Lessons from Germany’s H2Global Program

Launched in 2021, Germany’s H2Global program is the first cross-border subsidy scheme aimed at facilitating imports of hydrogen derivatives. Along with other initiatives at the member state level, H2Global precedes the introduction of EU-wide subsidies for clean hydrogen, which are likely to be introduced sometime in 2023. The European Commission (EC) has stated that it will build on experience from the H2Global program in its development of a joint purchasing mechanism for hydrogen and other energy products, as outlined in REPowerEU, the EC’s strategy for reducing EU reliance on Russian energy imports.

How the H2Global Program Works

The H2Global Foundation was established as a nonprofit organization by the German Hydrogen and Fuel-Cell Association and the sustainable development organization GIZ. The organization’s subsidiary company Hintco (Hydrogen Intermediary Network Company) received an initial endowment of €900 million from Germany’s economy and climate ministry, BMWK, in 2021. From that sum, €360 million was allocated to the first tender round in late 2022, focused on green ammonia. A second round of tenders covering e-methanol and synthetic kerosene was launched shortly after, with deliveries expected to commence in 2024.

Procurement works through a double auction process. During the tendering phase, Hintco offers 10-year contracts to the lowest bidding producers up to a specified total value. It then sells purchased volumes on to the highest bidding offtakers on a short-term basis. This offers price certainty to project developers without locking consumers into potentially risky long-term agreements. The approach has been compared to contract for differences (CFD) schemes used for renewable energy projects, since Hintco absorbs the price difference between volumes purchased and volumes sold.

Implications for Subsidy Support in the EU

Although the intention within REPowerEU is to draw on H2Global for the EU’s import strategy, comparisons have also been made with the EC’s €3 billion Hydrogen Bank concept, announced in September 2022. Details on how the Hydrogen Bank will operate remain unclear, but industry association Hydrogen Europe expects the instrument to purchase hydrogen directly from European producers before selling it on to consumers, similar to the H2Global model. The EC itself has suggested that carbon CFDs (CCFDs) may later be integrated into the scheme, such that subsidy support would be used to compensate for hydrogen-related abatement costs in line with the current emissions allowance price.

Designing the new instrument effectively will pose certain challenges. For instance, the H2Global model is well suited to derivative products like green ammonia that are fungible, easily transportable, and able to be sold to a wide range of offtakers. By comparison, longer-term offtake agreements may be needed for gaseous hydrogen to reduce stranded asset risks in the absence of well-developed distribution infrastructure. The industry has also raised concerns about the use of CCFDs, since they remain largely untested in practice and may expose stakeholders to volatility in carbon markets.

An even bigger challenge could simply be the scale of subsidy support required, especially in light of the introduction of generous production tax credits (PTCs) in the US. The U.S. Department of Energy’s clean hydrogen roadmap anticipates that clean hydrogen demand in 2030 will be 10 million metric tons (equivalent to US fossil hydrogen consumption today). If only half of that figure were met by hydrogen from renewable sources, PTC support for green hydrogen could total $15 billion in that year alone. Offering comparable levels of support to the European hydrogen industry would require significantly more funding than the €3 billion currently earmarked for the Hydrogen Bank, and an increased commitment may be forthcoming when further details of the scheme are released later this year.