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.