From promise to practice: How policy can help anchor demand for hydrogen

Investors in an immature hydrogen market face high risks without sufficient long-term offtake agreements that provide clarity about the direction of travel. Stable support frameworks and bankable offtake contracts are important to provide long-term investor certainty about hydrogen demand.

Germany, for example, uses a mix of mechanisms to stimulate low-emissions hydrogen demand and reduce risks for investors. The H2Global mechanism covers both producers and consumers by introducing an intermediary that compensates for the price difference for low-emissions hydrogen in auctions. Producers receive a long-term contract to reduce uncertainty, and consumers can conclude one-year contracts to avoid a lock-in effect. The European Union has also established a platform to connect buyers and suppliers of hydrogen, providing transparency to market players and information for financial support.

Germany also has a carbon contract for difference scheme for energy-intensive industries. This aims to close part of the cost premium when switching to low-carbon production alternatives for 15 years, providing certainty on cash flows. The funds are not only for hydrogen, but they are sizeable, with EUR 2.8 billion allocated in the first round and larger amounts planned for the second round.

In Korea, the power system is expected to become the main demand driver for low-emissions hydrogen, complementing nuclear and renewables. Korea is considering ammonia co-firing in coal power plants and the use of hydrogen in gas turbines. To promote this, Korea is opting for operational cost support through auctions with sustainability criteria. KEPCO, Korea's largest electricity utility, covers the cost premium between the market and bidding prices over 15 years. While the tender conditions are still being fine-tuned, the first tender in 2024 awarded 750 gigawatt-hours per annum, and a second round launched in May 2025 aims to support 3 terawatt-hours per annum of generation from low-emissions hydrogen.

Public procurement has not yet been widely used for low-emissions hydrogen. However, it can both help create a market for low-emissions hydrogen and close the cost gap, with initial public offtake agreements that can in time lead to economies of scale. Canada, Germany, the United Arab Emirates, the United Kingdom and the United States have endorsed the Green Public Procurement Pledge, with the intention of procuring over 30 Mtpa of low-emissions steel. Korea is also using public procurement schemes to stimulate hydrogen demand in transport and services by deploying fuel cell buses and garbage trucks. Complemented by fuel subsidies, these early-stage initiatives also aim to scale up domestic hydrogen-powered, heavy-duty vehicle production.