ActualizingthegreenhydrogeneconomyLegalandfinancialconsiderationstoadvancesustainableenergyActualizingthegreenhydrogeneconomyTableofContentsExecutiveSummary031.Introduction062.Legalpolicyframework093.Financialandinvestmentconsiderationstogreenhydrogen143.1.Economicandfinancialcharacteristicsofgreenhydrogen153.2.Overviewofsomeofthemainfinancialandeconomicinstrumentstohelpincreasebankabilityofgreenhydrogenprojects193.3.Effectivenessofthemainfinancialandeconomicinstruments214.Recommendations24Appendix:Thecasestudyandcalculationofdifferentindicators26Endnotes30AuthorsandContacts35DeloitteCenterforSustainableProgress3702ActualizingthegreenhydrogeneconomyExecutiveSummaryExecutiveSummary03ActualizingthegreenhydrogeneconomyExecutiveSummaryActionontheglobalclimatecrisisfrontiswantingandfarfromUnitedArabEmiratesandAustralia.Whiletheimportanceofsufficient.FindingsoftheIntergovernmentalPanelonClimatefinanceanddifferentcost-reductionsupportmechanisms(suchChange’s(IPCC)6thAssessmentReport(AR6)highlightthatasoperationalorinvestmentsupportschemes)wasunderscoredprojectedadverseimpactsandrelatedlossesanddamagesacrosstheseregions,thepolicyenvironmentcurrentlylacksintensifywitheveryincrementofglobaltemperaturerising.sufficientregion-specifictoolstohelpkickstartthegreenLimitingglobalwarmingrequiresdeepdecarbonizationofthehydrogeneconomy.wholeeconomy.Suchatransitiontonet-zerogreenhousegas(GHG)emissionsentailslowcarbonintensityateachsectorofThephysicalandeconomiccharacteristicsofgreenhydrogentheeconomyandimportantchangesinbehaviors,regulations,makeitsproductioncosthighlysensitivetotheweatherandinstitutions.Forhard-to-abatesectorssuchasheavy-dutyconditionsanditsfinancingstructure.Moreover,thenascenttransportandsomeindustrialprocesseswhereelectrificationnatureofcleanhydrogenmarketmakesithighlydependentoncanbeverydifficultorimpossible,mitigationoptionscanpolicyandregulatorysupport.Initiationofacleanhydrogenincludedecarbonizingthroughabatementtechnologiesandeconomy,inlinewithsustainabledevelopmentgoals,requires:switchingtonewlow-andzero-emittingenergycarrierssuchascleanhydrogenanditsderivativemolecules,suchasammonia,1.Facilitatinginvestmentsviaunlockingfundsandforeignmethanolandothersyntheticfuels.investmentinitiatives,Thispaperreviewsthegreenhydrogenlandscapeproviding2.Reducingfinancingcostsviaenablingaccesstolow-insightsoncurrentanddevelopinglawandpolicyframeworks,costfinance,finance,andbankabilityconsiderations,andprovidesrecommendationstohelpadvancethegreenhydrogenvalue3.Creatingalevel-playingfieldforgreenhydrogenviachainconsideringkeychallengesandareasofopportunity.operationalsubsidiesuntilatleastlate2030s,Giventhenascentnatureofthecleanhydrogensector,alignment4.CreationofdemandforgreenhydrogenviasectoralinitiativesofthepolicyandregulatoryarchitecturetowardsaParis-alignedandobligations,andgreenhydrogeneconomycanprovideimportantlegalclarity,certaintyandcancreateanenablingenvironmentforstakeholder5.Reductionofthepermittingandconstructionperiodsviaengagementacrossthevaluechain.Theglobalpolicyenvironmentfacilitatedpermittingprocesses.onthedevelopmentofagreenhydrogeneconomyisshapingup,notablyviatheUSInflationReductionAct(IRA),theGermanSeveralmechanismscanbeusedtohelpmakegreenhydrogenH2Globalofftakeplatform,andothernationalandregionalprojectseconomicallymorecompetitiveandtofacilitatehydrogenstrategiesinareassuchastheEuropeanUnion,theinvestments:investmentsupport,financingsupport,operationalsupport,ResearchandDevelopment(R&D)support,marketcreationandpermittingfacilitation(Figure1).Figure1.SummaryofthepolicysupportmechanismstoincreasethebankabilityofgreenhydrogenprojectsInvestmentsupportFinancingsupportOperationalsupportFinanceapartoftheReducethecostPremiumproportionaltocapitalexpenditureofcapitalhydrogenproductione.g.,Innovationfund(EU)e.g.,SDGNambiaOneFunde.g.,SDE++(theNetherlands)CleanH2InfraFund(worldwide)(Nambia)IRA45v(US)R&DsupportMarketcreationPermitfacilitationDevelopaself-sustainingEnsurethatgreenhydrogenFacilitatetheroll-outofprojectshydrogenvaluechainwillbeboughtbyallowingquickcommissioninge.g.,CleanHydrogenJointUndertaking(EU)e.g.,H2Global(Germany)e.g.,Net-ZeroIndustryAct(EU)EuropeanHydrogenBank(EU)04ActualizingthegreenhydrogeneconomyExecutiveSummaryTheanalysisinthecurrentpapershowcasestheimportanceof•Improvesocialacceptability:Sustainability-linkedactionsinsupportmechanismstohelpreducetheupfrontcostsofthelinewiththeUNSustainableDevelopmentGoals(SDGs)shouldprojectsthatwouldbringboththeneededinvestmentsandacquirefullpublicsupport.Collaborationandempoweringtheassociatedfinancingcostsdown.Reducingrisksassociatedlocalcommunities,alignmentofregulatorymeasureswithwithgreenhydrogenprojects(regulatoryrisks,marketrisks,Indigenoussustainabilityperspectivesandgroundedinfreetechnologyrisks,etc.)especiallyindevelopingeconomiescanpriorinformedconsentofthelocalpopulationthrougheffectivebringsignificantcostreductionsthankstoreducedcostofcapitalparticipatoryprocessescanbekeyforincreasedsupportoftheintheseregions.Reducingthecostofcapitalintheseregionstolocalpopulationsandsocialacceptabilityofgreenhydrogensimilarlevelsinthedevelopedeconomiescanreducetheprojectdevelopment.costsbymorethan25%(Figure2).Consideringdirectmonetarysupport,investmentsupportmechanismsareidentifiedasoneof•Createthemarket:Greenhydrogenfordifferentendusesthemostefficientcost-reductionlevers,reducingboththeupfronttendstobemoreexpensivethanitscounterparts,andearlyinvestmentneedsandfinancingcostssimultaneously.adoptionofthistechnologylikelyrequiresbothcreationofaUnlockingthedecarbonizationpotentialofgreenhydrogenmarketwherethereisademandforsuchaproductandbridgingrequiresimportantpolicyandregulatoryaction.Thefindingsthecostgapbetweengreenhydrogenandtheconventionaloftheanalysisreinforcetheimportanceofactionsactivatingfossilfuels.Theprojectsneedtobesupportedintheirearlydifferentleversfacilitatingdevelopmentofgreenhydrogenstages,whichcantakeseveralforms:directinvestmentorprojects,notablyindevelopingeconomies:operationalsupport,contractsfordifferences,offtakecontracts,andotherdemandcreationmechanismssuchasguaranteesof•Facilitatedeployment:Giventhecurrentclimateemergency,originandgreencertificates.theactionshouldbeimminent.Reducingdelaysinprojectdevelopmentviaanchoringpermittingprocesseswithacentral•Enhancethefinancingconditions:Projectsindevelopingagency,acceleratedenvironmentalimpactassessments(EIAs)andemergingeconomieswithhighrenewableendowmentsandstrategicenvironmentalassessments(SEAs),andleveragingneedfacilitatedfinancingandliquiditythroughblendedfunding,theexistinginfrastructureandretrofittingthemtohydrogeninternationalgreenfinanceandstateguaranteestohelpreduceinfrastructurescanreducesomeoftherisksassociatedwiththecostofcapitalandconsequentlythefinancingcostsofdelayedactions.theprojects.Figure2.Impactofweightedaveragecostofcapital(WACC)onthelevelizedcostofgreenhydrogenproductioninSouthernAfricaandSouthernEurope5.25.13.81.82.7US$/kgH21.31.00.80.82.31.71.711%WACC6%WACC6%WACCSouthernEuropeSouthernAfricaInvestmentcostOperationalcostsFinancingcostTotal05Actualizingthegreenhydrogeneconomy1.Introduction1.Introduction06Actualizingthegreenhydrogeneconomy1.IntroductionGlobalwarmingcrisisrequiresdecisiveactions,butintheircanincludedecarbonizingthroughabatementtechnologiesandcurrentlevels,theyarefarfromsufficient.Findingsoftheswitchingtonewlow-andzero-emittingenergycarrierssuchIntergovernmentalPanelonClimateChange’s(IPCC)6thascleanhydrogenanditsderivativemolecules(e.g.,ammonia,AssessmentReport(AR6)highlightthatprojectedadverseimpactsmethanolandothersyntheticfuels).1TheEmissionsGapreportandrelatedlossesanddamagesintensifywitheveryincrementofalsooutlinessomeofthekeyactionsneededtohelpadvanceglobalwarming.1Thereportshaveconsistentlyillustratedemissiontransformationthroughavoidinglock-inofnewfossilfuel-intensivescenariosthatareessentialtoassessimpactsandanalyzeinfrastructure,furtheradvancingandapplyingzero-carbonmitigationeffortsneededtoactontheclimatecrisis.2Thesetechnologiesandpromotingbehavioralshifts.16scenariosarecrucialtohelpformulateprojectionsforsystems,includingenergysystems,whichinturnsupportnationalandHistorically,hydrogenhasbeenproducedviareformationofinternationalpolicymakingandthedesignofplausiblesustainablenaturalgas(greyhydrogen)orgasificationofcoal(black/browndevelopmentpolicyactions.InitsrecentAR6synthesisreport,hydrogen),bothbeinghighlycarbonintensive.17ForhydrogentotheIPCCshowsthatscenariosandmitigationpathwaysconsistentbeaneffectiveemissionreductionoption,itshouldbeproducedwithlimitingglobalwarmingto1.5°Careverylikelytorelyheavilyusingcleanenergysources,oritsCO2emissionsshouldbeabatedonrenewables,efficiencymeasuresandnet-negativeemissions,viacarboncaptureandstorage(CCS).Amongdifferentcleanconsistentwitharapidintroductionofmitigationmeasures.3hydrogenproductionoptions,onlyelectrolysis-basedhydrogenTheUnitedNationsEnvironmentProgramme(UNEP)Emissionsusingcleanelectricityhasnet-zerodirectCO2emissions,asGapreportcorroboratesthisfindingoutlining,togetontrackforCCS-basedsolutionsareassociatedwithresidualCO2emissionslimitingglobalwarmingto1.5°C,globalannualgreenhousegasandupstreammethaneemissionsofnaturalgas.18Green(GHG)emissionsmustbereducedby45%comparedtoemissionhydrogencanbeproducedviawaterelectrolysisusingrenewableprojectionsunderpoliciescurrentlyinplace,andtheymustelectricity,mostlywindandsolarpower.Becauseoflowercontinuetodeclinerapidlyafter2030,toavoidexhaustingthetechnologicalmaturityofotherelectrolysis-basedcleanhydrogenlimitedremainingatmosphericcarbonbudget(below400GtCO2eqproductionroutesandpromisingcostreductionofrenewablesofcumulativeemissionsby2050).4andelectrolyzers,greenhydrogenisconsideredtobecomethekeycleanhydrogensupplyoptioninthelongrun,beingbothClimatechangehasandisadverselyimpactingandexposingeconomicallyviableandtrulysustainable.19Developmentofavulnerabilitiesofindividuallivelihoodsandclimate-sensitiveglobalgreenhydrogenmarkethasthepotentialtoplayacriticalsectors.AR6highlightstheveryhighlikelihoodofincreaseinenablingroleindevelopingandemergingeconomiestohelpdrivecompoundingandcascadingimpactsmakingitmoredifficultrobustsustainabledevelopmentoutcomes.20tomanage,resultinginanexacerbationofvulnerabilitiesofecosystemsandpeopletoclimatehazards.5TherisksareGreenhydrogencanboundtohavearippleeffectacrossthefood,energyandhelpdecarbonizewatersectorstomentionafew.6Inthepastyear,theRussia-hard-to-abatesectorsUkrainewarpinpointedthevulnerabilityofthecurrentglobalsuchasheavy-dutyenergysystem,givenitsdependenceonfossilfuelsproducedtransportandsomefromaverysmallnumberofcountries.7TheIPCCunderlinesindustrialprocessestheimportanceofadaptationandmitigationactions,acrosswhereelectrificationscales,sectorsandregions,thatprioritizesequity,climateisimpossibleorjustice,rights-basedapproaches,socialjusticeandinclusivity,verycostly.leadingtomoresustainableoutcomes,reducingtrade-offs,supportingtransformativechangesandadvancingclimateresilientdevelopment.8Theseactionsareneededfordeepdecarbonizationthatcountersthescaleandrateofclimatechangeanditsassociatedrisks.Alignedtocountry-specificcircumstances,carryingouttheneededactions,requirespoliticalcommitmentwithmulti-levelgovernance,regulation,laws,policies,andstrategiesthatcanhelpsupportdeepemissionreductionsifscaledupandenhanced.9Indeed,adeepdecarbonizationtransitiontonet-zerocarbonemissionsentailslowcarbonintensityacrosseachsectoroftheeconomyandradicalchangesinbehaviors,regulations,andinstitutions.10Inthisregard,reducingenergyandindustry-relatedemissionsrequireselectrification11,12andanimmediateshifttowardsrenewables.13,14,15Forhard-to-abatesectorssuchasheavy-dutytransportandsomeindustrialprocesseswhereelectrificationisverydifficultorimpossible,mitigationoptions07Actualizingthegreenhydrogeneconomy1.IntroductionFromanindustryperspective,asmanyindustrialprocessesarealreadyoptimizedforhigherefficiencyandsomecannotonlyrelyonelectrification(suchassteelproductionandchemicals),keytransformationsneededtohelpbringtheindustrysectortoaParis-compatiblepathwayincludeintegrationofgreenhydrogenproductioncapacities.21Moreover,whilethereappearstobescientificconsensusregardingtheeffectivenessofelectrificationtohelpdecarbonizeacrossmanysectors,somesectors,suchasmaritimetransportandaviation,requiresolutionsbeyondelectrification.Syntheticfuelsproducedfromcleanhydrogensuchasammoniaandmethanolcanbringneededemissionreductionstothemaritimetransportsector.22Similarly,sustainableaviationfuels,seenasleadingsolutionsforthedecarbonizationofaviation,canbeproducedeitherfromhydrogen(synthetickeroseneviaFischer-Tropschreaction)orbiologicalfeedstock(bio-kerosene).23Finally,hydrogencanbeanimportantgamechangerfortheintegrationofvariablerenewableenergysources(windandsolarpower)tothepowersystem,bringingtheneededflexibilitytothesystembyprovidinglong-termenergystorageandgridstability.24,25Theglobalcleanhydrogen(mostlygreen)economycangrowuptoUS$1.4trillionannuallyby2050.ItcanreduceGHGemissionsby85GtCO2eqandcontributesignificantlytoeconomiesbysupportingabout1.5millionnewjobsperyearbetween2030-2050indevelopingandemergingeconomies.19Therefore,aneffectiveunderstandingoftheregulatoryandfinancingenvironmentneededtohelpsuccessfullyscale-upthesupplyofgreenhydrogeniscriticaltoactualizingintersectionswiththeUnitedNations(UN)SustainableDevelopmentGoals(SDGs).Tohelpunlockthedecarbonizationpotentialofgreenhydrogen,itshouldbewidelyaffordable.Withtherightpoliciesputinplacenow,itcouldsoonbecomeacornerstoneoftheworld’sshiftawayfromfossilfuels.26Furthermore,internationalcooperationandcoordinationisimportanttohelpdevelopamarketforhydrogenfromrenewablesources,withcoordinatedtargets,standards,andbilateralandmultilateralcooperationagreements.2708Actualizingthegreenhydrogeneconomy2.Legalpolicyframework2.Legalpolicyframework09Actualizingthegreenhydrogeneconomy2.LegalpolicyframeworkAreviewofnationallawandgovernanceframeworksexploresdraftingvisavisgreenhydrogenanditsderivatives.theimportancethatforward-facingregulatoryapproachesplayinGreenhydrogenhasgainedsignificantattentioninthepolicyadvancingthegreenhydrogeneconomy.AdvancedexperiencesframeworkaroundtheglobewithvaryingapproachesadoptedtoarereviewedfromtheEuropeanUnion(EU),Germany,Unitedadvancecapacity.Table1providesanoverviewofthepolicyandStates(US),Namibia,Australia,UnitedArabEmirates(UAE)andregulatoryapproachesadoptedacrossthejurisdictions.MoroccoprovidingperspectivesontheprogressionoflegislativeTable1.PolicyandregulatoryapproachestopromotethedevelopmentofgreenhydrogenacrosstheselectedjurisdictionsGeographyExistinglegalandpolicyframeworkEnablersEuropeanUnion(EU)•FirstRenewableEnergyDirective(RED),2001(updatedin2009)promoted•AmutuallysupportivethedeploymentofrenewableenergysourcesacrosskeysectorsoftheEUincentivizationschemewhichGermanyeconomy.28currentlycomprisesoftheRenewableEnergyDirectiveand•REDII,2018updatedframeworkagreementgoverningrenewableenergytheEmissionTradingSystem35generationandusewithintheEU.29•AplantosetuptheEuropean•REDIII,2023(Provisionalagreement)raisedrenewableenergytargetsHydrogenBank,toinvestmorefrom32%to42.5%aimingfor45%.ItwillmodifysectoraltargetsincludingthanUS$3billion(€3billion)specifictargetsforhydrogenbasedrenewablefuelsofnon-biologicalorigintokickstarttheEuropeanH2(RFNBO’s).30market36•EuropeanCommission(EC)proposedanencompassinglegislative•Fixed-premiumauctionsforframeworkfortheproduction,consumption,infrastructuredevelopmentandrenewablehydrogenfrom2023marketdesignforhydrogen(AlsorefertoRenewableEnergyDirective).31,32willalsobeprovidedbytheEU’sInnovationFund37•‘Fitfor55’packagecreatesincentivesforhydrogenuse,includingbindinggoalsforindustryandthetransportsector.33•FederalNetworkAgency(BnetzA),responsibleforthe•GreenDealIndustrialPlanprovidesaconduciveenvironmenttoscaleupregulationofhydrogenprojectsthemanufacturingcapacityfornetzero.34ashydrogencurrentlyfallsundertheregulationofgasand•RenewableEnergySourcesAct(EEG2021)andRenewableEnergieselectricitymarkets43Ordinance(EEV,2021)containssupportschemesforrenewableenergysources,whichdirectlyaffectthecostofelectricityconsumedforgreen•Publicfundingguidelinesforthehydrogenproduction.38financialsupportofinternationalhydrogenprojects•EnergyIndustryAct(EnWG)mentionsthesupplyofhydrogenbyprovidingthepurposeoftheactintheprovisionofgrid-basedsupplybasedon•Thefundingguidelinerenewables,drawingattentiontohydrogen.39specificallysupportsprojectsfortheproductionandfurther•KoalitionsvertragzwischenSPD,Bündnis90/DieGrünenundFDPprocessingofgreenhydrogenformulatesa‘nationalhydrogenstrategy’asof2022,andidentifiestheneedanditsderivativesaswellasfortodeveloptheImportantProjectofCommonEuropeanInterest(IPCEI)tothestorage,transport,andusefinanciallysupportinvestmentsinthedevelopmentofahydrogennetworkofhydrogenincountriesoutsideinfrastructure.40theEUviaaninvestmentgrantforthesystems44•NationalHydrogenStrategy(NHS,2020)helpscreatetheopportunitytoplayakeyroleininternationalcompetitionforthedevelopmentandexportof•TheaimofH2GlobaltopurchasehydrogenandPower-to-Xtechnologies.41greenhydrogenproductscheaplyontheworldmarketand•FederalEmissionControlActprovidesanauthorizationprocedurepursuanttosellthemtothehighestbidderfortheconstructionandoperationofahydrogenproductionfacilitysuchasaintheEUpower-to-gasplant.42•EnvironmentalImpactAssessmentActrequiresapreliminaryauditkeepinginmindfulfilmentofrequirementsstipulatedbytheHazardousIncidentOrdinance.10Actualizingthegreenhydrogeneconomy2.LegalpolicyframeworkGeographyExistinglegalandpolicyframeworkEnablersUnitedStates•EnergyPolicyAct,2005expandedlarge-scalehydrogenresearchanddelved•LaunchofTheHydrogenShottointodevelopmentofhydrogenasanalternativesourceoffuel.45helpacceleratebreakthroughsinNamibiahydrogentechnologyandcutthe•InflationReductionActprovidescleanenergyincentiveswithprovisionsforcostofcleanhydrogenby80%cleanhydrogenandfuelcelltechnologies,eitherextendingexistingfederaltaxtoUS$1perkilogram(kg)inonecredits,orcreatingnewfederaltaxcredits.46decade49•Californiaspecificinitiatives•Texasspecificinitiatives,2022,–LowCarbonFuelStandardleveragesfederalinvestmentfromtheincludinganewmega-scaleInfrastructureInvestmentandJobsActestablishinganenvironmentallyandgreenhydrogenfacility50economicallysustainableandexpandingrenewablehydrogenhub.47–AllianceforRenewableCleanHydrogenEnergySystems(ARCHES)•TheRepublicofNamibiasupportsanH2consortiumtoadvancepublic-privatepartnershipsthatexercisesexclusivejurisdictionacceleratedeploymentofclean,renewableH2projectsandinfrastructure.48overnaturalresourcesandcomponentsofthenatural•TheNationalEnergyPolicy,2017aimstoprovide,energysecurity,enableenvironmentwithinitsnationalcost-effective,reliableandconsistentenergyaccess,promotionofenergyboundaries57,58efficienttechnologies,andincentivizetheeffectivedevelopmentanduseofdomesticenergyresources.Thepolicyalsoaimstosupportexpansionof•Establishmentofaspecialrenewableenergysources.51economiczone(SEZ)andexpansionoftheWalvisBayPort•TheElectricityAct,2007inwhichElectricityControlBoardlicensescurrentlybeingevaluated59onlyoperationsthatinvolveelectricitygeneration(solarandwind)andtransmission,withapprovedprojectsincludingtheestablishmentofnetworks•InMay2022,Namibialaunchedforintegrationofpowerproductionandgreenhydrogenprocessingfacilities.52itsfirstsovereignwealthfundcalledastheWelwitschiaFund60•TheElectricityBill,2017andtheNamibiaEnergyRegulatoryAuthorityBill,2017(Underparliament’sreview),couldsignificantlyimpacttheprocurementandlicensingofpowergenerationprojects.53•HarambeeProsperityPlanIIaimstofosterdevelopmentofrenewableenergyatscale,advancementofbusinessmodelsthatpromotelocalsustainabledevelopmentgroundedinrenewableenergysources,andmobilizationoffinancetoscaleupinfrastructureforrenewableenergyandgreenammoniaproduction.54•NamibiaGreenHydrogenStrategyestablishesthegoalofpositioningNamibiaasaleadingglobalhydrogenproducerby2025.55•SyntheticFuelsAct(Yettopass)aimstoprovidetransparentoversighttowardsorganizing,acquiring,andoverseeingfuturegreenhydrogenprojectsbuiltonstate-ownedpropertyanddetailonincentives,corporatetaxstructures,royalties,andcompetitionlaws.5611Actualizingthegreenhydrogeneconomy2.LegalpolicyframeworkGeographyExistinglegalandpolicyframeworkEnablersAustralia•TheClimateChangeAct,2022embedtheParisAgreementandtargets•NeedtoensurethattherightsUnitedfoundinthenationallydeterminedcontribution(NDC)intothenationalofIndigenousAustraliansArabframework,withsubnationallegislationleadingthewayonclimatepolicy.61,62areadequatelyaddressedinEmiratesthecurrentframeworksfor(UAE)•TheNationalElectricityLaw63NationalGasLaw64andtheNationalrenewableenergyandhydrogenEnergyRetailLaw65arethreeoverarchinglawswhicharerelevanttothedevelopment72Moroccogovernanceofenergymarketsandhelpregulateaccesstonaturalgaspipelineservices(transmissionanddistribution).•InNSW,greenhydrogenproducersareexpectedtobe•TheCleanEnergyFuturepackageandtheRenewableEnergytargetabletoachieveoverUS$2perkg(RET)policieshavefocusedonmateriallyreducingemissionsintheelectricityincostreductionsbycombiningsector.66revenuefromcertificatesgeneratedunderthestate’s•AmendmenttotheNationalGasLaw,2022regulationstofurtherblendingRenewableFuelSchemeandofhydrogenandderivativesunderthenationalframework.67electricitychargeconcessions73•Australia’sNationalHydrogenStrategy,2019providesanationalvisionfor•TheHydrogenAccordbetweenadvancementofadomesticcleanhydrogensector.68AustraliaandGermanywassignedinJune2021tohelp•NativeTitleLegislationAmendmentBill2021providesindigenoustitlefacilitatestrategiccooperationinholdersastrongpositiontoinsistbestpracticeagreementsarenegotiated.69thisfield74•SouthAustralia•TheUAEplanstoinvestaround–ThePrincipalActamendedpetroleumandgeothermalregulationsUS$163billion(nearlyDh600makinghydrogen,anditscompoundsandby-products,regulatedbillion)incleanenergytohelpsubstances.70supportthegoalsofclimateneutrality79•NewSouthWales–NSW’shydrogenstrategy,2021supportsgreenhydrogen,withaplanned•UAEhasbeendrawingupaamendmentBilltargetingblendingofupto10%hydrogenandbiomethanecomprehensiveroadmaptointonaturalgaspipelinesby2030,andalsoprovidesspecificexemptionsforpositionitselfasanexporterofelectricityusedintheproductionofgreenhydrogen.71thecleanfuelandtapintoitsfuturepotential80•NationalEnergyStrategycollectivelypositionsanationaldrivetohelpachievenet-zeroemissionsby2050.75•DevelopmentofthegreenhydrogenindustryinMorocco•Masdarinitiativefocusesonthedevelopmentandmobilizationofinnovativeisprojectedtorequireatotaltechnologiesreleatingtorenewableenergy,energyefficiency,carboninvestmentofbetweenUS$38managementandmonetization,watermanagementanddesalination.76billiontoUS$272billion(Dh140billiontoDh1trillion)between•TheNationalHydrogenStrategy(indraftstage)furthersthevisionfor2020and2050tohelpmeethydrogeninUAE,providesinputsforpolicydevelopment,prioritizeshydrogenpotentialdemandby205083inthedomesticenergymix,andputsinplaceadiversificationstrategyandnet-zerotargetsby2050.77•EnergyStrategy2050aimstoincreasetheshareofcleanenergyinprimaryenergyconsumptionto25–50percentby2050.78•Roadmapongreenhydrogen,2021threepillars(i)developmentofadomesticmarketanddemand,includingestablishmentofenhancedexportandstoragefacilities,(ii)technologydeploymentaimedatcostreductionsandlocalindustrialintegration,and(iii)mobilizationofinvestmentthatidentifiespossibleclustersandmeasureforitsfinancing.81•Germany-MoroccoHydrogenAgreementwassignedforthejointdevelopmentofgreenhydrogenproductionpledgingmorethanUS$300million(€300million)investmenttoenableGermanytosourcegreenhydrogenfromMorocco.8212Actualizingthegreenhydrogeneconomy2.LegalpolicyframeworkTheoperationalsubsidyschemesintroducedbytheUSInflationEstablishmentofaclearpolicyintentionthroughformulationofReductionAct(IRA),alongwiththeHydrogenShotintroducedbynationalstrategyinstrumentswasobservedtoprovideadirectiontheUSDepartmentofEnergytohelpacceleratebreakthroughsoftravelforlegislativeandministerialbodies,whileactingasinhydrogentechnologyandreduceproductioncosts,andStateacatalystforstakeholderengagementandmobilizationofinitiativesdriveninCaliforniaandTexasprovideastrongsupportinvestments.AlignmentofthepolicyandregulatoryarchitecturesystemfortheAmericanindustrytohelpscaleupproduction.ThetowardsaParis-alignedgreenhydrogeneconomycanprovideEUincontrast,hasleveragedafacilitativeapproachagainsttheimportantlegalclarity,certaintyandcancreateanenablingbackdropofarobustregulatoryarchitecturegoverningrenewableenvironmentforstakeholderengagementacrossthevaluechain.energygenerationandemissionstrading,andaforward-facingDependinguponthejurisdiction,thisprocesscouldincludeastrategyintheEUGreenDeal.ThroughcreationoftheEuropeanstocktakingexercisetodeterminegapsandidentifyenablingHydrogenBank,andtheGermanH2Global,afacilitativeofftakeelements,reformandenhancementofexcitinginstrumentstoapproachisutilized–wherebygreenhydrogenproductsarehelpensuretheyarefitforpurposewasobservedacrosseachsecuredcheaplyandsoldwithintheEUatmarketrates—tohelpjurisdiction,andcreationofspecializedincentiveorfundingsecuresupply,reducerisk,andincreaseutilization.schemessuchasthoseutilizedintheEUandUS,creationofsectorspecificlegislationasseeninNamibia,orutilizationofAmongpotentialfuturehydrogenexporters,AustraliautilizedexistingmodalitieswhileexperienceisdevelopedasseeninUAEitsnationalstrategytooutlinepriorities,identifyareasofandMorocco.competency,integrateanadaptiveandnationallycoordinatedapproachtohelpsupportindustrydevelopment,usinga‘review-Adoptionofavaluechainapproachhasalsobeenobservedrevise-adapt’feedbackloop,andcontinuetoadvancerespectforacrossmanyjurisdictions.ActualizationofthegreenhydrogenIndigenouslandrights.84AHydrogenAccordbetweenAustraliaeconomynecessitatesthecreationofcomprehensivepathwaysatandGermanywasalsosignedinJune2021tohelpadvancetheconvergenceofindustrial,Indigenous,land,andsustainablestrategicbilateralcooperationongreenhydrogen.Similarly,developmentpriorities.Namibiautilizedtheirnationalstrategytohelpinformandguidedomesticlegalreformprocessesrelatedtoenergy,landuseandGiventhenascentnatureofthesector,policyandregulatorytaxation,andinitiatedthecreationofaspecializedframeworksupportisneededinearlyexperiencestohelpbridgethegapsthroughthedraftSyntheticFuelsAct.andleveragecooperativeapproachestoactualizepilotschemesend-to-end.TheimportanceoffinancewasunderscoredacrossTheUAEleveragedsynergiesacrosstheirNationalEnergyeachjurisdiction.Mobilizationoflow-costfinanceandvalueStrategy2050andNetZeroby2050strategicinitiativetohelpcreationwasobservedthrougharangeofapproaches,includingoperationalizeacoordinatedapproachthroughcentralizationofcreationofdirectincentives,developmentofnationalsupportministerialmechanismsincollaborationwithkeystakeholders.schemes,inclusionofsovereignwealthfunds,andconsiderationWhiletheUAE’sNationalHydrogenStrategyremainsunderofappropriatetaxstructurestoeffectivelycapturebenefitsfordevelopment,effortsledbytheMasdarInitiativeandpartnershipshostjurisdictions.withAustralia’sGHDGroupPtyLtd.andGermany-basedFraunhofer-Gesellschaftcontinuetoadvanceinnovation,mobilizeinvestment,anddevelopfrontiertechnologyacrossthegreenhydrogenvaluechain.Similarly,MoroccodevelopedagreenhydrogenroadmapthroughtheirNationalHydrogenCommissiontohelpadvancemarketdemand,reducetechnologycostsanddevelopclusterstofacilitateinvestments.TheGermany-MoroccoHydrogenAgreementsignedin2020providesastrongbasisforbilateralenergycooperation.8513Actualizingthegreenhydrogeneconomy3.Financialandinvestmentconsiderationstogreenhydrogen3.Financialandinvestmentconsiderationstogreenhydrogen14Actualizingthegreenhydrogeneconomy3.Financialandinvestmentconsiderationstogreenhydrogen3.1.EconomicandfinancialcharacteristicsofGreenhydrogenisagreenhydrogenhighlycapital-intensivetechnology,thatrequiresGreenhydrogencanbeproducedviaelectrolysisofwatersignificantinvestments.usingwindandsolarelectricity,thereforevirtuallyeverywhere.ProductioncostsofHowever,thecostofgreenhydrogenproductioncanvarygreenhydrogenconsistssignificantlyacrossdifferentgeographieswithakeyelementofinvestmentsininfluencingthecostofgreenhydrogenbeingtheproductionyieldsrenewablepowerplants,oftherenewablepowerplants,stemmingfromsolarirradiationelectrolyzers,theirandwindspeed.Astheplantyieldofarenewablepowersourceconnectionequipment,increases,thehighertheplantproductionforagiveninstalledthefixedoperationcapacity,whichthendrivesdownthecostoftheelectricityandmaintenanceproduction.This,inturn,reducesthecostofthegreenhydrogencostsandthecostofproduction.Theaveragecostofhydrogenproduction(includingwaterconsumedforitstheinvestmentandoperationalcosts)canbedefinedusingtheproduction.LevelizedCostofHydrogen(LCOH)metric.LCOHaccountsforallcapitalandoperatingproductioncostsinthelevelizedmanneroveraunitofproducedhydrogenanditsderivative(US$/kg).Figure3ShowstheLCOHofgreenhydrogenaroundtheglobewiththetechnologycostestimationsfortheyear2050.In2050,producingsolarPV-basedgreenhydrogeninNorthAfricacouldcostone-quarterofEuropeanproduction.Benefitingfromhighrenewable(especiallysolar)endowments,greenhydrogenproducedinAustralia,Chile,Mexico,northernandsub-SaharanAfrica,andMiddleEasterncountriescanbehighlycostcompetitive.Moreover,thewidespreadavailabilityoflandintheseregionsforrenewableinstallations,comparedtothosewithlimitedlandavailability(suchasJapan,Korea,andsomepartsofEurope86)makestheseregionsmoreadaptedfordevelopmentandexportsofgreenhydrogen.Thecostcompetitivenessofgreenhydrogendoesnotonlydependonwindandsolarpotentials.Greenhydrogenisahighlycapital-intensivetechnology,thatrequiressignificantinvestments.Productioncostsofgreenhydrogenconsistsofinvestmentsinrenewablepowerplants,electrolyzers,theirconnectionequipment,thefixedoperationandmaintenancecostsandthecostofwaterconsumedforitsproduction.Therefore,thebulkoftheLCOHconsistsofinvestmentcosts,anditscostelementsarelargelyfixedcosts.Figure4showsanillustrationofthebreakdownofthecostsofgreenhydrogenproductioninMoroccofortheyear2021.15Figure3.Thelevelizedcostofhydrogenproductionovertheglobe,2050$4/kgH2$1/kgH2Source:Deloitte’s2023globalgreenhydrogenoutlook19Actualizingthegreenhydrogeneconomy3.FinancialandinvestmentconsiderationstogreenhydrogenAkeychallengeregardingthedevelopmentofgreenhydrogenProjectdevelopmenttimelinescanbeamajorbottleneckinistheavailabilityofliquidity.Manyoftheregionsthathavescalinguptheproductionofgreenhydrogenthatconsistofsignificantlyhighgreenhydrogensupplypotentialsufferfromtwomajorprocesses:permittingproceduresandconstruction.loweravailabilityoffinancingoptionsfortherequiredinvestments.PermittingschemesforrenewableenergyprojectscanbringTherefore,accesstoinvestmentfundsinsuchregionscanbesignificantdelaystotheoperationofthepowerplants.Afteridentifiedasoneofthecriticalmeasuresneededtohelpsolveaninvestmentdecision,oncetheexpenditureallocationsarethebottlenecksregardingthedevelopmentofaglobalcost-done,thepermittingandvalidationproceduresaswellasthecompetitivegreenhydrogenvaluechain.constructionoperationscanbringnotonlydelays,butalsoresultingfinanciallossesduetotheblockedliquidityandappliedFigure4.Illustrationofdifferentcostcomponentsofinterestduringtheoperation.MinimizingthedelaysandthegreenhydrogenproducedinMoroccoin2021financialcostsoftheprojectswillrequireacceleratedandstreamlinedpermittingprocessesandconstruction.Although1.2permittingchallengesarecurrentlyconcerningmoreadvanced10%economiessuchasEurope,theUnitedStatesandAustralia89,thiscanbearelevantsubjectfordevelopingcountriesaswell1.0withpotentiallycomplexregulatorylandscapesastheprojectpipelinesmature.Levelisedcost(US$/kgH2)27%29%36%Likerenewables,whichhaveexperiencedsignificantcost0.8reductionoverthelastdecades,themanufacturingcostofgreenhydrogenequipmentisprojectedtofallsteeplyinthecoming0.629%23%decades.90Theinstallationcostofsolarpanelsandonshorewindisexpectedtodropby45%and18%,respectively,between0.437%2020and2050,withelectrolyzersalsoexpectedtoexperience28%significantcostreductions,decreasingbytwo-thirdsoverthe37%sametimeframe.91Therefore,greenhydrogenisexpectedto0.2becomeoneofthemostcost-competitivehydrogenproductiontechnologiesinthelongrun.In2050,levelizedproductioncosts0.07%20%17%couldfallbelowUS$1/kgH2inChile,andbelowUS$1.1/kgH2innorthandsub-SaharanAfrica,Mexico,China,Australia,andGreenhydrogenGreenhydrogenBluehydrogenIndonesia.3Yet,currentlygreenhydrogenisthemostexpensive(PV),Morocco(reformers),Norwayone92,anditisexpectedtoremaingenerallymoreexpensivethan(wind),Moroccothecarbon-intensivegrayhydrogenatleastuntil2035(Figure5).Therefore,tohelpcreatealevelplayingfield,greenhydrogenInvestment(electrolyzerrsorreformers)Investment(renewables)projectsneedsupportthroughoperationalpremiumsuntiltheyarecommerciallycompetitive.Operations(other)Operations(naturalgassupply)FinancingDevelopmentofaglobalgreenhydrogenvaluechainhasatwo-Source:Deloitte's2023globalgreenhydrogenoutlook19foldchallenge:decarbonizationofitscurrentuses,andcreationofnewhydrogenuses.Currently,industryconsumesabout95millionHighlycapitalintensiveinnature,greenhydrogenprojectsrequiretonsofhydrogenglobally,nearlyentirelyproducedfromfossilraisingsignificantamountsofdebtandequity,whichcanadverselysources(naturalgasreformationorcoalgasification)19.Inaclimate-impactfinancingcostsandcompetitivenessofinvestments.neutralworld,cleanhydrogen(includingitsderivativemoleculesAnimportantfactorinfluencingfinancingcostsisthecountrysuchasammoniaandmethanol)canbecomethesecondbiggestpoliticalrisklevel.Someofthemostpromisinglocationsforgreenfinalconsumedenergycarrier.93Whilesomeoftheseend-usescanhydrogenprojectsmaysufferfromhighcountry-relatedpoliticalconsumehydrogenbysimplyreplacingtheinitialcommoditybyrisks.Inpractice,privateinvestorsandlendersexpecthigherratesit,inmostofthecasesasignificantinfrastructureandequipmentofreturntocompensateforgreaterpoliticalrisks.Suchperceivedshiftisneeded.94Forinstance,hydrogenfortheroadtransportrisksaretranslatedintoahigherweightedaveragecostofcapitalsectorrequiresacompletechangeofthevehicleengines,from(WACC)fortheprojects,whichactsasaninterestratetherefore,internalcombustionenginestoelectricmotors,includingfuelcells.increasingtheoverallcostoftheprojectviaadditionalfinancingcosts.Accesstoaffordablefinancecanbeacriticalenablerforgreenhydrogenprojects,andparticularlythoselocatedinemergingmarketswithhighpoliticalrisksthatmaybeotherwisepreventedfromtappingintotheirexceptionalproductionpotential.Moreover,thelackofprojectsandabsenceofamarketinscalemeansthatthereisnoorverylimitedreferenceforcommercialduediligence.ThisinturntranslatesintoamarketriskforbothlendersandinvestorsthatwouldincreasetheWACCbyincreasingthecostofbothdebtandequity.17Actualizingthegreenhydrogeneconomy3.FinancialandinvestmentconsiderationstogreenhydrogenEconomicandfinancialsupporttohelpproducegreenhydrogenGreenhydrogenisshouldbecomplementedwiththecreationofdemandsignalsforhighlycapitalintensivecleanhydrogenanditsderivativemoleculesindifferentsectors.andcurrentlymoreInitiationofacleanhydrogeneconomy,inlinewiththeSustainableexpensivethanitsfossilDevelopmentGoals,requires:counterpart,makingithighlysensitiveto1.Facilitatinginvestmentsviaunlockingfundsandforeignfinancingconditionsinvestmentinitiatives,andpolicysupport.2.Reducingfinancingcostsviaenablingaccesstolow-costfinance,3.Creatingalevel-playingfieldforgreenhydrogenviaoperationalsubsidiesuntilatleastlate2030s,4.Creationofdemandforgreenhydrogenviasectoralinitiativesandobligations,and5.Reductionofthepermittingandconstructionperiodsviafacilitatedpermittingprocesses.Inthefollowingsection,differentpolicysupportmechanismsthatcanbeusedtohelpactivateeachoftheidentifiedactionpointsareexplained.Figure5.Outlookonproductioncostsofgreenhydrogenandgreyhydrogenbetween2025and20505.0Levelizedcost(USD/kgH2)4.03.02.01.0203020352040204520502025YearNote:GreenlinerepresentsthemedianofthegreenhydrogenLCOH,andthespectrumshowsthevariationbetweenmaximumandminimumvalues.Greyareashowstheevolutionofthecostspectrumofgreyhydrogenduringthisperiod.Source:Deloitte’s2023globalgreenhydrogenoutlook1918Actualizingthegreenhydrogeneconomy3.Financialandinvestmentconsiderationstogreenhydrogen3.2.OverviewofsomeofthemainfinancialandinvestorsandlendersexpecthigherratesofreturntocompensateeconomicinstrumentstohelpincreasebankabilityforgreaterpoliticalandoperationalrisksresultinginhigherWACCofgreenhydrogenprojectslevels.Financialsupportmechanisms,suchasguaranteescanhelptoreducecountryriskpremiumandthusthecostofcapital,Severalmechanismscanbeusedtohelpmakegreenhydrogenmakingtheprojectsmorebankable.TheEuropeanInvestmentprojectseconomicallymorecompetitiveandtofacilitateBank(EIB)offerssolutionsintheformofguaranteedinstrumentsinvestments.Potentialpolicysupportschemescanbegroupedinmarketswherethereisalackofinvestment.99EIBalsoattimesasfollows:investmentsupport,financingsupport,operationalguaranteespotentiallossesfromaproject.Blendedfinancesupport,R&Dsupport,marketcreationandpermittingmechanismisanotherfinancialsupportmechanismthatcanfacilitation.Figure6showsthesesupportmechanismswithmobilizeprivateinvestmentsalongsidesustainabledevelopmentassociatedexamples.outcomestohelpincreasethebankabilityoftheprojects.The‘SDGNamibiaOneFund’,launchedin2022,isacaseinpointwithInvestmentsupportmechanismscanreducetheamountofafirstUS$43million(€40million)grantfromInvestInternational,moneyrequiredtobuildproductioncapacities.TherearemanyandaimingtocollectmorethanUS$1billion(€1billion).100fundsthatsupportgreenhydrogenprojectsbyfinancingapartofCurrently,greenhydrogenprojectssufferfromalackoffinancialtheircapitalexpenditure(CAPEX).InEurope,theInnovationFundsupportmechanisms,entailinglowerbankabilityforsuchprojects.supportsupto60%ofaproject’sCAPEXandavariablefractionofitsoperationalexpenditures(OPEX)incurredinthefirst10Operationalsubsidiesareoftendesignedasapremiumthatvariesyearsofoperation.95TheConnectingEuropeFacilityforEnergywithhydrogenproductionfunctioningasasubsidytocompensate(CEF–E)isanEUfundinginstrumentfortargetedinfrastructureforthedifferencebetweentheproductioncost(LCOH)andtheinvestmentatEuropeanlevel.96CEF-EdeploysmorethanUS$6revenues.IntheNetherlandsthroughtheSustainableEnergybillion(€5.84billion)tohelpfundupto50%oftheCAPEXofTransition(SDE++)scheme,electrolytichydrogenproducersarehydrogeninfrastructureandgrid-connectedelectrolyzerprojectseligibletoreceiveuptoUS$3.4/kgH2for12to15years,butonlyof100MWorabove.Intheprivatesector,Hy24providesequityforalimitednumberoffullloadhoursperyear.Forinstance,inforinfrastructureprojectsworldwidethroughitscurrently2023,eligibleproductioniscappedat1,490fullloadhoursandoperationalmorethanUS$2billion(€2billion)‘CleanH2Infrain2026,thatlimitis2,330fullloadhours.101TaxcreditsaretaxFund’.97Suchfundsinjectliquidityintoprojectsandhelpreduceexemptionsforproducersthatalsoworkasoperationalsubsidies.therequiredinvestments.TheUSInflationReductionActoffersacleanhydrogenproductiontaxcredit.102Effectively,itisa10-yearincentiveforcleanhydrogenTheInternationalEnergyAgency(IEA)statesthat65%oftheproductionwithataxreductionofuptoUS$3/kgH2whenthefundingrequiredtoreachnet-zeroemissionsmustcomefromcarbonintensityisbelow0.45kgCO2eq/kgH2.103.Crucially,thetheprivatesector.98However,indevelopingcountrieswhereIRAlegislationallowsthefederalgovernmenttopayoutthisrenewablehydrogenproductionismorepromising,privatesubsidydirectly.Figure6.SummaryofthepolicysupportmechanismstohelpincreasethebankabilityofgreenhydrogenprojectsInvestmentsupportFinancingsupportOperationalsupportFinanceapartoftheReducethecostPremiumproportionaltocapitalexpenditureofcapitalhydrogenproductione.g.,Innovationfund(EU)e.g.,SDGNambiaOneFunde.g.,SDE++(theNetherlands)CleanH2InfraFund(worldwide)(Nambia)IRA45v(US)R&DsupportMarketcreationPermitfacilitationDevelopaself-sustainingEnsurethatgreenhydrogenFacilitatetheroll-outofprojectshydrogenvaluechainwillbeboughtbyallowingquickcommissioninge.g.,CleanHydrogenJointUndertaking(EU)e.g.,H2Global(Germany)e.g.,Net-ZeroIndustryAct(EU)EuropeanHydrogenBank(EU)Source:Deloitteanalysis19Actualizingthegreenhydrogeneconomy3.FinancialandinvestmentconsiderationstogreenhydrogenR&Dsubsidieshaveadualsocialandfinancialfunction.Afewinstitutionsalreadydelivergreenhydrogencertifications,First,grantscanhelpaccelerateinnovationanddevelopmentsuchasCertifHyintheEU,TÜVSÜDinGermany,theAichiofaself-standinghydrogenvaluechainbybringingdowncostsPrefectureinJapan,ortheChinaHydrogenAlliance.108Intheandtherebyallowingforthescaleupofemergingtechnologies,sameway,theEUtaxonomycreatesaframeofreferenceforsuchasgreenhydrogenproductiontechnologies,whilealsoinvestorsandcompanies.Certificationworkstosignalcrediblebuildingupastrongworkforcewithspecializedskills.InEurope,greenprojectsforinvestorstoinvestin.EvenifitisnotlinkedtheCleanHydrogenJointUndertaking(CH-JU)supportstoanyfinancialbenefits,thetaxonomyworksasanincentiveresearchandinnovationinhydrogentechnologies,withthetohelpscaleupinvestmentingreenprojects.Forexample,thescopeincludingrenewablehydrogenproduction,distribution,ClimateBondStandardandCertificationSchemeproposesthestorage,andusefortransportandenergy-intensiveindustries.104HydrogenProductionCriteriatocertifyhydrogenproductionasTargetingestablishmentofnewknowledge(early-stageresearchaCertifiedClimateBond.109Thiscertificationhelpstoprioritizeaction),explorationofthefeasibilityofanewtechnology,supportfinancialinvestments.actionsforstandardizationandthedevelopmentofprototypes,demonstrations,orpilots,theCH-JUprovideseconomicsupportFinally,non-monetarysupportmechanismstohelpacceleratemainlythroughgrantsandisendowedwithaboutUS$1billionpermittingprocessesandreduceconstructiondelayscanbe(€978million)fundingcompletedwithmorethanUS$1billion(€1animportantfacilitatortoroll-outofgreenhydrogenprojects.billion)fromprivatesources.40TheCAPEXofprojectsthatareReducingpermittingtimesandensuringthetimelyavailabilityofexpectedtohaveasignificantimpactinacceleratingthetransitionmaterialscanattractinvestmentsbyreducingprojectrisks.Fortoahydrogeneconomymayalsobeconsideredasaneligiblecost.theEU,theNet-ZeroIndustryActsetsa12-monthpermittingtimelimitforprojectswithayearlymanufacturingcapacityoflessAnotherreasonforunderinvestmentisthelackofapropermarketthan1GWinanEUMemberState.110Inpractice,thisshouldbeforgreenhydrogen.Itisnecessarytodevelopthepotentialmarketdonebyloweringadministrativeburden.However,thisActonlyandtouseofftakeagreementsorcompensationmechanismstoprovidestimegoalsandnotguidelineswhichmightnotmakeitanhelpensurethatthehydrogenproducedwillbebought.Thisisefficientincentive.TheEU’sCriticalRawMaterialsActsetstargetsthepurposeofGermanH2Globalinstrument,acompetitivefortheextraction,processing,andrecyclingofplatinumgroupdoubleauctionplatformwhichaimstosecurerevenuesformetals(whichareusedinelectrolyzers)andothers.111Thegoalishydrogenproducersandramp-upthegreenhydrogenmarketontohelpavoidshortagesandtokeeppriceslowandsteady.Theanindustrialscale.H2GlobalactsasanintermediaryprovidingMineralsSecurityPartnership(MSP)isaninternationalcoalition11210-yearpurchasecontractsonthesupplysideandshort-termoftheUSand10partnerswhichaimstosafeguardthesupplyofcontractsonthedemandside.105Aswithcontractsfordifferencecriticalmineralsfordevelopingcountrieswithlimitedgeological(CfD),thedifferencebetweensuppliers’lowestbidsandendowments.113Leveragingclosecollaborationsisafirststeptobuyers’highestbidsiscompensatedbygrantsfromapublicorhelpincreasematerialssupplysecurity,butmoremeasuresarephilanthropicfundingbody.Therevenuesaresecuredfortheneededtohelpreduceprojectrisksfurther.producers,whichisattractiveforinvestment,andimportersgainaccesstogreenderivatives.AttheEuropeanlevel,theCommissionisdesigningthefirstpilotauctionsonrenewablehydrogenproduction,namedthe‘EuropeanHydrogenBank’(EHB).ThefirstUS$860million(€800million)auctionswillbelaunchedundertheInnovationFundbyautumn2023106ThisauctioncanhelpcreatetheEU’sdomesticmarketforhydrogen,providetransparencyandcoordinationaswellasassessesdemand,infrastructureneedsandhydrogenflows.TheCommissionisalsoexploringhowtodesignanauctiontoincluderenewablehydrogenimportsfromcountriesoutsidetheEU.CfDscanbeconsideredatalaterstagewhenareferencecleanhydrogenpriceisdetermined.Carbonquotas,carbontaxesandgreencertificates/guaranteesoforigincanincreasethedemandforgreenhydrogen,facilitatingthecreationofitsmarket.TheEUEmissionsTradingSystembothraisesmoneyfortheInnovationFundandhelpscreatedemandforcleanhydrogen.SomecountrieslikeFranceorSouthAfricaalreadyhavecarbonpricingschemesinplace.107Theseschemeshelpincreasethecostofcarbon-intensivegreyhydrogenandthusmakegreenhydrogenmorecompetitive.Additionally,greenhydrogencertificationisanimportantstepincreatingmarkets.Withcertificates,downstreamindustrieslikeammoniaorsteelproductioncanmarkettheiritemsasenvironmentallyfriendly.20Actualizingthegreenhydrogeneconomy3.Financialandinvestmentconsiderationstogreenhydrogen3.3.EffectivenessofthemainfinancialandeconomicSouthernEurope,itaccountsformorethan50%ofitinSoutherninstrumentsAfrica.TherelativeshareofthefinancingcostsshowcasetheeffectivenessofbringingdowntheWACC.WhentheWACCinAcasestudyisutilizedtohelpillustratehowvarioussupportSouthernAfricadecreasesby45%(reaching6%,itscurrentlevelsmechanismspresentedintheprevioussectionimpacttheinEurope),theLCOHinSouthernAfricafallsby26%.Withouteconomicandfinancialviabilityofgreenhydrogenprojects.additionalcashsupport,itincreasesNetPresentValue114(NPV)ofAnalysisconsidersthecostandfinancialindicatorsofagreentheprojectby5%.Thesolar-basedgreenhydrogeninSouthernhydrogenproductionprojectviaelectrolysisusingsolarpowerinAfricawithaWACCof6%costs25%lessthanthesameinSouthernAfrica.SouthernEurope.ThisillustrationshowsthatfinancingconditionshaveanimpactonreducingLCOH,andeaseoffinancinginthe3.3.1.FinancingsupporthighsolarpotentialemergingcountriessuchasSouthernAfricaToday,withcurrentfinancingconditions,theWACCincountrieswouldbringmutualbenefitsofdevelopmentintheproducinginSouthernAfricaishigherthanthatofEuropeancountries.countryandtheavailabilityofcheapergreenhydrogenfortheThisis,atleastpartially,duetoitshighercountryriskthatstemsglobalmarket.frompolitical,institutional,andregulatoryrisks.ComparedtoaEuropeancountry,theinvestmentsbringmuchhigherfinancial3.3.2.Operationalandinvestmentsupportcosts.DeloittechoseSouthernEurope(astheregionwiththeConsideringthesamecasestudy(solar-basedgreenhydrogenhighestsolarpotential,andtherefore,lowestLCOHinEurope)asproductioninSouthernAfrica),Deloitteanalyzestheeffectacomparisonreference.Figure7showstheimpactofreducedofanoperationalpremium-typesupport,similartotheUSWACConthelevelizedcostofhydrogenproducedinSouthernInflationReductionAct.WithapremiumofUS$3/kgH2for10AfricaandSouthernEurope.years,thegreenhydrogenLCOHisdecreasedby45%(Figure8).ThisaccountsforanoverallsupportofUS$1.3millionfortheFigure7.ImpactofWACConthelevelizedcostofgreenconsideredprojectover10years.ThesamepremiumofUS$3/hydrogenproductioninSouthernAfricaandkgH2over20yearsbringstheLCOHdowntoUS$1.36/kgH2,SouthernEuropeinturnmakinggreenhydrogencostcompetitivewithgreyhydrogen.However,itshouldbenotedthatsuchasubsidy5.25.1doesnotnecessarilyamountfortwicethesamesubsidyover10years.Thisisduetothediscountrate,whichalsoaddsthe3.81.82.71.3Figure8.Impactofoperationalsupportonthelevelized1.0costofhydrogentodayUS$/kgH2US$/kgH20.80.84.42.31.91.91.91.71.72.40.80.80.811%WACC6%WACC6%WACC1.4SouthernEuropeSouthernAfrica1.71.71.7InvestmentcostOperationalcostsFinancingcostTotalSource:Deloitteanalysisbasedontherenewableendowmentsfromthe-1.9reanalysisofCopernicus-ERA5hourlysolarPVcapacityfactorsdatabase,-3currenttechnologycostsforrenewablesandelectrolyzersfromIRENA87andIEAcostdata88respectivelyandcountry-specificcapitalcostsalignedwithIRENA’slowerandupperbondestimations.87NopremiumUS$3/kgH2US$3/kgH2over10yearsover20yearsIncurrentfinancialconditions,thecostofgreenhydrogenproducedinSouthernAfricaisslightlyhigherthanthecostoftheInvestmentcostOperationalcostsFinancingcostoneproducedinSouthernEurope,althoughSouthernAfricaholdsbetterrenewablepotentialthanSouthernEurope.Eachyear,PremiumTotalmorehydrogencanbeproducedwithfewerelectrolyzerandsolarpanelcapacitiesinSouthernAfrica.EveniffinancingcostsareSource:DeloitteanalysisbasedontherenewableendowmentsfromthehigherinSouthernAfricaduetoitshigherWACC,investmentcostsreanalysisofCopernicus-ERA5hourlysolarPVcapacityfactorsdatabase,arelower.Whilefinancingcostsrepresent35%oftheLCOHincurrenttechnologycostsforrenewablesandelectrolyzersfromIRENA87andIEAcostdata88respectivelyandcountry-specificcapitalcostsalignedwithIRENA’slowerandupperbondestimations.87TheWACCisassumedtoreducefromcurrent11%to6%inthelongrun.21Actualizingthegreenhydrogeneconomy3.Financialandinvestmentconsiderationstogreenhydrogenannualinterestratestotheequation.SuchasupportentailsaFigure9.Effectofinvestmentsupportongreenhydrogen69%reductionoftheLCOH.TheseconddecadeofoperationalLCOHinSouthernAfricasupportthusonlyleadstoa24%decrease,asopposedtothe45%decreaseinthefirst10years.Fromtheproducer’spointofview,4.4itcouldbemoreinterestingtobenefitfrombiggerpremiumsinfeweryearsthanasmalleronethatwillbedistributedoverthe1.9entirelifetimeoftheproductionfacilities.US$/kgH20.81.7Tohelpassesstheeffectivenessofoperationalpremiumsand1.70.5investmentsupportmechanismscomparatively,thisanalysisNopremium0.8assumesaninvestmentsupportequivalenttooperational0.5premiumoverthesupportperiod.ItassumesthatoperationalInvestmentsupportpremiumcomesfromdevelopedcountries(thisisconsistentwithcurrentEuropeancooperationwithdevelopingcountriesInvestmentcostOperationalcostsFinancingcostTotalsuchasNamibiaforfuturegreenhydrogenimports).Therefore,adiscountrateof3%115isusedtocalculatetherealcostofNote:Thetotalofinvestmentsupportisthesameasfortheoperationaloperationalsupportforsupportingstate.AninvestmentsupportsupportofUS$3/kgH2over10yearstocomparetheireffectiveness.ThisequivalenttothesameoverallsupportasoperationalpremiumsupportamountstoUS$1.3million.Likethepreviousexample,thisanalysisinthepreviousexampledecreasesthegreenhydrogenLCOHinassumesthattheWACCisbeingreducedfromcurrent11%levelsto6%intheSouthernAfricaby60%(Figure9).Investmentsupportcanreducelongrun.bothfinancingcostsandinvestmentcostsasitcanreducetheliquidityrequirementsatthebeginningoftheproject.ThegreenSource:DeloitteanalysisbasedontherenewableendowmentsfromthehydrogenLCOHwithinvestmentsupportis28%lowerthanwithreanalysisofCopernicus-ERA5hourlysolarPVcapacityfactorsdatabase,operationalsupportconsideringthesamesupportexpensescurrenttechnologycostsforrenewablesandelectrolyzersfromIRENA87andforthefundingstate.ThisresultsfromtheasymmetrybetweenIEAcostdata88respectivelyandcountry-specificcapitalcostsalignedwithpublicinterestratesandtheweightedaveragecostofcapital,IRENA’slowerandupperbondestimations.87andinjectionofthewholeamountofsupportatthebeginningAninvestmentsupportequivalenttoUS$3/kgH2ofLCOHreductionover10oftheprojectwhichhelpsreducebothinvestmentandfinancingyearsisassumedastheinvestmentsubsidy(US$1.3million).significantly.Investmentsupport(e.g.,Hy24CleanH2InfraFund)issuggestedtobemorebeneficialbothfromahydrogenproducer’spointofviewduetoitspredictability,andasitisbifurcatedfromtheoutputlevelsoftheproductionfacilities,whichcanalsobetranslatedtolessexposuretoproductionrisks.Withequalspendings,theinvestmentsupportentailshighercostreductionsthantheIRA-likeoperationalpremium.ForaUS$1.3millionofinvestmentsupport,thisLCOHisreducedbyUS$2.61/kgH2asopposedtoareductionofonlyUS$1.94/kgH2forthecasewithoperationalsupport.22Actualizingthegreenhydrogeneconomy3.Financialandinvestmentconsiderationstogreenhydrogen3.3.3.FacilitatingpermittingprocessessimilarlevelsasthedevelopedeconomiescanbringthefinancingAmbiguitiesinpermittingapprovaltimeandmaterialavailabilitycostsdownandrendergreenhydrogenprojectsbankableinthecanentaildelaysbeforetheprojects’operation.Constructiondevelopingeconomies.Thisstemsfromhighcapitalintensivenesstimeofgreenhydrogenproductionfacilitiescanvaryfrom1ofgreenhydrogenprojects.Inaddition,thisanalysissuggestsyearto3years.116Delaysinthecommissioningcandelaythefirstthatinvestmentsupportcanbemoreefficientthanoperationalrevenuesoftheproductionplant.TheserevenuedelayscansupportsuchasIRA,thankstotheirhighereffectontheLCOHofhaveanimpactontheproject’sNetPresentValue(NPV)andgreenhydrogen.ThiscanalsobringasignificantincreaseintheLCOH.LCOHisincreasedby5%withadelayof1yearand14%forNPVoftheprojects.2years(Table2).Table2.NetPresentValueandLCOHofagreenhydrogenDeloitte’sanalysisprojectinSouthernAfricafordifferentsupportshowsthatoneofmechanismsanddifferentconstructiontimesthemainenablersofcompetitivenessofCaseLCOHNPVNPVgreenhydrogenin(US$/kgH2)(US$/kW)Variationdevelopingeconomies(%)isenablingsuitablefinancingconditions.Reference4.36-1,406NAcaseOperational2.42-45068%supportover10years1-year4.60-1,426-1%constructiondelay2-year4.97-1,443-3%constructiondelayNote:ThisanalysisassumesamarketpriceofUS$1.5/kgH2.TheNPViscalculatedperkWinstalledelectrolyzercapacity.Source:DeloitteanalysisbasedontherenewableendowmentsfromthereanalysisofCopernicus-ERA5hourlysolarPVcapacityfactorsdatabase,31currenttechnologycostsforrenewablesandelectrolyzersfromIRENA87andIEAcostdata88respectivelyandcountry-specificcapitalcostsalignedwithIRENA’slowerandupperbondestimations.87TheanalysisassumesaUS$1.5/kgH2ofhydrogenmarketprice,andtheNPViscalculatedoverkWinstalledelectrolyzercapacity.AssummarizedinTable2,supportmechanismscanimpacttheeconomicandfinancialviabilityofgreenhydrogenprojectsdifferently.Operationalandinvestmentsupportmechanismscanincreasethebankabilityofgreenhydrogenprojects.Nevertheless,inthecurrentgroundswheretheenvironmentalimpactsofgreyhydrogenarenotreflectedinitsmarketvalue,increasingcompetitivenessofgreenhydrogenprojectsrequiresnotonlysupply-sidesubsidiesbutalsoambitiouscarbontaxingandothermechanismstohelpcreatealevelplayingfieldforgreenhydrogenprojects.Deloitte’sanalysisshowsthatoneofthemainenablersofcompetitivenessofgreenhydrogenindevelopingeconomiesisenablingsuitablefinancingconditions.ReducedWACCtothe23Actualizingthegreenhydrogeneconomy4.Recommendations4.Recommendations24Actualizingthegreenhydrogeneconomy4.RecommendationsUnlockingdecarbonizationpotentialofgreenhydrogenrequiresimportantpolicyandregulatoryaction.Thefindingsoftheanalysisunderlinetheimportanceofactionsactivatingfourdifferentleversoffacilitatingdevelopmentofgreenhydrogenprojects,notablyindevelopingeconomies:•Facilitatedeployment:Giventhecurrentclimate•Createthemarket:Greenhydrogenfordifferentendemergency,actionshouldbeimminent.Reducingusesisgenerallymoreexpensivethanitscounterparts,delaysinprojectdevelopmentviaanchoringpermittingandanearlyadoptionofthistechnologyrequiresprocesseswithacentralagency,acceleratedbothcreationofamarketwherethereisademandenvironmentalimpactassessmentsandstrategicforsuchaproductandbridgingthecostgapbetweenenvironmentalassessments,andleveragingthegreenhydrogenandtheconventionalfossilfuels.Theexistinginfrastructureandretrofittingthemtoprojectsneedtobesupportedintheirearlystages,hydrogeninfrastructurescanhelpreducetheriskswhichcantakeseveralforms:directinvestmentorassociatedwithdelayedactions.operationalsupport,contractsfordifferences,offtakecontracts,andotherdemandcreationmechanisms•Improvesocialacceptability:Sustainability-suchasguaranteesoforiginandgreencertificates.linkedactionsinlinewiththeSDGsshouldacquirepublicsupport.Collaborationandempoweringlocal•Enhancethefinancingconditions:Projectsincommunities,alignmentofregulatorymeasuresdevelopingandemergingeconomieswithhighwithIndigenoussustainabilityperspectivesandrenewableendowmentsneedfacilitatedfinancingandinformedandfreeconsentofthelocalpopulationliquiditythroughblendedfinance,internationalgreenthrougheffectiveparticipatoryprocessesarekeyforfinanceandstateguaranteestohelpreducethecostincreasedsupportofthelocalpopulationsandsocialofcapitalandconsequentlythefinancingcostsofacceptabilityofgreenhydrogendevelopment.theprojects.25ActualizingthegreenhydrogeneconomyAppendix:ThecasestudyandcalculationofdifferentindicatorsAppendix:Thecasestudyandcalculationofdifferentindicators26ActualizingthegreenhydrogeneconomyAppendix:ThecasestudyandcalculationofdifferentindicatorsInthefollowing,thelevelizedcostofhydrogen(LCOH)andnetpresentvalue(NPV)calculationsandtheassociatedassumptionsarepresented.TheyareappliedtoacasestudythatcorrespondstoagreenhydrogenproductionprojectviaelectrolysisusingsolarpowerinSouthernAfrica,withinvestmenttakingplacecurrently.HydrogenproductionTheavailablewindandsolarpotentialforgreenhydrogenproductioniscalculatedfirstbymappingconsideredregions(SouthernAfricaandSouthernEurope)overanadjustablegridwithspatialgranularityvaryingfrom1°to2.5°cells.Foreachcell,bothanannualwindspeedtimeseriesandanannualsolarirradiationtimeseriesfromtheCopernicus-ERA5dataset117wereusedtohelpcalculatethesolarcapacityfactorsatthecentroidlocationofthatcell.Assuch,hourlyhydrogenyieldsarederivedfromtheweatherdatafortheyear2016.Fixedground-mountedPVsystemswithoptimizedtiltangles(asafunctionofthecelllatitude)wereconsideredtorepresentsolarpowerplantsinthemodel.ThemaximumavailablelandoneachcellforsolarinstallationslaysthegroundworkforidentifyingthePV-basedgreenhydrogensupplypotentialatthatcell.HydrogenproductionisthencalculatedwithaPythonscriptforeachcellwithintheregionstogettheoptimalelectrolyzercapacityoverPVcapacityratioandannualgreenhydrogenproductionperMWofelectrolyzerinstalledcapacity.Inthereferencecase,a1-yearconstructionperiodforPV-basedgreenhydrogenproductionfacilityisassumed.118Therefore,thefirstkgofhydrogenisproducedinthebeginningofyear2andthemaintenanceandoperationalexpendituresstartfromthatdateon.TheoperationallifetimeofthePV-electrolyzerplantisassumedtobe20years.60Whenconstructionisdelayed,mechanically,thehydrogenproductionispostponed.CalculationoflevelizedcostofhydrogenThecalculationofLCOHisbasedoneconomiccharacteristicsoftheproductionfacility:equipmentinvestmentcosts,annualfixedoperationandmaintenancecostsandvariableoperationalcosts.Moreover,toreflecttheimpactofthelocationontheLCOH,localfactorsofeachcellareaddedtotheinvestmentequationstocalculatethelevelizedcostofthefixedexpendituresoveraunitofgreenhydrogenproduced.Equation1showstheLCOHofgreenhydrogenproduction:𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿=𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑+'!,-𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋!"#($1%+,'+𝑊𝑊𝑂𝑊𝑂𝑊𝑂𝑊𝑂𝑊𝑂𝐶𝑂𝐶𝑋𝑋)('),'×𝐸𝐸''(Eq.1)+!𝐸𝐸'∑',-(1+𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶')'WhereCAPEXistheinitialinvestmentcosts,OPEXfixed,tistheannualfixedoperationandmaintenancecostinyeart,OPEXvar,tisthevariableoperationandmaintenancecostthatdependsontheproductionlevel,Etistheannualhydrogenproductionoutput,WACCtistheweightedaveragecostofcapitalinyeartandltisthelifetimeoftheproductionfacility.Table3showstheusedinputdatainthecalculationofthePV-basedgreenhydrogenLCOH.Table3.HydrogenproductiontechnologiescostdataTechnologyEfficiencyLifetimeOver-VariableO&McostsFixedO&Mcostnightcost(US$2017/MWhe)(US$2017/MWe)(US$2017/MWe)Year202020252020202020302040202020302040100%2564900014121PVAlkaline62.5%207930.530.530.5311.95.85.8ElectrolysisSource:Deloittecalculations,basedonIEA(2019),119BolatandThiel(2014)12027ActualizingthegreenhydrogeneconomyAppendix:ThecasestudyandcalculationofdifferentindicatorsApremiumontheproductionisnormallyconstantovertime,withoutanyindexationtoinflationordiscountingeffect.ThepremiumisincludedinLCOHcalculationtoshowitsdirecteffectontheoverallLCOHreduction(Equation2).𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶+∑,'!-.𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋!"#$%,'+𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋(),'×𝐸𝐸'−𝐻𝐻+𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝×𝐸𝐸'(1+𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶)'𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿='(Eq.2),!𝐸𝐸'∑'-.(1+𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶')'Onthecontrary,theinvestmentsupportisgivenatyear0,whichhasnodepreciationimpactbecauseoftheinterestrates.IncludingthissupportintheLCOHformulaisshowninEquation3.𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶−𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼_𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠+∑+'!,-𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋!"#$%,'+𝑂𝑂𝑂𝑂𝑂𝑂𝑋𝑋(),'×𝐸𝐸'(1+𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶)'𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿='(Eq.3)+!𝐸𝐸'∑',-(1+𝑊𝑊𝑊𝑊𝑊𝑊𝐶𝐶')'Thecostofcapitalconsistsofregulatoryrisks,politicalrisks,off-takerrisks,currencyrisksandotherland,resource,andtechnicalrisks.Amongtheseelements,regulatoryandpoliticalriskscanaccountforuptohalfoftheweightoftheriskelements.121ValuesofcurrentWACCwerederivedfromIRENA’s2022WorldEnergyTransitionsOutlook:1.5°CPathwayreport,122whilefutureWACCvaluesarebasedonextrapolation.Thismethodologyallowstheapproximationofacountry-dependentrisk-adjustedWACCfortheLCOHcalculationovertheplant’slifetime.WACCvaluesareassumedtobedecreasingthankstoreducedrisksviaprogressiveadoptionofhydrogentechnologiesanduptakeindemand.TheWACCvaluesareconvergingacrossdifferentcountriesfollowingtheassumptionofgrowingfinancialrisktransfermechanismorresorttointernationalfinance.ThisassumptionleadstobringingtheWACCofthecountrieswithhighpoliticalandregulatoryriskstothesamelevelsasmorestableregionssuchasEurope(6%by2050).Figure10showstheevolutionoftheWACCconsideredinthisstudyforSouthernAfrica.Figure10.TheconsideredWACCvalueevolutioninSouthernAfrica12%10%Weightedaveragecostofcapital(%)8%6%4%2%0%2025203020352040204520502020Source:CurrentvaluesbasedonIRENA's2022WorldEnergyTransitionsOutlook:1.5°CPathway12reportandthefutureprojectionsextrapolatedassumingreaching6%inthelongrun28ActualizingthegreenhydrogeneconomyAppendix:ThecasestudyandcalculationofdifferentindicatorsFinancingcostsrefertothedepreciationoftheinvestments.Inotherwords,financingcostsaretheadditionalcostsstemmingfromtheearlyspentmoneyanditspotentialinterests.Thesecostsaredirectlyrelatedtoweightedaveragecostofcapital.IncaseofconsideringaWACCvalueofzero,thefinancialcostsarezero.Therefore,toidentifythepartofthefinancingcostsfromtheoverallcosts,LCOHwitha0%WACCvalueshouldbesubtractedfromtheLCOHwiththerealWACC.CalculationofnetpresentvalueTheNPVofeachscenarioofthecasestudyisdeterminedbycalculatingthecosts(negativecashflows)andrevenues(positivecashflows)foreachyearoverthefacility’slifetime.Thefuturecashflowsarediscountedtorepresenttherealtimevalueofmoney(Equation4),whereBtarethebenefitsorcashinflows,andCtarethecostsorcashoutflows."#𝐵𝐵!"#𝐶𝐶!𝑁𝑁𝑁𝑁𝑁𝑁=%(1+𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊)!−%(1+𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊)!(Eq.4)!$%!$%Thebenefitsarecalculatedbymultiplyingthesoldquantitybythereferencemarketprice,whilethecostsarethesumofcapitalandfixedandvariableoperationalandmaintenancecosts,theloanpayments,andthetaxpayments.Table4summarizesthefinancialassumptionsfortheNPVcalculation.Table4.FinancialandeconomicdataofthecasestudyParameterValueDebtshare20%Debttenor10yearsCorporatetaxrate28%DepreciationscheduleBase:100%ofCAPEX/Year1:50%/Year2:30%/Year3:20%HydrogensellpriceUS$1.5/kgH2Source:Deloittecalculations,basedonIEA123,124OverallsupportfrompublicentitiesThecasestudyassessestheimpactofdifferentsupportmechanismsontheLCOHreduction.Tobeabletocomparethecost-reductioneffectofbothtypesofsupport,thesameoverallamountofmonetarysupportisconsidered.Foroperationalsupport,similartotheUSInflationReductionAct(IRA),aUS$1.5/kgH2premiumover10yearsisconsidered.Thecalculationsassumethathydrogenproductionpremiumsupportwould,inthefirstfewyears,comefromdevelopedcountries.ThisisconsistentwithcurrentEuropeancooperationwithdevelopingcountriessuchasNamibiaforfuturegreenhydrogenimports.Therefore,theinterestratetakentorepresentthetimevalueofmoneyforoperationalsupportischosenbasedonEuropeancountries’publicinterestrate.41Totalsupportisequaltothesumofoperationalsupportforeachyeardiscountedbasedona3%publicinterestrate(Equation5).Thesametotalisthenusedforinvestmentsupport,inthebeginningoftheprojectinvestment.#$𝐸𝐸!×𝐻𝐻"𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇_𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠=-(Eq.5)(1+𝑟𝑟)!!%&WhereristhepublicinterestrateandH2premiumisthehydrogenproductionpremiumsupportinUS$/kgH2unit.29ActualizingthegreenhydrogeneconomyEndnotesEndnotes30ActualizingthegreenhydrogeneconomyEndnotes1.IntergovernmentalPanelonClimateChange,SynthesisReportoftheIPCCSixthAssessmentReport(AR6),2023.2.JiesperTristanStrandsbjergPedersenandothers,‘IPCCEmissionScenarios:HowDidCritiquesAffectTheirQualityandRelevance1990–2022?’75GlobalEnvironmentalChange102538(2022).3.IntergovernmentalPanelonClimateChange,SynthesisReportoftheIPCCSixthAssessmentReport(AR6),2023.P.584.UnitedNationsEnvironmentProgramme,“TheClosingWindow,EmissionsGapReport”UNEP,2022.5.IntergovernmentalPanelonClimateChange,SynthesisReportoftheIPCCSixthAssessmentReport(AR6),2023p.62.6.IntergovernmentalPanelonClimateChange,SynthesisReportoftheIPCCSixthAssessmentReport(AR6),2023p.63.7.UnitedNationsEnvironmentProgramme,“TheClosingWindow,EmissionsGapReport”UNEP,2022.p.38.8.IntergovernmentalPanelonClimateChange,SynthesisReportoftheIPCCSixthAssessmentReport(AR6),2023p.66.9.IntergovernmentalPanelonClimateChange,SynthesisReportoftheIPCCSixthAssessmentReport(AR6),2023p.79.10.Stammer,Detlefandothers,“HamburgClimateFuturesOutlook:AssessingthePlausibilityofDeepDecarbonizationby2050,”UniversitätHamburg,9June2021.11.OytunBabacanetal.,“Assessingthefeasibilityofcarbondioxidemitigationoptionsintermsofenergyusage,”NatureEnergyVol.5(9),2020.12.BehrangShirizadehandPhilippeQuirion.“Theimportanceofrenewablegasinachievingcarbon-neutrality:Insightsfromanenergysystemoptimizationmodel,”EnergyVol.255,2022.13.HenriWaismanetal.,“Keytechnologicalenablersforambitiousclimategoals:insightsfromtheIPCCspecialreportonglobalwarmingof1.5°C,”EnvironmentalResearchLettersVol.14(11),2019.14.JulianneDeAngeloetal.,“Energysystemsinscenariosatnet-zeroCO2emissions,”NaturecommunicationsVol.12(1),2021.15.BehrangShirizadehandPhilippeQuirion,“Low-carbonoptionsfortheFrenchpowersector:Whatroleforrenewables,nuclearenergyandcarboncaptureandstorage?,”EnergyEconomicsVol.95,2021.16.UnitedNationsEnvironmentProgramme,“TheClosingWindow,EmissionsGapReport”UNEP,2022,p.XXII.17.InternationalEnergyAgency,“Hydrogen–Analysis,”2022.18.Parkinson,B.,Balcombe,P.,Speirs,J.F.,Hawkes,A.D.,&Hellgardt,K.(2019)‘LevelizedcostofCO2mitigationfr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