With government subsidy programs across the globe, there has never been a time such as 2023 to see the potential for new projects to go into development or finally go online.
By 2050, trillions of dollars will be needed to achieve will be needed for green hydrogen to become the dominant fuel—roughly $15 trillion or $800 billion annually in investments.
The U.S. hydrogen tax credits are probably the most important support program. However, the EU, UK, Germany, Canada, and India all have programs of a similar nature.
In 2023, a number of sizable green H2 projects will make their final investment decisions or start construction. However, there is a big gap between what is needed and what exists, with only 270 MW of green hydrogen plants currently in operation.
Most Significant Support for Green H2 comes from the US
The US Inflation Reduction Act, signed into law in August 2022 provides tax credits of up to $3/kg to clean hydrogen producers. The project’s lifecycle carbon emissions determine the credit amount. This has been considered the strongest push for the development of green hydrogen with what appears to be other nations playing catch-up to avoid losing out.
With the tax incentive, green hydrogen might be produced at a lower cost than grey hydrogen from unrestricted fossil fuels.
The specific details of the subsidy system are still being revised by the US government, but they will be available soon. However, challenges against the Act from impacted countries alleging suspected violations of international trade laws may result in a slight delay.
For instance, the Act’s preference for goods created in the US was rebuffed by the EU, Norway, and Australia.
In 2023, the US will still be the largest market globally for the generation of green hydrogen. One of the causes of that is the tax credits. Additionally, the Infrastructure Investment and Jobs Act’s $9.5 billion federal cash support for clean H2 development essentially adds the cherry on top of the cake.
At least 4 regional clean hydrogen hubs will be funded under the program’s $8 billion budget.
These hydrogen hubs are defined as:
“Networks of prospective clean hydrogen consumers, clean hydrogen producers, and connecting infrastructure located nearby.“
It is intended that these hubs create a clean hydrogen economy on a national scale. Additionally, it advocates for lowering the price of green hydrogen from more than $5 per kilogram currently to less than $2 per kg by 2026.
According to projections, the price of green H2 produced by water electrolysis will fall to even lower levels than that of blue H2 by 2050.
What to Expect in 2023
With the US taking the ‘lead’, other nations are starting to develop their own programs and incentives to ensure there is a green hydrogen push at home without losing key investors or developers to other countries.
2023 should be a year of solidifying a number of different themes of subsidy programs globally. Key approaches look to be contracts for difference (CfD), government-led purchasing programs, and tax credits.
Through its Innovation Fund, the European Commission developed its Carbon Contracts for Difference (CCfD) subsidies for green hydrogen. The plan encourages the production of H2 to move entirely from natural gas to renewable sources.
The EU states will pay end users—not producers—a fixed sum under the CCfD program in exchange for not releasing carbon. And that sum also takes into account the money saved by forgoing a carbon tax as well as a top-up subsidy to reach the strike price (cost of producing H2) as specified in the CCfD.
The program intends to assist the bloc in achieving its target of producing 10 MT of green H2 and importing another 10 MT by 2030.
The EU’s green hydrogen subsidy was supposed to be finalized last year, but delays resulted from disagreements internally. Final approval of a new draft proposal is required from the EP and all member states.
The UK has developed its own Contracts for Difference (CfD) subsidy program for clean hydrogen by the end of 2022. With two rounds in 2023 and 2024, it will assist projects using green hydrogen up to 1 GW. By 2025, they must either be finished or functioning.
Although the UK’s CfD still needs to be finished, it will assist scale up and reduce the cost of producing green H2. Beginning in early 2023, the government will select green hydrogen developers who have expressed interest in its subsidy scheme.
The Scottish government, meanwhile, called for H2 project proposals early this year when it announced its $112 million Green Hydrogen Fund in December. By 2030, 5GW of clean H2 will be installed, and by 2045, 25GW.
Canada, Germany, and India
The most advanced program is by far Germany’s H2Global green hydrogen subsidy program (for H2 imported into the EU alone). It is a two-auction system, with one auction for sustainable aviation fuels based on green methanol and H2 and the other for green ammonia. It has a starting budget of €900 million ($959 million).
The Hydrogen Intermediary Network Company (HintCo), a unique company controlled by the German government, will purchase green hydrogen or its byproducts from foreign suppliers. HintCo may then also market it to customers in Europe.
Additionally, the government subsidy will cover any cost discrepancy between the supply contracts and the purchase agreements.
Germany won’t begin the supply auctions until 2024–2025, although it hopes to finish them by the middle of 2023.
In Canada, the program operates differently from similar programs in Europe. A new tax credit worth up to 40% has been unveiled by the Canadian government for H2 production. This application mimics the US H2 tax credit system, where the benefit is based on a number of different variables. Details will be finalized after a public consultation, which will go on until 2030.
While the Indian government intends to make the use of green H2 mandatory in industries like the manufacturing of steel, fertilizer, cement, and refined oil.
A $2 billion incentive package that will probably be officially unveiled in April is one component of that ambition. As a result, the nation will become a significant producer of green hydrogen in 2023.
So what does all of this news mean? A lot of pieces will have to come together which have been promised or mentioned by governments to inevitably get those Financial Investment Decision’s put into place.
Once final investment decisions are made we will start to see prices dropping for green H2 which will ultimately lead to more uptake of the fuel, ideally replacing the existing black/grey hydrogen being used globally for green hydrogen.