch fuels and for developers to store hydrogen in salt caverns or depleted reservoirs. Officials stress these would be time-limited trials designed to balance growth, innovation, and environmental protection. The consultation is planned to run until October 2025.
While these developments reflect steady progress, they also highlight that large-scale deployment still rests on infrastructure delivery and regulatory certainty, both of which are not expected to be concrete in the short-term.
Key European Project Watch
| Project | Update |
| APEX Group Lubmin | Copenhagen Infrastructure Partners (CIP) has acquired a 70% stake in H2Apex’s 100MW electrolytic hydrogen project in Lubmin, Germany, set to begin construction next year with €167mn in EU-approved state aid. CIP will invest €15mn ahead of a final investment decision, with the total cost expected in the hundreds of millions. The first phase is expected to come online in 2028 and will produce 10,000 tonnes of renewable hydrogen annually. The first phase has signed a preliminary agreement with an offtaker. Located near the forthcoming Flow hydrogen pipeline, the project will benefit from efficient north-south transport of hydrogen. H2Apex is also planning a separate, 1GW hydrogen project in Lubmin, also with a 100MW first phase due to come online in 2028. |
| Scatsta Green Hydrogen | Statkraft, Europe’s largest renewable energy producer, is developing a 400MW green hydrogen and ammonia project on Scotland’s Shetland Islands. The project, named Shetland Hydrogen Project 2, will use wind power to produce green hydrogen, which will then be converted into renewable ammonia. This ammonia will be used in various industries, including marine shipping and fertiliser production, helping to reduce carbon emissions in the UK. Statkraft has signed a lease agreement with the Shetland Islands Council (SIC) for the land. The project aims to utilise excess renewable power that cannot currently be used by the grid. Stuart Marley, Statkraft’s Principal Hydrogen Project Manager, highlighted the opportunity to combine Shetland’s renewable resources with technology. They plan to engage closely with the local community during development. The ammonia will be shipped through Sullom Voe, Europe’s largest oil and gas terminal, located nearby. The lease will provide SIC with an annual income of £1.13mn and additional community benefit payments. The project has also received a grant from the Scottish government. |
| West Wales Hydrogen Project | ITM Power has agreed a supply contract and binding heads of terms for a long-term services partnership with MorGen Energy for the 20MW West Wales Hydrogen Project in Milford Haven. Backed by the UK Government’s Hydrogen Allocation Round 1 programme, the project will use ITM’s POSEIDON modular electrolyser to deliver renewable hydrogen to industrial hubs and transport networks across Wales. MorGen expects construction to start before the end of 2025. |
| Stegra Boden Steel Plant | Stegra has installed the first 200MW of electrolysers at its planned 740MW hydrogen-based steel plant in Boden, Sweden. Initial production is expected to start in 2025 using scrap steel in electric arc furnaces, later shifting to hydrogen-based direct-reduced iron. Full installation is due by early 2026, with commercial operations expected from late 2026. However, Stegra only received €100m of a previously approved €265m Swedish government grant due to natural gas use, and is now seeking further funding through public, equity, and debt sources. This could potentially hamper progress, shifting timelines beyond what was previously planned. |
Jun Sasamura, Manager – Hydrogen
[email protected]
