Making Renewable Hydrogen Cost-Competitive

Renewable hydrogen will be essential for achieving climate neutrality in Germany and the European Union. The German government and the European Commission have created hydrogen strategies that prioritize a quick ramp-up of demand and supply of renewable hydrogen.

Guidehouse developed a study for Agora Energiewende that provides an overview of the policy instruments required to make renewable hydrogen cost-competitive against fossil-based alternatives.

The report observes that the supply market for renewable hydrogen is in its infancy, and that it will need to be expanded to achieve the targets set forth by the German and EU hydrogen strategies. In the report, the team recommends a policy architecture combining demand-side and supply-side policy instruments including:

• Carbon contracts for difference
• Quota for e-kerosene in the aviation sector
• Investment aid to support the deployment of electrolyzers
• Hydrogen supply contracts to cover the price gap for qualified renewable hydrogen demand in the German industry sector

However, measures to encourage the growth of supply and demand will not be enough. As sustainability is the primary motivation for using hydrogen, strong safeguards should be adopted to ensure renewable hydrogen has a positive climate impact. Well-functioning infrastructure and markets are indispensable components of an effective regulatory architecture, as they unite supply and demand.