State subsidies announced for low-carbon hydrogen have quadrupled over the last two years to around $280b, with the US standing out as by far the largest provider of support to the sector, according to analysis by research company BloombergNEF (BNEF).

In the US, $137b is expected to flow to eligible projects over the next ten years, mainly via tax credits offered under the Inflation Reduction Act (IRA), BNEF analysis showed.

“The US edge comes from the compelling offer of [up to] $3kg of low-carbon hydrogen produced – promised under the IRA,” says Adithya Bhashyam, associate, hydrogen, at BNEF.

“The US support makes low-carbon hydrogen competitive with hydrogen from natural gas, enables economies of scale and drives the technology down the cost curve, changing the hydrogen landscape for everyone.”

BNEF estimates the cost of clean hydrogen production to be $2.3–4.8/kg.

$280b – Global announced hydrogen subsidies

Other markets are responding to the IRA but are not able to match its financial might. European subsidies are c.27% lower and spread across numerous national grant programs, making them less accessible than in the US.

The European Commission has proposed an upper limit of €4/kg ($4.4/kg) for the fixed premium or contract for difference (CFD) potentially available to green hydrogen project developers bidding for subsidies via competitive pilot auctions due to launch in the autumn. However, strong competition among bidders is expected to see the auction clear at levels below the upper €4/kg.

Subsidies in Asia Pacific are significantly smaller than elsewhere, accounting for just 4% of the global total and focusing largely on research and development.

While US subsidies through the IRA are mainly in the form of tax credits, other funding mechanisms such as CFD and fixed premium subsidies, designed to guarantee projects’ operating revenue, are starting to emerge in Europe, but they “still lack the heft required to make a significant difference”, Bhashyam said.

The EU has been criticised for limiting the initial budget for subsidies to be provided via its Hydrogen Bank to €800mn.

Supply vs demand

Global subsidies for hydrogen have so far been weighted more towards the supply side rather than demand. This has raised questions about the pace of demand growth and the difficulties faced by many supply projects in securing the long-term offtake agreements needed to secure financing of production assets.

The US government is drawing up plans for a $1bn funding programme aimed at “jumpstarting” the hydrogen economy by stimulating demand.

“Ensuring the US is the global leader in the next generation of clean energy technologies requires all of us—government and industry—coming together to confront shared challenges, particularly lack of market certainty for clean hydrogen that too often delays progress,” US Energy Secretary Jennifer Granholm said in July.

Technologies to produce and use hydrogen will likely become cheaper globally driven by US demand, BNEF said. Countries reliant on hydrogen imports could also take advantage of cheaper US hydrogen exports, allowing them to focus on establishing leadership as technology providers to the hydrogen sector rather than as large-scale producers.

This is a strategy starting to emerge in Germany, BNEF added. Germany recently released a revised hydrogen strategy that projected imports would meet 50–70% of demand in 2030.

The tranche of demand to be met by imports will require a new import strategy for hydrogen and hydrogen derivatives, which will arrive largely via ship until 2030.

After 2030, the pipeline-based import of green hydrogen from Europe—and possibly neighbouring regions—will be expanded, the new German strategy envisions.

The number of countries with a hydrogen strategy now stands at 44, while as many as 35 are working on one, according to BNEF.

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Author: Stuart Penson