How it works
H2Global supports the urgent need to create functioning markets for clean hydrogen and other low-emissions fuels by mobilizing public and private capital. The H2Global mechanism is designed to facilitate the ramp-up and use of clean hydrogen and other low-emissions fuels on an industrial scale, thereby actively contributing to the global energy transition and decarbonization efforts.
The H2Global mechanism
The H2Global mechanism's aim is to use public funds in the most effective and efficient way possible by creating a stable market that attracts investment from private finance. This is essential, as in the long run only private capital can cover the enormous investment required for the establishment of well-functioning markets for clean hydrogen and other low-emissions fuels.
At the core of the H2Global mechanism is a physical trading intermediary, Hintco - the Hydrogen Intermediary Company. Hintco addresses the barriers in markets for clean hydrogen and other low-emissions fuels: clean hydrogen like other low-emissions fuels is not being produced in large quantities due to low demand, and demand is low because there is not enough affordable supply.
To overcome this “chicken-and-egg” dilemma, Hintco simulates the existence of a functioning market on the supply and demand sides through an innovative double-auction approach.
In practice this means that in the pilot auction, Hintco will find the most competitive suppliers of renewable hydrogen derivatives and offer them secure purchase agreements. By concluding long-term offtake contracts (Hydrogen Purchase Agreements, HPAs) the producers obtain the necessary price, market, counterparty, and legal security. This is a necessary prerequisite to taking final investment decisions and allowing projects to switch from planning to implementing.
On the demand side, Hintco sells the purchased product in a subsequent sales auction, entering into short-term sales agreements (Hydrogen Sales Agreements, HSAs) while identifying offtakers with the highest willingness to pay.
In the short- to medium-term, it is anticipated that a gap between purchase and sales prices will occur (cost of difference). As with the Contracts for Difference (CfD) approach, this cost of difference is compensated by grants from a public or philanthropic funding body.
The H2Global impact
The primary impact is that offtake agreements signed with Hintco help awarded projects happen. With the regulatory requirements for clean hydrogen and its derivatives and carbon pricing schemes expected to tighten in the foreseeable future, short-term sales contracts allow Hintco to benefit from expected increases in market prices for clean hydrogen and its derivatives. This means that the funds required to compensate for the cost of difference will decrease over the course of the funding period.
Moreover, the short-term sales agreements create regular price signals through the continuous sales auctions on the demand side. So far, such transparent price signals are scarce. As transparent price information is one of the key features of functioning markets, Hintco directly contributes to the creation of such markets.
In addition, the short-term sales auctions provide continuous trade flows and liquidity, another core characteristic of functioning markets.
H2Global tenders
H2Global empowers governments to actively shape and support the ramp-up of markets for clean hydrogen and other low-emissions fuels through tailored tenders.
Each funding body, e.g. a government, can design its own tender by defining the financing, product, geographical scope, sustainability criteria, and other individual requirements. This allows the provider of funds to tailor the tender to its specific objectives, such as promoting sustainable technologies, diversifying energy partnerships, or decarbonizing specific sectors.
More than €4.7 billion
... in international funding.
As of 2024, an impressive pool of over €4.7 billion has been dedicated to bridging the cost gap and driving the renewable hydrogen revolution forward.
Frequently asked questions
What is the difference between Hintco and the H2Global Foundation?
The H2Global Foundation promotes protection of the environment, climate, science and research. Its mission is to accelerate the emergence of markets for clean hydrogen and other zero and low emission technologies worldwide. It does so through market-based instruments, such as the H2Global mechanism, implemented by its wholly owned subsidiary, Hintco, through engagement with governments, industry and other relevant stakeholders, and through research.
Hintco is a subsidiary of the H2Global Foundation. Its main purpose is to implement the H2Global mechanism in tenders, funded by concessionary capital.
How does Hintco contribute to the bankability of projects?
Hintco enhances the bankability of projects by providing long-term price, market, and legal security. The long-term purchasing commitments (HPAs) enable predictable cash flows, an important pre-requisite to secure on- and off-balance sheet funding.
As a reliable contractual partner, Hintco is backed by a government grant decision, prominently referenced in both German and European hydrogen strategies. This backing provides producers with financial certainty.
How does the auction process work?
Under the H2Global mechanism, Hintco tenders long-term purchase contracts (Hydrogen Purchase Agreements, HPAs) on the supply side and short-term supply contracts (Hydrogen Sales Agreements, HSAs) on the demand side. As there is not yet a functioning market for clean hydrogen and other low-emission fuels, the purchase prices will initially be significantly higher than the sales prices.
This expected negative spread (i.e. the cost of difference) between Hintco’s purchase price and the sales revenues received from the demand-side auctions is offset by a public subsidy. In case of the H2Global pilot auction, this is provided by the German Ministry of Economic Affairs and Climate Protection (Bundesministerium für Wirtschaft und Klimaschutz, BMWK). Long-term supply-side contracts combined with short-term demand-side contracts allow the generation of continuous price signals while simultaneously creating constant liquidity, pre-conditions for a functioning market.
What is a tender? What are lots?
The H2Global mechanism was designed to allow the configuration and implementation of individually designed tenders. Aligned with the individual objectives of the funding body, specific parameters aredetermined for each tender(modular principle):
- Which clean product(s) is to be promoted: e.g. hydrogen, ammonia, methanol, jet fuel, etc.
- The geographical application of the funding instrument: regional (e.g. Europe) or country tender,or global award procedure
- Product requirements and sustainability criteria for production, transport, and off-take.
Once the criteria for the tender have been defined, the products are then purchased by Hintco through individual tender processes, which are called lots. A tender can have several lots. Each lot has its own rules and specifications to match the features of the product being purchased.
How is a lot structured? What do “HPA” and “HSA” mean?
A lot is characterized by the double-auction process of a specific product, such as renewable hydrogen, ammonia, or methanol. In each lot, there is one auction for acquiring the product, resulting in the signing of a long-term contract with the winning bidder, called a Hydrogen Purchase Agreement (HPA). The acquired product will then be resold and auctioned by Hintco through shorter-term contracts and potentially in smaller batches.
This auction then results in the signing of several sales contracts, which are called Hydrogen Sales Agreements (HSAs), with various off-takers. This tenure and volume transformation actively contributes to the development of a functioning hydrogen market, as it provides the necessary price signals and liquidity on a continuous basis.
Is H2Global a German instrument?
The German Government, specifically the Federal Ministry for Economic Affairs and Climate Action (BMWK), is the first adopter and so far the largest supporter of the H2Global mechanism. It was the first government to make funds available to Hintco to offset the cost of difference in its pilot, and additional funds for a second tender have already been allocated.
The independent set-up of Hintco and the H2Global Foundation allows and encourages other governments to use the H2Global instrument. The Government of the Netherlands for example has allocated funding for a joint contribution window, together with the German Government, while similar discussions are underway with other European Union (EU)-member states.
Governments from exporting countries, including Australia and Canada, also intend to entrust Hintco with the implementation of future auctions.
What is the connection between H2Global, the European Hydrogen Bank, and other import measures?
In 2022, the European Commission launched the European Hydrogen Bank (EHB) to create investment security and business opportunities for European and global renewable hydrogen production. The EHB is based on four pillars of action at EU level: International action; Domestic action; Transparency and coordination; as well as Coordination of support instruments. For the international pillar, following the joint announcement on 31 May 2023, the European Commission showed interest in using the H2Global mechanism as a vehicle for its international auctions.
Who can participate in H2Global auctions?
The H2Global auctions are divided into supply-side (HPA) and demand-side (HSA) auctions.
On the supply side, the geographic location of the projects might be restricted, depending on the grant decisions of the funding providers. This might differ between the various H2Global tenders and individual lots and will be clearly outlined in the respective calls and tender documents.
In principle, all companies or consortia that produce renewable hydrogen or derivatives such as renewable ammonia and methanol) can participate in HPA auctions targeting these products. However, Hintco determinesminimum requirements that are subject to change for each tender.
On the demand side, for the pilot tender, companies based in the entire EU are eligible to participate in the HSA auctions. Additional minimum requirements are clearly outlined in the respective documents, which will be made available for the HSA auctions of the pilot tender.
How and when can I take part in the H2Global tenders?
The production-side (HPA) auction of the pilot tender (BMWK) is currently in the final phase. If you are a producer of renewable hydrogen or derivatives, you can participate in the HPA auction in one of the next tenders (e.g. the €3.5 bn BMWK-financed tender).
The off-take (HSA) auctions of the pilot round of auctions (BMWK) are expected to start one year before the first quantities of products are delivered. For Lot 1 (renewable ammonia), these are expected for 2025/2026.
Who defines the tenders in terms of process, product, technical requirements, regions, etc.?
The framework conditions for each individual tender, e.g. product, sustainability specifications, and regionality, etc., are solely defined by the providers of the funds covering the green premium/cost of difference. Hintco consults the provider of the funds during the design process and advises on commercial and procurement-related implications of the tender. As all state aid in the EU is subject to European public procurement law, the award process for any tenders funded by EU member states is based on this law.
Is it possible to receive double funding through H2Global tenders and another funding program?
The combination of subsidies from different sources and support schemes (e.g. local schemes in the country of production, tax exemption, etc.) is possible. However, any subsidies received must be made transparent to Hintco as a double funding must be avoided.