Japan to offer CfD-style subsidies for domestic and imported hydrogen next year — with strict conditions
Projects supplying H2 from 2030 would see 15 years of payments to cover cost gap with fossil fuels
The Japanese government is planning to launch a subsidy scheme to cover the cost gap between low-carbon hydrogen — as well as its derivatives — and fossil equivalents next year, with strings attached on whether the project can operate without support afterwards, according to a government committee report published this week.
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This allows producers to sell clean hydrogen at the same price as fossil alternatives, regardless of market fluctuations, increasing the likelihood that offtakers will commit to buying volumes and thereby providing financial certainty for investors.
The reference price would be based on the highest of three options: the price of raw materials and fuels that will be displaced by low-carbon hydrogen arriving in Japan (ie, liquefied natural gas or coal), this price plus a measure of “environmental value”, or the actual sales price of grey hydrogen or its derivatives in existing markets.
As these reference prices rise with the introduction of carbon pricing and other regulatory measures, the amount of subsidy paid out would slowly decrease.
The subsidies would also cover the cost gap for 15 years, although the projects are also required to be capable of running for another ten years once these payments cease.
If a project cuts off supply or otherwise changes its operations substantially in this ten-year period, the Japanese government would ask for a refund equivalent to the remaining financial value of the equipment multiplied by the subsidy rate.
The Japanese government plans to initially support the use of hydrogen and its derivatives in power generation, with the committee report suggesting this would build up a supply chain and reduce costs for hard-to-abate sectors through economies of scale.
They also argue that the grid can be more effectively decarbonised through a rollout of renewables that directly feed power into the grid.
The committee report also says that the government will study the feasibility of a pledge to start blending 1% synthetic methane made using low-carbon hydrogen into the gas grid by 2030, raising this to 90% by 2050 — particularly since synthetic fuels are only expected to be commercially viable from the 2030s onward.
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