Europe requires a material step change in hydrogen supply volumes and duration of contracted supply. European domestic projects alone with limited exceptions (e.g. brownfield projects), cannot deliver the scale, speed or cost competitiveness of imported green hydrogen to meet Europe’s ambitious green hydrogen targets.
This paper sets out the rationale and design for a Contract for Difference (CfD) tailored to support imports of renewable hydrogen and its derivatives into the European Union (EU).
The paper outlines how CfDs work by stabilizing revenues through a strike price mechanism. It then examines their benefits at the European level, including faster decarbonization and increased investor confidence.
It also discusses how CfDs can be aligned with European policy objectives, while addressing potential risks such as market distortions and fiscal costs. A comparison with alternative instruments shows the relative strengths of CfDs.
Finally, the paper considers the potential cost of a CfD program, noting its long-term value despite possible public expenditure.
The Green Hydrogen Business Alliance supports the market ramp-up of green hydrogen while contributing to a sustainable development of partner countries. It identifies the challenges of the market and develops solutions together with the private sector. It was established in 2019 on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). It is co-financed by the Dutch Directorate-General for International Cooperation (DGIS) and implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).