H2-CfD

The ramp-up of generation capacity for domestic green hydrogen (H2) production in Germany is currently proceeding at a slow pace. Unless this expansion accelerates significantly, the target of reaching 10 gigawatts by 2030 – set out in the National Hydrogen Strategy (NWS) – will clearly not be met. 
Against this backdrop, various stakeholders in the hydrogen economy (united in the Electrolysis Industry Economic Alliance, EIWA) have proposed an "Electrolysis Industry Economic Program". This programme provides government support based on Contracts for Difference (CfD) for hydrogen production from the first 10 gigawatts of domestic electrolysis plants.

As part of the H2-CfD short-term study, researchers have determined and classified the projected government subsidy costs of this CfD support concept for strengthening the H2 ramp-up. To this end, they have developed three different scenarios (low, moderate and high) to reflect existing uncertainties, particularly regarding investment costs and electricity procurement costs. The assumptions and parameters for calculating bid prices and resulting subsidy costs are derived from both relevant current literature and current market reference values.

Key findings of the study are:

• A maximum bid price represents a key control instrument with significant leverage in terms of subsidy costs, and that bid prices below 7 Euros per kilogramme appear ambitious but fundamentally achievable.
• The optional direct marketing of H2 beyond the subsidy is the most effective cost-reducing factor for cumulative subsidy costs, and that these can be reduced from 76 billion to 30 billion Euros in the case of a 60 per cent share and a maximum bid price of 7 Euros per kilogramme.
• However, the realisation of other direct marketing requires sufficiently high demand for green hydrogen (H2 pull), which can be further strengthened by other instruments.
• In the precise design of the instrument, attention must be paid to the system-supporting use of electrolysis and to the trade-off between short-term investment security and long-term climate protection effectiveness.