In line with the Paris Agreement the EU and Germany have set the ambitious climate protection goal of achieving greenhouse gas neutrality by 2050 and 2045 respectively. This requires significant changes in all sectors of the economy. For the transition towards a CO2-neutral future, we depend on the use of green hydrogen and its derivatives, such as ammonia, methanol, and sustainable aviation fuel (hereafter: Power-to-X (PtX) products).
H2Global has been developed in response to the mismatch between climate change targets and existing instruments to promote rapid reductions in CO2 emissions in the industrial, energy, heat, and transport sectors. The instrument therefore promotes the production and use of PtX products through a market-based approach, making an important contribution to the green transition of our society and economy.
H2Global is a competition-based instrument to promote a timely and effective ramp-up of the PtX market on an industrial scale. Currently, there is a market failure not only in terms of lack of investment in corresponding production capacity, but also in terms of the availability of climate-neutral energy sources, which prevents the large and economically important CO2 emitters in the EU and globally from decarbonizing quickly and consistently. To overcome this market failure, an intermediary, the Hydrogen Intermediary Company GmbH (hereafter HINT.CO), will conclude long-term purchase contracts on the supply side and short-term sales contracts on the demand side. Based on a mechanism in analogy to the Contractsfor Difference (CfD) approach, the difference between supply prices (productionand transport) and demand prices will be compensated by grants from a public or philanthropic funding body.
The combination of these long-term purchase agreements with HINTCO as a government-backed off-taker provide the necessary investment security to unlock large-scale investments now, resulting in a catalytic effect for ramping up the hydrogen economy.
For both, the purchase of the products by HINT.CO and the sales side, the price is determined via competition-based bidding procedures as part of a tailored funding window (see below). In line with sustainability criteria, the bids with the lowest supply price and the highest demand price are awarded the purchase and sales contract, respectively, in order to minimize the price difference that is to be compensated. Thanks to short-term sales contracts, H2Global can benefit from expected increasing market prices for conventional products reducing the gap that has to be compensated in the future. Accordingly, the funds required to compensate the price difference will potentially decrease over the course of the funding period, making it a highly effective and cost efficient mechanism compared to common subsidy schemes.
With H2Global, operators and investors receive the planning and investment security that is required for the development of large-volume electrolysis capacities, as they can build their business and financing model based on long-term purchase agreements with a solvent contract partner at cost-reflective prices. Simultaneously, on the demand side of HINT.CO, H2Global enables the integration of PtX products into the economic cycle at competitive prices.
The H2Global mechanism was designed to allow the configuration and implementation of individually designed funding windows. Aligned with individual objectives of the funding body, specific parameters will be determined for each window (modular principle):
The modular approach of individual funding windows provides a range of advantages and makes H2Global a more flexible and dynamic mechanism compared to common subsidy schemes. It allows H2Global to focus on stimulating a targeted market ramp-up for specific technologies and products in line with the funders’ priorities. Doing so, H2Global is open to a broad spectrum of technologies and products and contributes to an economic diversification. The modular approach allows scaling up the H2Global mechanism and the financial support, thereby extending the volume of PtX products placed on the market and multiplying the catalytic effect. As such, H2Global is perfectly positioned to place green products on the market and initiate the green transformation towards a CO2-neutral future.
Funding source of the first H2Global window is the German Federal Ministry for Economic Affairs and Climate Action (BMWK). In line with the objectives of the German government's economic stimulus program, H2Global will establish foreign trade partnerships with countries in which green hydrogen can be produced efficiently due to their geographical location. In addition, green technologies will be established in partner countries where the local energy transition will be supported, and a contribution will be made to meet the massive demand for PtX products in Germany and Europe. The BMWK is providing funding of EUR 900 Mio. Effects that are indirectly promoted by H2Global are, for example, the development of PtX infrastructure, market models and supply chains that do not yet exist for explicitly green products.