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Actualizing the green hydrogen economy: Legal and financial considerations

to advance sustainable energy

Technical Report · December 2023

DOI: 10.13140/RG.2.2.26984.85761

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Actualizing the green
hydrogen economy
Legal and financial considerations to
advance sustainable energy
Actualizing the green hydrogen economy |
 Table of Contents

Executive Summary 03

1. Introduction  06

2. Legal policy framework  09

3. Financial and investment considerations to green hydrogen 14

3.1. Economic and financial characteristics of green hydrogen 15

3.2. Overview of some of the main financial and economic instruments to help increase
bankability of green hydrogen projects 19

3.3. Effectiveness of the main financial and economic instruments  21

4. Recommendations 24

Appendix: The case study and calculation of different indicators 26

Endnotes 30

Authors and Contacts 35

Deloitte Center for Sustainable Progress 37

02
Actualizing the green hydrogen economy |
 Executive Summary

Executive
Summary

03
Actualizing the green hydrogen economy |
 Executive Summary

Action on the global climate crisis front is wanting and far from United Arab Emirates and Australia. While the importance of
sufficient. Findings of the Intergovernmental Panel on Climate finance and different cost-reduction support mechanisms (such
Change’s (IPCC) 6th Assessment Report (AR6) highlight that as operational or investment support schemes) was underscored
projected adverse impacts and related losses and damages across these regions, the policy environment currently lacks
intensify with every increment of global temperature rising. sufficient region-specific tools to help kickstart the green
Limiting global warming requires deep decarbonization of the hydrogen economy.
whole economy. Such a transition to net-zero greenhouse gas
(GHG) emissions entails low carbon intensity at each sector of The physical and economic characteristics of green hydrogen
the economy and important changes in behaviors, regulations, make its production cost highly sensitive to the weather
and institutions. For hard-to-abate sectors such as heavy-duty conditions and its financing structure. Moreover, the nascent
transport and some industrial processes where electrification nature of clean hydrogen market makes it highly dependent on
can be very difficult or impossible, mitigation options can policy and regulatory support. Initiation of a clean hydrogen
include decarbonizing through abatement technologies and economy, in line with sustainable development goals, requires:
switching to new low- and zero-emitting energy carriers such as
1. Facilitating investments via unlocking funds and foreign
clean hydrogen and its derivative molecules, such as ammonia,
investment initiatives,
methanol and other synthetic fuels.
2. Reducing financing costs via enabling access to low-
This paper reviews the green hydrogen landscape providing cost finance,
insights on current and developing law and policy frameworks,
3. Creating a level-playing field for green hydrogen via
finance, and bankability considerations, and provides
operational subsidies until at least late 2030s,
recommendations to help advance the green hydrogen value
chain considering key challenges and areas of opportunity. 4. Creation of demand for green hydrogen via sectoral initiatives
and obligations, and
Given the nascent nature of the clean hydrogen sector, alignment
5. Reduction of the permitting and construction periods via
of the policy and regulatory architecture towards a Paris-aligned
facilitated permitting processes.
green hydrogen economy can provide important legal clarity,
certainty and can create an enabling environment for stakeholder
Several mechanisms can be used to help make green hydrogen
engagement across the value chain. The global policy environment
projects economically more competitive and to facilitate
on the development of a green hydrogen economy is shaping
investments: investment support, financing support, operational
up, notably via the US Inflation Reduction Act (IRA), the German
support, Research and Development (R&D) support, market
H2Global offtake platform, and other national and regional
creation and permitting facilitation (Figure 1).
hydrogen strategies in areas such as the European Union, the

Figure 1. Summary of the policy support mechanisms to increase the bankability of green hydrogen projects

Investment support Financing support Operational support

Finance a part of the Reduce the cost Premium proportional to

capital expenditure of capital hydrogen production

e.g., Innovation fund (EU) e.g., SDG Nambia One Fund e.g., SDE ++ (the Netherlands)
Clean H2 Infra Fund (worldwide) (Nambia) IRA 45v (US)

R&D support Market creation Permit facilitation

Develop a self-sustaining Ensure that green hydrogen Facilitate the roll-out of projects
hydrogen value chain will be bought by allowing quick commissioning

e.g., Clean Hydrogen Joint e.g., H2Global (Germany) e.g., Net-Zero Industry Act (EU)
Undertaking (EU) European Hydrogen Bank (EU)

04
 Actualizing the green hydrogen economy |
 Executive Summary

The analysis in the current paper showcases the importance of • Improve social acceptability: Sustainability-linked actions in
support mechanisms to help reduce the upfront costs of the line with the UN Sustainable Development Goals (SDGs) should
projects that would bring both the needed investments and acquire full public support. Collaboration and empowering
the associated financing costs down. Reducing risks associated local communities, alignment of regulatory measures with
with green hydrogen projects (regulatory risks, market risks, Indigenous sustainability perspectives and grounded in free
technology risks, etc.) especially in developing economies can prior informed consent of the local population through effective
bring significant cost reductions thanks to reduced cost of capital participatory processes can be key for increased support of the
in these regions. Reducing the cost of capital in these regions to local populations and social acceptability of green hydrogen
similar levels in the developed economies can reduce the project development.
costs by more than 25% (Figure 2). Considering direct monetary
• Create the market: Green hydrogen for different end uses
support, investment support mechanisms are identified as one of
tends to be more expensive than its counterparts, and early
the most efficient cost-reduction levers, reducing both the upfront
adoption of this technology likely requires both creation of a
investment needs and financing costs simultaneously.
market where there is a demand for such a product and bridging
Unlocking the decarbonization potential of green hydrogen
the cost gap between green hydrogen and the conventional
requires important policy and regulatory action. The findings
fossil fuels. The projects need to be supported in their early
of the analysis reinforce the importance of actions activating
stages, which can take several forms: direct investment or
different levers facilitating development of green hydrogen
operational support, contracts for differences, offtake contracts,
projects, notably in developing economies:
and other demand creation mechanisms such as guarantees of
• Facilitate deployment: Given the current climate emergency, origin and green certificates.
the action should be imminent. Reducing delays in project
• Enhance the financing conditions: Projects in developing
development via anchoring permitting processes with a central
and emerging economies with high renewable endowments
agency, accelerated environmental impact assessments (EIAs)
need facilitated financing and liquidity through blended funding,
and strategic environmental assessments (SEAs), and leveraging
international green finance and state guarantees to help reduce
the existing infrastructure and retrofitting them to hydrogen
the cost of capital and consequently the financing costs of
infrastructures can reduce some of the risks associated with
the projects.
delayed actions.

Figure 2. Impact of weighted average cost of capital

(WACC) on the levelized cost of green
hydrogen production in Southern Africa and
Southern Europe

5.2 5.1

3.8 1.8
2.7

1.3
US$/kgH2

1.0

0.8 0.8

2.3
1.7 1.7

11% WACC 6% WACC 6% WACC

Southern Africa Southern Europe

Investment cost Operational costs Financing cost Total

05
Actualizing the green hydrogen economy |
 1. Introduction

1. Introduction

06
Actualizing the green hydrogen economy |
 1. Introduction

Global warming crisis requires decisive actions, but in their can include decarbonizing through abatement technologies and
current levels, they are far from sufficient. Findings of the switching to new low- and zero-emitting energy carriers such
Intergovernmental Panel on Climate Change’s (IPCC) 6th as clean hydrogen and its derivative molecules (e.g., ammonia,
Assessment Report (AR6) highlight that projected adverse impacts methanol and other synthetic fuels).1 The Emissions Gap report
and related losses and damages intensify with every increment of also outlines some of the key actions needed to help advance
global warming.1 The reports have consistently illustrated emission transformation through avoiding lock-in of new fossil fuel-intensive
scenarios that are essential to assess impacts and analyze infrastructure, further advancing and applying zero-carbon
mitigation efforts needed to act on the climate crisis.2 These technologies and promoting behavioral shifts.16
scenarios are crucial to help formulate projections for systems,
including energy systems, which in turn support national and Historically, hydrogen has been produced via reformation of
international policymaking and the design of plausible sustainable natural gas (grey hydrogen) or gasification of coal (black/brown
development policy actions. In its recent AR6 synthesis report, hydrogen), both being highly carbon intensive.17 For hydrogen to
the IPCC shows that scenarios and mitigation pathways consistent be an effective emission reduction option, it should be produced
with limiting global warming to 1.5°C are very likely to rely heavily using clean energy sources, or its CO2 emissions should be abated
on renewables, efficiency measures and net-negative emissions, via carbon capture and storage (CCS). Among different clean
consistent with a rapid introduction of mitigation measures.3 hydrogen production options, only electrolysis-based hydrogen
The United Nations Environment Programme (UNEP) Emissions using clean electricity has net-zero direct CO2 emissions, as
Gap report corroborates this finding outlining, to get on track for CCS-based solutions are associated with residual CO2 emissions
limiting global warming to 1.5°C, global annual greenhouse gas and upstream methane emissions of natural gas.18 Green
(GHG) emissions must be reduced by 45% compared to emission hydrogen can be produced via water electrolysis using renewable
projections under policies currently in place, and they must electricity, mostly wind and solar power. Because of lower
continue to decline rapidly after 2030, to avoid exhausting the technological maturity of other electrolysis-based clean hydrogen
limited remaining atmospheric carbon budget (below 400 GtCO2eq production routes and promising cost reduction of renewables
of cumulative emissions by 2050).4 and electrolyzers, green hydrogen is considered to become the
key clean hydrogen supply option in the long run, being both
Climate change has and is adversely impacting and exposing economically viable and truly sustainable.19 Development of a
vulnerabilities of individual livelihoods and climate-sensitive global green hydrogen market has the potential to play a critical
sectors. AR6 highlights the very high likelihood of increase in enabling role in developing and emerging economies to help drive
compounding and cascading impacts making it more difficult robust sustainable development outcomes.20
to manage, resulting in an exacerbation of vulnerabilities of
ecosystems and people to climate hazards.5 The risks are
bound to have a ripple effect across the food, energy and
water sectors to mention a few.6 In the past year, the Russia- Green hydrogen can
Ukraine war pinpointed the vulnerability of the current global
energy system, given its dependence on fossil fuels produced
from a very small number of countries.7 The IPCC underlines
help decarbonize
the importance of adaptation and mitigation actions, across
scales, sectors and regions, that prioritizes equity, climate hard-to-abate sectors
justice, rights-based approaches, social justice and inclusivity,
leading to more sustainable outcomes, reducing trade-offs,
supporting transformative changes and advancing climate
such as heavy-duty
resilient development.8 These actions are needed for deep
decarbonization that counters the scale and rate of climate transport and some
change and its associated risks. Aligned to country-specific
circumstances, carrying out the needed actions, requires political
commitment with multi-level governance, regulation, laws, policies,
industrial processes
and strategies that can help support deep emission reductions if
scaled up and enhanced.9 where electrification
Indeed, a deep decarbonization transition to net-zero carbon
emissions entails low carbon intensity across each sector of
is impossible or
the economy and radical changes in behaviors, regulations,
and institutions.10 In this regard, reducing energy and industry- very costly.
related emissions requires electrification11, 12 and an immediate
shift towards renewables.13, 14, 15 For hard-to-abate sectors such
as heavy-duty transport and some industrial processes where
electrification is very difficult or impossible, mitigation options

07
Actualizing the green hydrogen economy |
 1. Introduction

From an industry perspective, as many industrial processes are

already optimized for higher efficiency and some cannot only rely
on electrification (such as steel production and chemicals), key
transformations needed to help bring the industry sector to a
Paris-compatible pathway include integration of green hydrogen
production capacities.21 Moreover, while there appears to be
scientific consensus regarding the effectiveness of electrification
to help decarbonize across many sectors, some sectors, such
as maritime transport and aviation, require solutions beyond
electrification. Synthetic fuels produced from clean hydrogen such
as ammonia and methanol can bring needed emission reductions
to the maritime transport sector.22 Similarly, sustainable aviation
fuels, seen as leading solutions for the decarbonization of aviation,
can be produced either from hydrogen (synthetic kerosene via
Fischer-Tropsch reaction) or biological feedstock (bio-kerosene).23
Finally, hydrogen can be an important game changer for the
integration of variable renewable energy sources (wind and solar
power) to the power system, bringing the needed flexibility to the
system by providing long-term energy storage and grid
stability.24, 25

The global clean hydrogen (mostly green) economy can grow up

to US$1.4 trillion annually by 2050. It can reduce GHG emissions
by 85 GtCO2eq and contribute significantly to economies by
supporting about 1.5 million new jobs per year between 2030-
2050 in developing and emerging economies.19 Therefore,
an effective understanding of the regulatory and financing
environment needed to help successfully scale-up the supply
of green hydrogen is critical to actualizing intersections with the
United Nations (UN) Sustainable Development Goals (SDGs).

To help unlock the decarbonization potential of green hydrogen,

it should be widely affordable. With the right policies put in place
now, it could soon become a cornerstone of the world’s shift away
from fossil fuels.26 Furthermore, international cooperation and
coordination is important to help develop a market for hydrogen
from renewable sources, with coordinated targets, standards, and
bilateral and multilateral cooperation agreements.27

08
Actualizing the green hydrogen economy |
 2. Legal policy framework

2. Legal policy
framework

09
Actualizing the green hydrogen economy |
 2. Legal policy framework

A review of national law and governance frameworks explores drafting vis a vis green hydrogen and its derivatives.
the importance that forward-facing regulatory approaches play in Green hydrogen has gained significant attention in the policy
advancing the green hydrogen economy. Advanced experiences framework around the globe with varying approaches adopted to
are reviewed from the European Union (EU), Germany, United advance capacity. Table 1 provides an overview of the policy and
States (US), Namibia, Australia, United Arab Emirates (UAE) and regulatory approaches adopted across the jurisdictions.
Morocco providing perspectives on the progression of legislative

Table 1. Policy and regulatory approaches to promote the development of green hydrogen across
the selected jurisdictions

Geography Existing legal and policy framework Enablers

European • First Renewable Energy Directive (RED), 2001 (updated in 2009) promoted • A mutually supportive
Union (EU) the deployment of renewable energy sources across key sectors of the EU incentivization scheme which
economy.28 currently comprises of the
Renewable Energy Directive and
• RED II, 2018 updated framework agreement governing renewable energy
the Emission Trading System35
generation and use within the EU.29
• A plan to set up the European
• RED III, 2023 (Provisional agreement) raised renewable energy targets
Hydrogen Bank, to invest more
from 32% to 42.5% aiming for 45%. It will modify sectoral targets including
than US$3 billion (€3 billion)
specific targets for hydrogen based renewable fuels of non-biological origin
to kick start the European H2
(RFNBO’s).30
market 36
• European Commission (EC) proposed an encompassing legislative
• Fixed-premium auctions for
framework for the production, consumption, infrastructure development and
renewable hydrogen from 2023
market design for hydrogen (Also refer to Renewable Energy Directive).31, 32
will also be provided by the EU’s
• ‘Fit for 55’ package creates incentives for hydrogen use, including binding Innovation Fund 37
goals for industry and the transport sector.33

• Green Deal Industrial Plan provides a conducive environment to scale up

the manufacturing capacity for net zero.34

Germany • Renewable Energy Sources Act (EEG 2021) and Renewable Energies • Federal Network Agency
Ordinance (EEV, 2021) contains support schemes for renewable energy (BnetzA), responsible for the
sources, which directly affect the cost of electricity consumed for green regulation of hydrogen projects
hydrogen production.38 as hydrogen currently falls
under the regulation of gas and
• Energy Industry Act (EnWG) mentions the supply of hydrogen by providing
electricity markets 43
the purpose of the act in the provision of grid-based supply based on
renewables, drawing attention to hydrogen.39 • Public funding guidelines for the
financial support of international
• Koalitionsvertrag zwischen SPD, Bündnis 90/Die Grünen und FDP
hydrogen projects
formulates a ‘national hydrogen strategy’ as of 2022, and identifies the need
to develop the Important Project of Common European Interest (IPCEI) to • The funding guideline
financially support investments in the development of a hydrogen network specifically supports projects
infrastructure.40 for the production and further
processing of green hydrogen
• National Hydrogen Strategy (NHS, 2020) helps create the opportunity to
and its derivatives as well as for
play a key role in international competition for the development and export of
the storage, transport, and use
hydrogen and Power-to-X technologies.41
of hydrogen in countries outside
• Federal Emission Control Act provides an authorization procedure pursuant the EU via an investment grant
for the construction and operation of a hydrogen production facility such as a for the systems44
power-to-gas plant.42
• The aim of H2Global to purchase
• Environmental Impact Assessment Act requires a preliminary audit green hydrogen products
keeping in mind fulfilment of requirements stipulated by the Hazardous cheaply on the world market and
Incident Ordinance. to sell them to the highest bidder
in the EU

10
Actualizing the green hydrogen economy |
 2. Legal policy framework

Geography Existing legal and policy framework Enablers

United • Energy Policy Act, 2005 expanded large-scale hydrogen research and delved • Launch of The Hydrogen Shot to
States into development of hydrogen as an alternative source of fuel.45 help accelerate breakthroughs in
hydrogen technology and cut the
• Inflation Reduction Act provides clean energy incentives with provisions for
cost of clean hydrogen by 80%
clean hydrogen and fuel cell technologies, either extending existing federal tax
to US$1 per kilogram (kg) in one
credits, or creating new federal tax credits.46
decade49
• California specific initiatives
• Texas specific initiatives, 2022,
– Low Carbon Fuel Standard leverages federal investment from the
including a new mega-scale
Infrastructure Investment and Jobs Act establishing an environmentally and
green hydrogen facility50
economically sustainable and expanding renewable hydrogen hub.47
– Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES)
supports an H2 consortium to advance public-private partnerships that
accelerate deployment of clean, renewable H2 projects and infrastructure.48

Namibia • The National Energy Policy, 2017 aims to provide, energy security, enable • The Republic of Namibia
cost-effective, reliable and consistent energy access, promotion of energy exercises exclusive jurisdiction
efficient technologies, and incentivize the effective development and use of over natural resources and
domestic energy resources. The policy also aims to support expansion of components of the natural
renewable energy sources.51 environment within its national
boundaries57, 58
• The Electricity Act, 2007 in which Electricity Control Board licenses
only operations that involve electricity generation (solar and wind) and • Establishment of a special
transmission, with approved projects including the establishment of networks economic zone (SEZ) and
for integration of power production and green hydrogen processing facilities.52 expansion of the Walvis Bay Port
currently being evaluated59
• The Electricity Bill, 2017 and the Namibia Energy Regulatory Authority
Bill, 2017 (Under parliament’s review), could significantly impact the • In May 2022, Namibia launched
procurement and licensing of power generation projects.53 its first sovereign wealth fund
called as the Welwitschia Fund60
• Harambee Prosperity Plan II aims to foster development of renewable
energy at scale, advancement of business models that promote local
sustainable development grounded in renewable energy sources, and
mobilization of finance to scale up infrastructure for renewable energy and
green ammonia production.54

• Namibia Green Hydrogen Strategy establishes the goal of positioning

Namibia as a leading global hydrogen producer by 2025.55

• Synthetic Fuels Act (Yet to pass) aims to provide transparent oversight

towards organizing, acquiring, and overseeing future green hydrogen projects
built on state-owned property and detail on incentives, corporate tax
structures, royalties, and competition laws.56

11
Actualizing the green hydrogen economy |
 2. Legal policy framework

Geography Existing legal and policy framework Enablers

Australia • The Climate Change Act, 2022 embed the Paris Agreement and targets • Need to ensure that the rights
found in the nationally determined contribution (NDC) into the national of Indigenous Australians
framework, with subnational legislation leading the way on climate policy.61, 62 are adequately addressed in
the current frameworks for
• The National Electricity Law63 National Gas Law64 and the National
renewable energy and hydrogen
Energy Retail Law65 are three overarching laws which are relevant to the
development72
governance of energy markets and help regulate access to natural gas pipeline
services (transmission and distribution). • In NSW, green hydrogen
producers are expected to be
• The Clean Energy Future package and the Renewable Energy target
able to achieve over US$2 per kg
(RET) policies have focused on materially reducing emissions in the electricity
in cost reductions by combining
sector.66
revenue from certificates
• Amendment to the National Gas Law, 2022 regulations to further blending generated under the state’s
of hydrogen and derivatives under the national framework.67 Renewable Fuel Scheme and
electricity charge concessions73
• Australia’s National Hydrogen Strategy, 2019 provides a national vision for
advancement of a domestic clean hydrogen sector.68 • The Hydrogen Accord between
Australia and Germany was
• Native Title Legislation Amendment Bill 2021 provides indigenous title
signed in June 2021 to help
holders a strong position to insist best practice agreements are negotiated.69
facilitate strategic cooperation in
• South Australia this field74
– The Principal Act amended petroleum and geothermal regulations
making hydrogen, and its compounds and by-products, regulated
substances.70

• New South Wales

– NSW’s hydrogen strategy, 2021 supports green hydrogen, with a planned
amendment Bill targeting blending of up to 10% hydrogen and biomethane
into natural gas pipelines by 2030, and also provides specific exemptions for
electricity used in the production of green hydrogen.71

United • National Energy Strategy collectively positions a national drive to help • The UAE plans to invest around
Arab achieve net-zero emissions by 2050.75 US$163 billion (nearly Dh600
Emirates billion) in clean energy to help
• Masdar initiative focuses on the development and mobilization of innovative
(UAE) support the goals of climate
technologies releating to renewable energy, energy efficiency, carbon
neutrality79
management and monetization, water management and desalination.76
• UAE has been drawing up a
• The National Hydrogen Strategy (in draft stage) furthers the vision for
comprehensive road map to
hydrogen in UAE, provides inputs for policy development, prioritizes hydrogen
position itself as an exporter of
in the domestic energy mix, and puts in place a diversification strategy and net-
the clean fuel and tap into its
zero targets by 2050.77
future potential80
• Energy Strategy 2050 aims to increase the share of clean energy in primary
energy consumption to 25–50 per cent by 2050.78

Morocco • Roadmap on green hydrogen, 2021 three pillars (i) development of a • Development of the green
domestic market and demand, including establishment of enhanced export hydrogen industry in Morocco
and storage facilities, (ii) technology deployment aimed at cost reductions and is projected to require a total
local industrial integration, and (iii) mobilization of investment that identifies investment of between US$38
possible clusters and measure for its financing.81 billion to US$272 billion (Dh140
billion to Dh1 trillion) between
• Germany-Morocco Hydrogen Agreement was signed for the joint
2020 and 2050 to help meet
development of green hydrogen production pledging more than US$300
potential demand by 205083
million (€300 million) investment to enable Germany to source green hydrogen
from Morocco.82

12
Actualizing the green hydrogen economy |
 2. Legal policy framework

The operational subsidy schemes introduced by the US Inflation Establishment of a clear policy intention through formulation of
Reduction Act (IRA), along with the Hydrogen Shot introduced by national strategy instruments was observed to provide a direction
the US Department of Energy to help accelerate breakthroughs of travel for legislative and ministerial bodies, while acting as
in hydrogen technology and reduce production costs, and State a catalyst for stakeholder engagement and mobilization of
initiatives driven in California and Texas provide a strong support investments. Alignment of the policy and regulatory architecture
system for the American industry to help scale up production. The towards a Paris-aligned green hydrogen economy can provide
EU in contrast, has leveraged a facilitative approach against the important legal clarity, certainty and can create an enabling
backdrop of a robust regulatory architecture governing renewable environment for stakeholder engagement across the value chain.
energy generation and emissions trading, and a forward-facing Depending upon the jurisdiction, this process could include a
strategy in the EU Green Deal. Through creation of the European stocktaking exercise to determine gaps and identify enabling
Hydrogen Bank, and the German H2Global, a facilitative offtake elements, reform and enhancement of exciting instruments to
approach is utilized –whereby green hydrogen products are help ensure they are fit for purpose was observed across each
secured cheaply and sold within the EU at market rates—to help jurisdiction, and creation of specialized incentive or funding
secure supply, reduce risk, and increase utilization. schemes such as those utilized in the EU and US, creation of
sector specific legislation as seen in Namibia, or utilization of
Among potential future hydrogen exporters, Australia utilized existing modalities while experience is developed as seen in UAE
its national strategy to outline priorities, identify areas of and Morocco.
competency, integrate an adaptive and nationally coordinated
approach to help support industry development, using a ‘review- Adoption of a value chain approach has also been observed
revise-adapt’ feedback loop, and continue to advance respect for across many jurisdictions. Actualization of the green hydrogen
Indigenous land rights.84 A Hydrogen Accord between Australia economy necessitates the creation of comprehensive pathways at
and Germany was also signed in June 2021 to help advance the convergence of industrial, Indigenous, land, and sustainable
strategic bilateral cooperation on green hydrogen. Similarly, development priorities.
Namibia utilized their national strategy to help inform and guide
domestic legal reform processes related to energy, land use and Given the nascent nature of the sector, policy and regulatory
taxation, and initiated the creation of a specialized framework support is needed in early experiences to help bridge the gaps
through the draft Synthetic Fuels Act. and leverage cooperative approaches to actualize pilot schemes
end-to-end. The importance of finance was underscored across
The UAE leveraged synergies across their National Energy each jurisdiction. Mobilization of low-cost finance and value
Strategy 2050 and Net Zero by 2050 strategic initiative to help creation was observed through a range of approaches, including
operationalize a coordinated approach through centralization of creation of direct incentives, development of national support
ministerial mechanisms in collaboration with key stakeholders. schemes, inclusion of sovereign wealth funds, and consideration
While the UAE’s National Hydrogen Strategy remains under of appropriate tax structures to effectively capture benefits for
development, efforts led by the Masdar Initiative and partnerships host jurisdictions.
with Australia’s GHD Group Pty Ltd. and Germany-based
Fraunhofer-Gesellschaft continue to advance innovation, mobilize
investment, and develop frontier technology across the green
hydrogen value chain. Similarly, Morocco developed a green
hydrogen roadmap through their National Hydrogen Commission
to help advance market demand, reduce technology costs and
develop clusters to facilitate investments. The Germany-Morocco
Hydrogen Agreement signed in 2020 provides a strong basis for
bilateral energy cooperation.85

13
Actualizing the green hydrogen economy |
 3. Financial and investment considerations to green hydrogen

3. F inancial and
investment
considerations
to green
hydrogen

14
Actualizing the green hydrogen economy |
 3. Financial and investment considerations to green hydrogen

3.1. Economic and financial characteristics of

green hydrogen Green hydrogen is a
Green hydrogen can be produced via electrolysis of water highly capital-intensive
using wind and solar electricity, therefore virtually everywhere.
However, the cost of green hydrogen production can vary technology, that requires
significantly across different geographies with a key element
influencing the cost of green hydrogen being the production yields significant investments.
of the renewable power plants, stemming from solar irradiation
and wind speed. As the plant yield of a renewable power source Production costs of
increases, the higher the plant production for a given installed
capacity, which then drives down the cost of the electricity green hydrogen consists
production. This, in turn, reduces the cost of the green hydrogen
production. The average cost of hydrogen production (including of investments in
the investment and operational costs) can be defined using the
Levelized Cost of Hydrogen (LCOH) metric. LCOH accounts for all renewable powerplants,
capital and operating production costs in the levelized manner
over a unit of produced hydrogen and its derivative (US$/kg). electrolyzers, their
Figure 3 Shows the LCOH of green hydrogen around the globe
with the technology cost estimations for the year 2050. connection equipment,
In 2050, producing solar PV-based green hydrogen in North the fixed operation
Africa could cost one-quarter of European production. Benefiting
from high renewable (especially solar) endowments, green and maintenance
hydrogen produced in Australia, Chile, Mexico, northern and
sub-Saharan Africa, and Middle Eastern countries can be highly costs and the cost of
cost competitive. Moreover, the widespread availability of land in
these regions for renewable installations, compared to those with water consumed for its
limited land availability (such as Japan, Korea, and some parts of
Europe86) makes these regions more adapted for development production.
and exports of green hydrogen.

The cost competitiveness of green hydrogen does not only

depend on wind and solar potentials. Green hydrogen is a highly
capital-intensive technology, that requires significant investments.
Production costs of green hydrogen consists of investments
in renewable powerplants, electrolyzers, their connection
equipment, the fixed operation and maintenance costs and the
cost of water consumed for its production. Therefore, the bulk of
the LCOH consists of investment costs, and its cost elements are
largely fixed costs. Figure 4 shows an illustration of the breakdown
of the costs of green hydrogen production in Morocco for
the year 2021.

15
Figure 3. The levelized cost of hydrogen production over the globe, 2050

$4/kgH2

$1/kgH2

Source: Deloitte’s 2023 global green hydrogen outlook19

 Actualizing the green hydrogen economy |
 3. Financial and investment considerations to green hydrogen

A key challenge regarding the development of green hydrogen Project development timelines can be a major bottleneck in
is the availability of liquidity. Many of the regions that have scaling up the production of green hydrogen that consist of
significantly high green hydrogen supply potential suffer from two major processes: permitting procedures and construction.
lower availability of financing options for the required investments. Permitting schemes for renewable energy projects can bring
Therefore, access to investment funds in such regions can be significant delays to the operation of the power plants. After
identified as one of the critical measures needed to help solve an investment decision, once the expenditure allocations are
the bottlenecks regarding the development of a global cost- done, the permitting and validation procedures as well as the
competitive green hydrogen value chain. construction operations can bring not only delays, but also
resulting financial losses due to the blocked liquidity and applied
interest during the operation. Minimizing the delays and the
Figure 4. Illustration of different cost components of financial costs of the projects will require accelerated and
green hydrogen produced in Morocco in 2021 streamlined permitting processes and construction. Although
permitting challenges are currently concerning more advanced
1.2 economies such as Europe, the United States and Australia89,
10%
this can be a relevant subject for developing countries as well
1.0 with potentially complex regulatory landscapes as the project
Levelised cost (US$/kgH2)

27% 29%
36%
pipelines mature.
0.8
Like renewables, which have experienced significant cost
0.6 29% 23% reduction over the last decades, the manufacturing cost of green
hydrogen equipment is projected to fall steeply in the coming
0.4 37% decades.90 The installation cost of solar panels and onshore
28% wind is expected to drop by 45% and 18%, respectively, between
37% 2020 and 2050, with electrolyzers also expected to experience
0.2
significant cost reductions, decreasing by two-thirds over the
20% 17%
7% same timeframe.91 Therefore, green hydrogen is expected to
0.0
become one of the most cost-competitive hydrogen production
Green hydrogen Green hydrogen Blue hydrogen
(wind), Morocco (PV), Morocco (reformers), Norway technologies in the long run. In 2050, levelized production costs
could fall below US$1/kgH2 in Chile, and below US$1.1/kgH2 in
Investment (electrolyzerrs or reformers) Investment (renewables) north and sub-Saharan Africa, Mexico, China, Australia, and
Operations (other) Operations (natural gas supply) Financing Indonesia.3 Yet, currently green hydrogen is the most expensive
Source: Deloitte's 2023 global green hydrogen outlook 19 one92, and it is expected to remain generally more expensive than
the carbon-intensive gray hydrogen at least until 2035 (Figure 5).
Therefore, to help create a level playing field, green hydrogen
projects need support through operational premiums until they
Highly capital intensive in nature, green hydrogen projects require
are commercially competitive.
raising significant amounts of debt and equity, which can adversely
impact financing costs and competitiveness of investments.
Development of a global green hydrogen value chain has a two-
An important factor influencing financing costs is the country
fold challenge: decarbonization of its current uses, and creation of
political risk level. Some of the most promising locations for green
new hydrogen uses. Currently, industry consumes about 95 million
hydrogen projects may suffer from high country-related political
tons of hydrogen globally, nearly entirely produced from fossil
risks. In practice, private investors and lenders expect higher rates
sources (natural gas reformation or coal gasification)19.In a climate-
of return to compensate for greater political risks. Such perceived
neutral world, clean hydrogen (including its derivative molecules
risks are translated into a higher weighted average cost of capital
such as ammonia and methanol) can become the second biggest
(WACC) for the projects, which acts as an interest rate therefore,
final consumed energy carrier.93 While some of these end-uses can
increasing the overall cost of the project via additional financing
consume hydrogen by simply replacing the initial commodity by
costs. Access to affordable finance can be a critical enabler
it, in most of the cases a significant infrastructure and equipment
for green hydrogen projects, and particularly those located in
shift is needed.94 For instance, hydrogen for the road transport
emerging markets with high political risks that may be otherwise
sector requires a complete change of the vehicle engines, from
prevented from tapping into their exceptional production
internal combustion engines to electric motors, including fuel cells.
potential. Moreover, the lack of projects and absence of a market
in scale means that there is no or very limited reference for
commercial due diligence. This in turn translates into a market risk
for both lenders and investors that would increase the WACC by
increasing the cost of both debt and equity.

17
 Actualizing the green hydrogen economy |
 3. Financial and investment considerations to green hydrogen

Economic and financial support to help produce green hydrogen

should be complemented with the creation of demand signals for Green hydrogen is
clean hydrogen and its derivative molecules in different sectors.
Initiation of a clean hydrogen economy, in line with the Sustainable
Development Goals, requires:
highly capital intensive
1. Facilitating investments via unlocking funds and foreign
investment initiatives,
and currently more
2. Reducing financing costs via enabling access to low-cost
finance,
expensive than its fossil
3. Creating a level-playing field for green hydrogen via
operational subsidies until at least late 2030s,
counterpart, making
4. Creation of demand for green hydrogen via sectoral initiatives
and obligations, and
it highly sensitive to
5. Reduction of the permitting and construction periods via
facilitated permitting processes.
financing conditions
In the following section, different policy support mechanisms that and policy support.
can be used to help activate each of the identified action points
are explained.

Figure 5. Outlook on production costs of green hydrogen

and grey hydrogen between 2025 and 2050

5.0

4.0
Levelized cost (USD/kg H2)

3.0

2.0

1.0
2025 2030 2035 2040 2045 2050
Year
Note: Green line represents the median of the green hydrogen LCOH, and
the spectrum shows the variation between maximum and minimum values.
Grey area shows the evolution of the cost spectrum of grey hydrogen during
this period.
Source: Deloitte’s 2023 global green hydrogen outlook19

18
Actualizing the green hydrogen economy |
 3. Financial and investment considerations to green hydrogen

3.2. Overview of some of the main financial and investors and lenders expect higher rates of return to compensate
economic instruments to help increase bankability for greater political and operational risks resulting in higher WACC
of green hydrogen projects levels. Financial support mechanisms, such as guarantees can
help to reduce country risk premium and thus the cost of capital,
Several mechanisms can be used to help make green hydrogen making the projects more bankable. The European Investment
projects economically more competitive and to facilitate Bank (EIB) offers solutions in the form of guaranteed instruments
investments. Potential policy support schemes can be grouped in markets where there is a lack of investment.99 EIB also at times
as follows: investment support, financing support, operational guarantees potential losses from a project. Blended finance
support, R&D support, market creation and permitting mechanism is another financial support mechanism that can
facilitation. Figure 6 shows these support mechanisms with mobilize private investments alongside sustainable development
associated examples. outcomes to help increase the bankability of the projects. The
‘SDG Namibia One Fund’, launched in 2022, is a case in point with
Investment support mechanisms can reduce the amount of a first US$43 million (€40 million) grant from Invest International,
money required to build production capacities. There are many and aiming to collect more than US$1 billion (€1 billion).100
funds that support green hydrogen projects by financing a part of Currently, green hydrogen projects suffer from a lack of financial
their capital expenditure (CAPEX). In Europe, the Innovation Fund support mechanisms, entailing lower bankability for such projects.
supports up to 60% of a project’s CAPEX and a variable fraction
of its operational expenditures (OPEX) incurred in the first 10 Operational subsidies are often designed as a premium that varies
years of operation.95 The Connecting Europe Facility for Energy with hydrogen production functioning as a subsidy to compensate
(CEF – E) is an EU funding instrument for targeted infrastructure for the difference between the production cost (LCOH) and the
investment at European level.96 CEF-E deploys more than US$6 revenues. In the Netherlands through the Sustainable Energy
billion (€5.84 billion) to help fund up to 50% of the CAPEX of Transition (SDE++) scheme, electrolytic hydrogen producers are
hydrogen infrastructure and grid-connected electrolyzer projects eligible to receive up to US$3.4/kgH2 for 12 to 15 years, but only
of 100 MW or above. In the private sector, Hy24 provides equity for a limited number of full load hours per year. For instance, in
for infrastructure projects worldwide through its currently 2023, eligible production is capped at 1,490 full load hours and
operational more than US$2 billion (€2 billion) ‘Clean H2 Infra in 2026, that limit is 2,330 full load hours.101 Tax credits are tax
Fund’.97 Such funds inject liquidity into projects and help reduce exemptions for producers that also work as operational subsidies.
the required investments. The US Inflation Reduction Act offers a clean hydrogen production
tax credit.102 Effectively, it is a 10-year incentive for clean hydrogen
The International Energy Agency (IEA) states that 65% of the production with a tax reduction of up to US$3/kgH2 when the
funding required to reach net-zero emissions must come from carbon intensity is below 0.45 kgCO2eq /kgH2.103. Crucially, the
the private sector.98 However, in developing countries where IRA legislation allows the federal government to pay out this
renewable hydrogen production is more promising, private subsidy directly.

Figure 6. Summary of the policy support mechanisms to help increase the bankability of green hydrogen projects

Investment support Financing support Operational support

Finance a part of the Reduce the cost Premium proportional to

capital expenditure of capital hydrogen production

e.g., Innovation fund (EU) e.g., SDG Nambia One Fund e.g., SDE ++ (the Netherlands)
Clean H2 Infra Fund (worldwide) (Nambia) IRA 45v (US)

R&D support Market creation Permit facilitation

Develop a self-sustaining Ensure that green hydrogen Facilitate the roll-out of projects
hydrogen value chain will be bought by allowing quick commissioning

e.g., Clean Hydrogen Joint e.g., H2Global (Germany) e.g., Net-Zero Industry Act (EU)
Undertaking (EU) European Hydrogen Bank (EU)

Source: Deloitte analysis

19
Actualizing the green hydrogen economy |
 3. Financial and investment considerations to green hydrogen

R&D subsidies have a dual social and financial function. A few institutions already deliver green hydrogen certifications,
First, grants can help accelerate innovation and development such as CertifHy in the EU, TÜV SÜD in Germany, the Aichi
of a self-standing hydrogen value chain by bringing down costs Prefecture in Japan, or the China Hydrogen Alliance.108 In the
and thereby allowing for the scale up of emerging technologies, same way, the EU taxonomy creates a frame of reference for
such as green hydrogen production technologies, while also investors and companies. Certification works to signal credible
building up a strong workforce with specialized skills. In Europe, green projects for investors to invest in. Even if it is not linked
the Clean Hydrogen Joint Undertaking (CH-JU) supports to any financial benefits, the taxonomy works as an incentive
research and innovation in hydrogen technologies, with the to help scale up investment in green projects. For example, the
scope including renewable hydrogen production, distribution, Climate Bond Standard and Certification Scheme proposes the
storage, and use for transport and energy-intensive industries.104 Hydrogen Production Criteria to certify hydrogen production as
Targeting establishment of new knowledge (early-stage research a Certified Climate Bond.109 This certification helps to prioritize
action), exploration of the feasibility of a new technology, support financial investments.
actions for standardization and the development of prototypes,
demonstrations, or pilots, the CH-JU provides economic support Finally, non-monetary support mechanisms to help accelerate
mainly through grants and is endowed with about US$1 billion permitting processes and reduce construction delays can be
(€978 million) funding completed with more than US$1 billion (€1 an important facilitator to roll-out of green hydrogen projects.
billion) from private sources.40 The CAPEX of projects that are Reducing permitting times and ensuring the timely availability of
expected to have a significant impact in accelerating the transition materials can attract investments by reducing project risks. For
to a hydrogen economy may also be considered as an eligible cost. the EU, the Net-Zero Industry Act sets a 12-month permitting
time limit for projects with a yearly manufacturing capacity of less
Another reason for underinvestment is the lack of a proper market than 1 GW in an EU Member State.110 In practice, this should be
for green hydrogen. It is necessary to develop the potential market done by lowering administrative burden. However, this Act only
and to use offtake agreements or compensation mechanisms to provides time goals and not guidelines which might not make it an
help ensure that the hydrogen produced will be bought. This is efficient incentive. The EU’s Critical Raw Materials Act sets targets
the purpose of German H2Global instrument, a competitive for the extraction, processing, and recycling of platinum group
double auction platform which aims to secure revenues for metals (which are used in electrolyzers) and others.111 The goal is
hydrogen producers and ramp-up the green hydrogen market on to help avoid shortages and to keep prices low and steady. The
an industrial scale. H2Global acts as an intermediary providing Minerals Security Partnership (MSP) is an international coalition112
10-year purchase contracts on the supply side and short-term of the US and 10 partners which aims to safeguard the supply of
contracts on the demand side.105 As with contracts for difference critical minerals for developing countries with limited geological
(CfD), the difference between suppliers’ lowest bids and endowments.113 Leveraging close collaborations is a first step to
buyers’ highest bids is compensated by grants from a public or help increase materials supply security, but more measures are
philanthropic funding body. The revenues are secured for the needed to help reduce project risks further.
producers, which is attractive for investment, and importers gain
access to green derivatives. At the European level, the Commission
is designing the first pilot auctions on renewable hydrogen
production, named the ‘European Hydrogen Bank’ (EHB). The first
US$860 million (€800 million) auctions will be launched under the
Innovation Fund by autumn 2023106 This auction can help create
the EU’s domestic market for hydrogen, provide transparency and
coordination as well as assesses demand, infrastructure needs
and hydrogen flows. The Commission is also exploring how to
design an auction to include renewable hydrogen imports from
countries outside the EU. CfDs can be considered at a later stage
when a reference clean hydrogen price is determined.

Carbon quotas, carbon taxes and green certificates/guarantees

of origin can increase the demand for green hydrogen, facilitating
the creation of its market. The EU Emissions Trading System both
raises money for the Innovation Fund and helps create demand
for clean hydrogen. Some countries like France or South Africa
already have carbon pricing schemes in place.107 These schemes
help increase the cost of carbon-intensive grey hydrogen and
thus make green hydrogen more competitive. Additionally, green
hydrogen certification is an important step in creating markets.
With certificates, downstream industries like ammonia or steel
production can market their items as environmentally friendly.

20
 Actualizing the green hydrogen economy |
 3. Financial and investment considerations to green hydrogen

3.3. Effectiveness of the main financial and economic Southern Europe, it accounts for more than 50% of it in Southern
instruments Africa. The relative share of the financing costs showcase the
A case study is utilized to help illustrate how various support effectiveness of bringing down the WACC. When the WACC in
mechanisms presented in the previous section impact the Southern Africa decreases by 45% (reaching 6%, its current levels
economic and financial viability of green hydrogen projects. in Europe), the LCOH in Southern Africa falls by 26%. Without
Analysis considers the cost and financial indicators of a green additional cash support, it increases Net Present Value114 (NPV) of
hydrogen production project via electrolysis using solar power in the project by 5%. The solar-based green hydrogen in Southern
Southern Africa. Africa with a WACC of 6% costs 25% less than the same in
Southern Europe. This illustration shows that financing conditions
3.3.1. Financing support have an impact on reducing LCOH, and ease of financing in the
Today, with current financing conditions, the WACC in countries high solar potential emerging countries such as Southern Africa
in Southern Africa is higher than that of European countries. would bring mutual benefits of development in the producing
This is, at least partially, due to its higher country risk that stems country and the availability of cheaper green hydrogen for the
from political, institutional, and regulatory risks. Compared to a global market.
European country, the investments bring much higher financial
costs. Deloitte chose Southern Europe (as the region with the 3.3.2. Operational and investment support
highest solar potential, and therefore, lowest LCOH in Europe) as Considering the same case study (solar-based green hydrogen
a comparison reference. Figure 7 shows the impact of reduced production in Southern Africa), Deloitte analyzes the effect
WACC on the levelized cost of hydrogen produced in Southern of an operational premium-type support, similar to the US
Africa and Southern Europe. Inflation Reduction Act. With a premium of US$3/kgH2 for 10
years, the green hydrogen LCOH is decreased by 45% (Figure 8).
This accounts for an overall support of US$1.3 million for the
Figure 7. Impact of WACC on the levelized cost of green considered project over 10 years. The same premium of US$3/
hydrogen production in Southern Africa and kgH2 over 20 years brings the LCOH down to US$1.36/kgH2,
Southern Europe in turn making green hydrogen cost competitive with grey
hydrogen. However, it should be noted that such a subsidy
5.2 5.1
does not necessarily amount for twice the same subsidy over
10 years. This is due to the discount rate, which also adds the
3.8 1.8
2.7
Figure 8. Impact of operational support on the levelized
1.3 cost of hydrogen today
US$/kgH2

1.0

4.4
0.8 0.8

2.3 1.9 1.9 1.9

1.7 1.7
2.4
0.8 0.8 0.8
US$/kgH2

11% WACC 6% WACC 6% WACC

1.4
Southern Africa Southern Europe
1.7 1.7 1.7

Investment cost Operational costs Financing cost Total

Source: Deloitte analysis based on the renewable endowments from the
reanalysis of Copernicus - ERA 5 hourly solar PV capacity factors database, -1.9
current technology costs for renewables and electrolyzers from IRENA87 and -3
IEA cost data88 respectively and country-specific capital costs aligned with
IRENA’s lower and upper bond estimations.87

No premium US$3/kgH2 US$3/kgH2

over 10 years over 20 years
In current financial conditions, the cost of green hydrogen
produced in Southern Africa is slightly higher than the cost of the Investment cost Operational costs Financing cost
one produced in Southern Europe, although Southern Africa holds Premium Total
better renewable potential than Southern Europe. Each year,
Source: Deloitte analysis based on the renewable endowments from the
more hydrogen can be produced with fewer electrolyzer and solar reanalysis of Copernicus - ERA 5 hourly solar PV capacity factors database,
panel capacities in Southern Africa. Even if financing costs are current technology costs for renewables and electrolyzers from IRENA87
higher in Southern Africa due to its higher WACC, investment costs and IEA cost data88 respectively and country-specific capital costs aligned
with IRENA’s lower and upper bond estimations.87 The WACC is assumed to
are lower. While financing costs represent 35% of the LCOH in
reduce from current 11% to 6% in the long run.

21
Actualizing the green hydrogen economy |
 3. Financial and investment considerations to green hydrogen

annual interest rates to the equation. Such a support entails a Figure 9. Effect of investment support on green hydrogen
69% reduction of the LCOH. The second decade of operational LCOH in Southern Africa
support thus only leads to a 24% decrease, as opposed to the 45%
4.4
decrease in the first 10 years. From the producer’s point of view,
it could be more interesting to benefit from bigger premiums in
fewer years than a smaller one that will be distributed over the
entire lifetime of the production facilities. 1.9

To help assess the effectiveness of operational premiums and

US$/kgH2
investment support mechanisms comparatively, this analysis
0.8 1.7
assumes an investment support equivalent to operational
premium over the support period. It assumes that operational 0.5
premium comes from developed countries (this is consistent
with current European cooperation with developing countries 1.7 0.8
such as Namibia for future green hydrogen imports). Therefore,
0.5
a discount rate of 3%115 is used to calculate the real cost of
operational support for supporting state. An investment support No premium Investment support
equivalent to the same overall support as operational premium
in the previous example decreases the green hydrogen LCOH in Investment cost Operational costs Financing cost Total
Southern Africa by 60% (Figure 9). Investment support can reduce Note: The total of investment support is the same as for the operational
both financing costs and investment costs as it can reduce the support of US$3/kgH2 over 10 years to compare their effectiveness. This
support amounts to US$1.3 million. Like the previous example, this analysis
liquidity requirements at the beginning of the project. The green
assumes that the WACC is being reduced from current 11% levels to 6% in the
hydrogen LCOH with investment support is 28% lower than with long run.
operational support considering the same support expenses Source: Deloitte analysis based on the renewable endowments from the
for the funding state. This results from the asymmetry between reanalysis of Copernicus - ERA 5 hourly solar PV capacity factors database,
public interest rates and the weighted average cost of capital, current technology costs for renewables and electrolyzers from IRENA87 and
IEA cost data88 respectively and country-specific capital costs aligned with
and injection of the whole amount of support at the beginning IRENA’s lower and upper bond estimations.87
of the project which helps reduce both investment and financing An investment support equivalent to US$3/kgH2 of LCOH reduction over 10
significantly. Investment support (e.g., Hy24 Clean H2 Infra Fund) is years is assumed as the investment subsidy (US$1.3 million).
suggested to be more beneficial both from a hydrogen producer’s
point of view due to its predictability, and as it is bifurcated from
the output levels of the production facilities, which can also be
translated to less exposure to production risks.

With equal spendings, the investment support entails higher cost

reductions than the IRA-like operational premium. For a US$1.3
million of investment support, this LCOH is reduced by US$2.61/
kgH2 as opposed to a reduction of only US$1.94/kgH2 for the case
with operational support.

22
Actualizing the green hydrogen economy |
 3. Financial and investment considerations to green hydrogen

3.3.3. Facilitating permitting processes similar levels as the developed economies can bring the financing
Ambiguities in permitting approval time and material availability costs down and render green hydrogen projects bankable in the
can entail delays before the projects’ operation. Construction developing economies. This stems from high capital intensiveness
time of green hydrogen production facilities can vary from 1 of green hydrogen projects. In addition, this analysis suggests
year to 3 years.116 Delays in the commissioning can delay the first that investment support can be more efficient than operational
revenues of the production plant. These revenue delays can support such as IRA, thanks to their higher effect on the LCOH of
have an impact on the project’s Net Present Value (NPV) and green hydrogen. This can also bring a significant increase in the
LCOH. LCOH is increased by 5% with a delay of 1 year and 14% for NPV of the projects.
2 years (Table 2).

Table 2. Net Present Value and LCOH of a green hydrogen

project in Southern Africa for different support
Deloitte’s analysis
mechanisms and different construction times
shows that one of
the main enablers of
NPV
LCOH NPV
Case Variation
(US$/kgH2) (US$/kW)
(%)

Reference
case
4.36 - 1,406 NA competitiveness of
Operational
support over
2.42 - 450 68% green hydrogen in
10 years

1-year 4.60 - 1,426 -1%

developing economies
construction
delay is enabling suitable
2-year
construction
4.97 - 1,443 -3%
financing conditions.
delay

Note: This analysis assumes a market price of US$1.5/kgH2 . The NPV is

calculated per kW installed electrolyzer capacity.

Source: Deloitte analysis based on the renewable endowments from the

reanalysis of Copernicus - ERA 5 hourly solar PV capacity factors database, 31
current technology costs for renewables and electrolyzers from IRENA87 and
IEA cost data88 respectively and country-specific capital costs aligned with
IRENA’s lower and upper bond estimations.87 The analysis assumes a US$1.5/
kgH2 of hydrogen market price, and the NPV is calculated over kW installed
electrolyzer capacity.

As summarized in Table 2, support mechanisms can impact

the economic and financial viability of green hydrogen projects
differently. Operational and investment support mechanisms can
increase the bankability of green hydrogen projects. Nevertheless,
in the current grounds where the environmental impacts of
grey hydrogen are not reflected in its market value, increasing
competitiveness of green hydrogen projects requires not only
supply-side subsidies but also ambitious carbon taxing and other
mechanisms to help create a level playing field for green hydrogen
projects. Deloitte’s analysis shows that one of the main enablers
of competitiveness of green hydrogen in developing economies
is enabling suitable financing conditions. Reduced WACC to the

23
Actualizing the green hydrogen economy |
 4. Recommendations

4. Recommendations

24
Actualizing the green hydrogen economy |
 4. Recommendations

Unlocking decarbonization potential of green hydrogen requires

important policy and regulatory action. The findings of the analysis
underline the importance of actions activating four different levers
of facilitating development of green hydrogen projects, notably in
developing economies:

• Facilitate deployment: Given the current climate • Create the market: Green hydrogen for different end
emergency, action should be imminent. Reducing uses is generally more expensive than its counterparts,
delays in project development via anchoring permitting and an early adoption of this technology requires
processes with a central agency, accelerated both creation of a market where there is a demand
environmental impact assessments and strategic for such a product and bridging the cost gap between
environmental assessments, and leveraging the green hydrogen and the conventional fossil fuels. The
existing infrastructure and retrofitting them to projects need to be supported in their early stages,
hydrogen infrastructures can help reduce the risks which can take several forms: direct investment or
associated with delayed actions. operational support, contracts for differences, offtake
contracts, and other demand creation mechanisms
• Improve social acceptability: Sustainability-
such as guarantees of origin and green certificates.
linked actions in line with the SDGs should acquire
public support. Collaboration and empowering local • Enhance the financing conditions: Projects in
communities, alignment of regulatory measures developing and emerging economies with high
with Indigenous sustainability perspectives and renewable endowments need facilitated financing and
informed and free consent of the local population liquidity through blended finance, international green
through effective participatory processes are key for finance and state guarantees to help reduce the cost
increased support of the local populations and social of capital and consequently the financing costs of
acceptability of green hydrogen development. the projects.

25
Actualizing the green hydrogen economy |
 Appendix: The case study and calculation of different indicators

Appendix:
The case study
and calculation of
different indicators

26
Actualizing the green hydrogen economy |
 Appendix: The case study and calculation of different indicators

In the following, the levelized cost of hydrogen (LCOH) and net present value (NPV) calculations and the associated
assumptions are presented. They are applied to a case study that corresponds to a green hydrogen production
project via electrolysis using solar power in Southern Africa, with investment taking place currently.

Hydrogen production

The available wind and solar potential for green hydrogen production is calculated first by mapping considered
regions (Southern Africa and Southern Europe) over an adjustable grid with spatial granularity varying from 1° to
2.5° cells. For each cell, both an annual wind speed time series and an annual solar irradiation time series from the
Copernicus - ERA5 dataset117 were used to help calculate the solar capacity factors at the centroid location of that
cell. As such, hourly hydrogen yields are derived from the weather data for the year 2016. Fixed ground-mounted
PV systems with optimized tilt angles (as a function of the cell latitude) were considered to represent solar power
plants in the model.

The maximum available land on each cell for solar installations lays the groundwork for identifying the PV-based
green hydrogen supply potential at that cell. Hydrogen production is then calculated with a Python script for each
cell within the regions to get the optimal electrolyzer capacity over PV capacity ratio and annual green hydrogen
production per MW of electrolyzer installed capacity.

In the reference case, a 1-year construction period for PV-based green hydrogen production facility is assumed.118
Therefore, the first kg of hydrogen is produced in the beginning of year 2 and the maintenance and operational
expenditures start from that date on. The operational lifetime of the PV-electrolyzer plant is assumed to be 20
years.60 When construction is delayed, mechanically, the hydrogen production is postponed.

Calculation of levelized cost of hydrogen

The calculation of LCOH is based on economic characteristics of the production facility: equipment investment
costs, annual fixed operation and maintenance costs and variable operational costs. Moreover, to reflect the
impact of the location on the LCOH, local factors of each cell are added to the investment equations to calculate
the levelized cost of the fixed expenditures over a unit of green hydrogen produced. Equation 1 shows the LCOH
of green hydrogen production:

𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋!"#$%,' + 𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋()*,' × 𝐸𝐸'

𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + ∑+!
',- (1 + 𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶')'
𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 = (Eq. 1)
𝐸𝐸'
∑+!
',- (1 + 𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶 )'
'

Where CAPEX is the initial investment costs, OPEXfixed,t is the annual fixed operation and maintenance cost in year
t, OPEXvar,t is the variable operation and maintenance cost that depends on the production level, Et is the annual
hydrogen production output, WACCt is the weighted average cost of capital in year t and lt is the lifetime of the
production facility.

Table 3 shows the used input data in the calculation of the PV-based green hydrogen LCOH.

Table 3. Hydrogen production technologies cost data

Technology Efficiency Lifetime Over- Variable O&M costs Fixed O&M cost
night cost (US$2017 / MWhe) (US$2017 / MWe)
(US$2017 /
MWe)

Year 2020 2025 2020 2020 2030 2040 2020 2030 2040
PV 100% 25 649 0 0 0 14 12 1
Alkaline
62.5% 20 793 0.53 0.53 0.53 11.9 5.8 5.8
Electrolysis

Source: Deloitte calculations, based on IEA (2019),119 Bolat and Thiel (2014)120

27
Actualizing the green hydrogen economy |
 Appendix: The case study and calculation of different indicators

A premium on the production is normally constant over time, without any indexation to inflation or discounting
effect. The premium is included in LCOH calculation to show its direct effect on the overall LCOH reduction
(Equation 2).

𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋!"#$%,' + 𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋()*,' × 𝐸𝐸' − 𝐻𝐻+𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 × 𝐸𝐸'

𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + ∑,!
'-. (1 + 𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶' )'
𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 = (Eq. 2)
𝐸𝐸'
∑,!
'-. (1 + 𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶 )'
'

On the contrary, the investment support is given at year 0, which has no depreciation impact because of the
interest rates. Including this support in the LCOH formula is shown in Equation 3.

𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋!"#$%,' + 𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋()*,' × 𝐸𝐸'

𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 − 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼_𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 + ∑+!
',- (1 + 𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶')'
𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 = (Eq. 3)
𝐸𝐸'
∑+!
',- (1 + 𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶')'

The cost of capital consists of regulatory risks, political risks, off-taker risks, currency risks and other land,
resource, and technical risks. Among these elements, regulatory and political risks can account for up to half of the
weight of the risk elements.121 Values of current WACC were derived from IRENA’s 2022 World Energy Transitions
Outlook: 1.5°C Pathway report,122 while future WACC values are based on extrapolation. This methodology
allows the approximation of a country-dependent risk-adjusted WACC for the LCOH calculation over the plant’s
lifetime. WACC values are assumed to be decreasing thanks to reduced risks via progressive adoption of hydrogen
technologies and uptake in demand. The WACC values are converging across different countries following the
assumption of growing financial risk transfer mechanism or resort to international finance. This assumption leads
to bringing the WACC of the countries with high political and regulatory risks to the same levels as more stable
regions such as Europe (6% by 2050). Figure 10 shows the evolution of the WACC considered in this study for
Southern Africa.

Figure 10. The considered WACC value evolution in Southern Africa

12%

10%
Weighted average cost of capital (%)

8%

6%

4%

2%

0%
2020 2025 2030 2035 2040 2045 2050
Source: Current values based on IRENA's 2022 World Energy Transitions Outlook: 1.5°C Pathway report and the future projections 12

extrapolated assuming reaching 6% in the long run

28
Actualizing the green hydrogen economy |
 Appendix: The case study and calculation of different indicators

Financing costs refer to the depreciation of the investments. In other words, financing costs are the additional
costs stemming from the early spent money and its potential interests. These costs are directly related to
weighted average cost of capital. In case of considering a WACC value of zero, the financial costs are zero.
Therefore, to identify the part of the financing costs from the overall costs, LCOH with a 0% WACC value should be
subtracted from the LCOH with the real WACC.

Calculation of net present value

The NPV of each scenario of the case study is determined by calculating the costs (negative cash flows) and
revenues (positive cash flows) for each year over the facility’s lifetime. The future cash flows are discounted to
represent the real time value of money (Equation 4), where Bt are the benefits or cash inflows, and Ct are the costs
or cash outflows.

"# 𝐵𝐵! "# 𝐶𝐶!

𝑁𝑁𝑁𝑁𝑁𝑁 = % ! −% ! (Eq. 4)
!$% (1 + 𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊) !$% (1 + 𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊)

The benefits are calculated by multiplying the sold quantity by the reference market price, while the costs are
the sum of capital and fixed and variable operational and maintenance costs, the loan payments, and the tax
payments. Table 4 summarizes the financial assumptions for the NPV calculation.

Table 4. Financial and economic data of the case study

Parameter Value

Debt share 20%

Debt tenor 10 years

Corporate tax rate 28%

Depreciation schedule Base: 100% of CAPEX / Year 1: 50% / Year 2: 30% / Year 3: 20%

Hydrogen sell price US$1.5/kgH2

Source: Deloitte calculations, based on IEA 123,124

Overall support from public entities

The case study assesses the impact of different support mechanisms on the LCOH reduction. To be able to
compare the cost-reduction effect of both types of support, the same overall amount of monetary support is
considered. For operational support, similar to the US Inflation Reduction Act (IRA), a US$1.5/kgH2 premium over
10 years is considered. The calculations assume that hydrogen production premium support would, in the first
few years, come from developed countries. This is consistent with current European cooperation with developing
countries such as Namibia for future green hydrogen imports. Therefore, the interest rate taken to represent
the time value of money for operational support is chosen based on European countries’ public interest rate.41
Total support is equal to the sum of operational support for each year discounted based on a 3% public interest
rate (Equation 5). The same total is then used for investment support, in the beginning of the project investment.

#$ 𝐸𝐸! × 𝐻𝐻"𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇_𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 = - (Eq. 5)
!%& (1 + 𝑟𝑟)!

Where r is the public interest rate and H2premium is the hydrogen production premium support in US$/kgH2 unit.

29
Actualizing the green hydrogen economy |
 Endnotes

Endnotes

30
Actualizing the green hydrogen economy |
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33
Actualizing the green hydrogen economy |
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34
Actualizing the green hydrogen economy |
 Authors and Contacts

Authors and
Contacts

35
Actualizing the green hydrogen economy |
 Authors and Contacts

Authors
Prof. Dr. Bernhard Lorentz
Dr. Johannes Trüby
Deloitte Center for Sustainable Progress
Deloitte Economics Institute
(DCSP) Founding Chair
Partner | Deloitte France
Managing Partner | Deloitte Germany
+33 155616211
+49 15114881437
[email protected]
[email protected]

Dr. Freedom-Kai Phillips

Dr. Pradeep Philip
Deloitte Center for Sustainable Progress
Deloitte Economics Institute
(DCSP)
Partner | Deloitte Australia
Director | Deloitte Canada
+61 416214760
+1 6475296621
[email protected]
[email protected]

Dr. Behrang Shirizadeh Clément Cartry

Deloitte Financial Advisory Deloitte Financial Advisory
Manager | Deloitte France Senior Consultant | Deloitte France
+33 670268419 +33 140882817
[email protected] [email protected]

Clémence Leveque Tatenda L. Wangui

Deloitte Financial Advisory Sustainability & Climate
Consultant | Deloitte France Consultant | Deloitte Germany
+33 140882800 +49 15140678924
[email protected] [email protected]

Deloitte Global Contacts

Jennifer Steinmann Prof. Dr. Bernhard Lorentz Dr. Pradeep Philip

Sustainability & Climate leader, Deloitte Center for Sustainable Progress Deloitte Economics Institute
Deloitte Global (DCSP) Founding Chair Partner | Deloitte Australia
[email protected] Partner | Deloitte Germany [email protected]
[email protected]

A special thanks to the following individuals who provided their support to help make this report possible:

Ashish Gupta Michelle Varney

Barbara Jinks Moustafa Bayoumi
Blythe Aronowitz Peter Bednall
Chaanah Crichton Rebekah Susan Thomas
Dr. Felix Chr. Matthes Richard J Bailey
Dr. Jan Frederik Braun Stefanie Busch

36
Actualizing the green hydrogen economy |
 Deloitte Center for Sustainable Progress

Deloitte Center
for Sustainable
Progress
The Deloitte Center for Sustainable Progress (DCSP) is focused on
addressing challenges and identifying opportunities in line with
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and mitigation activities, fostering resilience, and informing
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Progress explores effective and ground-breaking solutions—and
collaborates to enable action on the crucial global challenges
facing humanity.

To know more about Deloitte Center for Sustainable Progress

(DCSP) click here

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