Closing the Bankability Gap in Low-Carbon Energy Projects

This article explores why low-carbon energy projects often struggle to achieve bankability and outlines practical ways to close the gap through stronger demand certainty, smarter risk allocation, phased investment and targeted public support.

BLOGS

Anil Vadehra

7/30/20264 min read

Closing the Bankability Gap in Low-Carbon Energy Projects

The energy transition is not suffering from a lack of project announcements. Across hydrogen, carbon capture and storage, offshore wind, sustainable fuels, energy storage and industrial electrification, the development pipeline is enormous.

The more difficult question is how many of these projects will reach final investment decision and operate profitably.

Global investment in clean energy continues to grow. The International Energy Agency estimates that clean-energy investment will reach approximately USD 2.2 trillion in 2026—almost twice the amount invested in fossil fuels. However, this capital is not distributed equally. Investors increasingly distinguish between commercially mature renewable-power projects and emerging low-carbon businesses with uncertain demand, higher technology risk and weaker returns.

Lower NPVs—but not necessarily lower risks

In many corporate portfolios, low-carbon projects compete directly with conventional oil and gas investments.

Oil and gas projects certainly carry commodity-price, political and execution risks. Nevertheless, they usually sell into established global markets. Their technologies, supply chains, contractual structures and operating models are well understood. Historical data also gives investors a stronger basis for estimating production, costs, prices and asset performance.

Many low-carbon projects offer a less attractive combination: lower expected net present values and higher uncertainty.

A renewable-hydrogen project, for example, may require investment in renewable generation, electrolysers, grid connections, storage and transport infrastructure. At the same time, the project may depend on customers accepting a significant green premium over conventional hydrogen.

The IEA’s Global Hydrogen Review 2026 concludes that low-emissions hydrogen will remain more expensive than fossil-based hydrogen in most regions in the near term. Global hydrogen demand exceeded 100 million tonnes in 2025, but almost all of it remained concentrated in traditional refining and industrial applications. New final investment decisions for low-emissions production fell below 0.8 million tonnes per year in 2025, following two years at approximately one million tonnes.

The challenge is therefore not simply whether a future market will exist. It is whether bankable demand will exist when the project begins operating—and whether customers will sign sufficiently long and creditworthy contracts.

Recent projects show what happens when assumptions change

The bankability gap is not limited to hydrogen.

In May 2025, Ørsted discontinued the 2.4 GW Hornsea 4 offshore-wind project in its existing form, despite having secured a UK Contract for Difference. The company cited higher supply-chain costs, higher interest rates and increased construction and operating risk, which together had weakened the project’s expected value creation.

In September 2025, Shell decided not to restart construction of its Rotterdam biofuels facility after a commercial and technical review. Shell concluded that market conditions and completion costs meant the project would not be sufficiently competitive in supplying affordable low-carbon products.

These examples do not show that offshore wind or biofuels are fundamentally unviable. They show that a project can remain technically feasible while losing its investment case.

This risk is intensified by the pace of technological development. A capital-intensive energy facility may take five to ten years to develop, permit, finance and construct. During that period, electrolyser designs, battery chemistries, capture technologies or competing fuels can improve significantly.

A project can therefore be technically successful but commercially outdated by the time it starts operating.

How can the bankability gap be closed?

Start with contracted demand—not announced capacity

Developers should size projects around credible demand rather than optimistic market forecasts.

Long-term offtake agreements, minimum-volume commitments and take-or-pay structures can reduce revenue uncertainty. Early projects should focus particularly on customers that already consume the conventional version of the product.

This is visible in hydrogen. According to the IEA, the strongest progress is occurring in refining and fertiliser production, where existing hydrogen demand can be converted from fossil-based to low-emissions supply.

A smaller project backed by reliable customers is generally more bankable than a large facility dependent on an expected future market.

Use public support to stabilise revenues

Grants may reduce initial capital expenditure, but they do not solve long-term revenue risk. Support mechanisms should therefore address the difference between low-carbon production costs and the price customers are prepared to pay.

The European Hydrogen Bank provides one example. Its 2026 auction awarded more than EUR 1 billion to nine projects through fixed production premiums ranging from EUR 0.44 to EUR 3.49 per kilogram of hydrogen for up to ten years. This converts an uncertain future subsidy into a more predictable revenue stream.

Contracts for Difference can play a similar role in renewable electricity. The UK has extended certain contracts to 20 years with inflation indexation, improving revenue visibility and investor confidence. Its latest offshore-wind auction secured 8.4 GW of capacity and was expected by the government to unlock approximately GBP 22 billion of private investment.

Build modularly and preserve options

Where demand and technology remain uncertain, projects should avoid committing all capital at once.

Modular designs and phased investment allow capacity to expand when demand becomes visible. They also create opportunities to incorporate improved technology later.

The initial phase may have higher unit costs, but its total capital exposure is lower. In risk-adjusted terms, preserving the option to expand, modify or stop may be more valuable than maximising the base-case NPV.

Develop projects around clusters

Low-carbon projects frequently depend on shared infrastructure: hydrogen pipelines, carbon dioxide networks, renewable-power connections, storage sites and ports.

Industrial clusters can aggregate demand and distribute infrastructure costs across several producers and customers. The IEA specifically identifies industrial hubs around existing demand centres and strategic ports as an important basis for long-term hydrogen growth.

Make bankability a project-management discipline

Bankability should not be tested only after engineering is substantially complete.

Project teams should use stage gates that examine customer commitment, policy exposure, technology maturity, infrastructure interfaces and downside economics before approving additional development expenditure.

Technical progress alone should not justify continuing a project. Each stage should demonstrate that the commercial risks are reducing as the engineering definition increases.

From positive NPV to resilient investment case

A positive base-case NPV is not enough. Low-carbon projects need to remain viable under slower demand growth, lower customer willingness to pay, higher financing costs and faster-than-expected technological change.

The strongest projects will combine existing demand, long-term revenue protection, modular development, shared infrastructure and disciplined stage-gate decisions.

The decisive question is no longer simply: “Can we build it?”

It is: “Will customers, investors and lenders still support it when the market, technology and policy environment change?”