In the past few years, governments across the globe have been stepping up efforts to adopt hydrogen strategies and set targets for hydrogen production and technology deployment.

With the global recognition of the central role hydrogen will play in the clean energy transition away from fossil fuels, several governments have begun implementing policies in the form of grants, tax credits, contracts for difference, and loans. According to the International Energy Agency (IEA), the US and the European Union lead in policy action, while China tops deployment. 

Kallanish has summarised some of the incentives and policies available for hydrogen development in different countries across the globe.  

US

The US government’s clean hydrogen tax credit, under the 2022 Inflation Reduction Act (IRA), is one of the key legislations that encouraged early investments in clean hydrogen production. Also called the 45V credit, it offers a 10-year tax credit of up to $3/kilogram for clean hydrogen production, depending on the lifecycle greenhouse gas emissions of H2 production. This is expected to help reduce the cost of production by around 50-75%. 

However, it was only last December that the government published the guidelines detailing the rules which will determine a project’s eligibility to secure the credits. To ensure the hydrogen produced is truly green, the government introduced the “three pillars” of requirements: incrementality, deliverability, and hourly matching. While proponents of the proposed guidelines argue that strong rules are necessary to grow the industry, those against it believe otherwise.

The guidelines are still being finalised, leaving some prospective projects in limbo as developers await regulatory certainty. 

Europe 

In 2022, the European Commission launched the European Hydrogen Bank, a financing instrument to support European and global green hydrogen production. A pilot auction under this opened last November, with the commission announcing seven projects as the winners late last month. 

The auction will award nearly €720 million ($768.4m) for the renewable hydrogen projects located in Finland, Norway, Spain and Portugal. The winning bids were between €0.37 and €0.48/kg of renewable hydrogen produced – well under the ceiling price of €4.5/kg. 

The projects will receive the awarded fixed premium subsidy for up to 10 years for their renewable hydrogen production. They will have to begin production within a maximum of five years from the grant signing, which is expected in November this year.

The EC plans to launch a second auction by year-end, as it proposes reducing the auction ceiling price to €3.50/kg. In addition, it is also proposing to lower the maximum operation start time to three years from the current five and increase the requested amount of the completion guarantee from 4% to 10% of the requested grant amount.

Separate to EU-level initiatives, several European countries have also announced their own incentive schemes:

• Netherlands

Late last month, the Dutch government awarded around €250m ($268m) in subsidies to seven green H2 production projects, with a total capacity of 101 megawatts. A part of the government’s OWE subsidy scheme for scaling up fully renewable hydrogen production, it supports projects with electrolyser capacity between 500 kilowatts to 50 MW.

The subsidy has two parts: the investment part and the operating part. The first covers a subsidy of up to 60% on the investment costs of the electrolyser, depending on the size of the company. The operating subsidy, meanwhile, covers the cost difference between producing renewable hydrogen and grey hydrogen, spanning 7 to 15 years after the completion of the installation.

“The maximum subsidy in total for the project (investment subsidy and operating subsidy) is limited to €9/kg of renewable hydrogen,” a spokesperson for the Netherlands Enterprise Agency (RVO), which ran the auction, tells Kallanish.

At this rate, it is no surprise that the OWE scheme auction was highly competitive, receiving over €600m in total bids. The projects that won the subsidies include RWE’s Eemshydrogen project in Eemshaven; Van Kessel Olie’s project in Oude Tonge; VoltH2’s plant in Delfzijl; and H2 Hollandia’s project in Nieuw-Buinen. 

• Germany 

In 2021, Germany launched the H2Global scheme to subsidise green hydrogen produced outside the EU for import into Germany. It uses a double-auction model, which facilitates the purchase of hydrogen and its derivatives at competitive global prices, before selling it to the EU’s highest bidder. 

Under this initiative, the government-owned HintCo will buy green hydrogen or its derivatives from international producers through 10-year hydrogen purchase agreements (HPAs). These will then be sold to European customers via short-term supply contracts awarded through separate auctions.

The government launched a €900m ($1 billion) tender for green ammonia, methanol and e-fuels in December 2022. Supply auctions for this are expected in 2024/2025.

Last June, Berlin also extended the scheme to all EU member states, while linking the scheme with the European Hydrogen Bank. In April, the EC approved €350m in German state aid as part of the bank’s auction-as-a-service tool to support electrolysis capacity in the country. The scheme allows EU countries to finance additional projects participating in the auction after the budget has been allocated, with Germany being the first country to participate. The funding is expected to support 90 MW of electrolysis capacity, equating to the production of 75,000 t/y of green hydrogen in Germany.

UK

The UK government launched the first hydrogen allocation round (HAR1) in July 2022, under its Hydrogen Production Business Model (HPBM), which seeks to incentivise the production and use of low-carbon hydrogen. Last December, the government awarded £2 billion ($2.3 billion) in funding for 11 green hydrogen projects, with a combined capacity of 125 MW. 

The scheme, which takes a Contracts for Difference (CfD) subsidy approach, provides developers with upfront costs and long-term purchase prices called strike prices. These were agreed at a weighted average strike price of £241/megawatt-hour. 

In December 2023, the government opened the second hydrogen allocation round (HAR2) to support 875 MW of hydrogen production capacity. The submission window closed last month. The government is planning to run yearly allocation rounds under HPBM, with the third and fourth allocation rounds (HAR3 and HAR4) expected to support up to 750 MW in 2025 and 2026, respectively.

India

In India, meanwhile, the government opened tenders worth a total of INR 130.5 billion ($1.6 billion) to boost the country’s green H2 production and electrolyser manufacturing last July. Tranche 1 of the so-called Strategic Interventions for Green Hydrogen Transition (SIGHT) scheme offers subsidies of a maximum of INR 50 ($0.60)/kg of H2 in the first year, followed by INR 40 in the second and INR 30 in the third year. The state-owned Solar Energy Corporation of India (SECI), which conducted the auction, selected nine companies as winners, allocating a total production capacity of 410,000 t/y. 

The scheme has also committed INR 44.4 billion for electrolyser manufacturing in the country, offering a base subsidy of INR 4,440/kilowatt ($53.2/kW) of electrolyser capacity sold in the first year. The five-year subsidy decreases every year, reaching INR 1,480 in the final year. 

In March, the government opened bids for the second tranche of the electrolyser manufacturing subsidy, covering another 1.5 gigawatts of capacity. 

However, the Institute for Energy Economics and Financial Analysis (IEEFA) warned early this year that the current subsidy rates are much lower in comparison to other international schemes. In addition, the short tenure of the program may also hurt the scheme’s targets.

Without urgency, global progress will remain slow

Despite the support from such policies, global project deployment remains slow. A common problem across countries is the slow implementation of announced funding schemes.

“The lengthy time lags between the announcement of the schemes and the moment at which funds are made available to project developers is delaying project execution, and even putting projects at risk,” the IEA has warned. “This has been aggravated by the lack of clarity about regulation.”

For hydrogen projects to progress, governments will have to “urgently” implement the announced programmes and make the funding available, the agency added. That’s because funding seems to directly impact the developers’ ability to reach a final investment decision, and the buyers’ ability to commit to purchase deals.