The Norwegian government has agreed, in principle, to introduce a Contracts for Difference (CfD) subsidy scheme to ensure that clean hydrogen is no more expensive than grey H2 from unabated fossil fuels.
The agreement came as part of negotiations between the minority government and the opposition Socialist Left Party (SV), whose support would be needed to pass legislation in the coming year.
The so-called “budget settlement” between the two groups — which effectively sets the political agenda for 2023 — calls for the government to “come up with a plan to introduce a system for Contracts for Difference for hydrogen during 2023”.
However, that does not mean the scheme would be launched next year, and no money has been set aside for it in the 2023 budget. The “budget settlement” is simply a list of agreed policies that ensures opposition support for the coming national budget.
The CfD is a well-established mechanism in which the government agrees a fixed price with a producer for a product — such as green hydrogen — via an auction process, with the difference between the agreed price and the real-world wholesale price (in this case, of dirty grey hydrogen) topped up by the state.
“We’ve had a good dialogue with the industry over some time now, and they have made it clear that Contracts for Difference is the “crowbar” needed to speed up green hydrogen production and use, in order to phase out the fossil hydrogen”, Torgeir Knag Fylkesnes, deputy leader of the Socialist party tells Hydrogen Insight.
He says the party wants to see the contracts for difference scheme in place in 2023.
“The state has to support and take on some of the risk in order for the industry to become green,” he added.
The line in the budget settlement only mentions “hydrogen”, so it is not clear if the CfD would apply to blue H2, as well as green.
The EU said this autumn that it will be setting up a Contracts for Difference pilot project in 2023 under the auspices of the €3bn ($3.15bn) European Hydrogen Bank.
Norway is not in the EU, but as part of the European Economic Area and an important trading partner for the bloc, it often adopts parts of EU legislation.
The leader of the Norwegian Hydrogen Forum, Ingebjørg Telnes Wilhelmsen, told Hydrogen Insight that the EU seems to be on track for a first CfD auction round by the end of next year or the beginning of 2024, and that Norway should not wait for the EU’s subsidy to get off the ground.
“In the global hydrogen race, the countries that go first will have greater possibilities for building a national market that will create the foundation for exporting hydrogen and hydrogen technology,” she said.
“Our members believe that Contracts for Difference will be crucial for large-scale production and use of hydrogen and ammonia in Norway. Its introduction will reduce the risk both for producers and users.”
Exactly how a Norwegian CfD mechanism would work is not yet clear. The Norwegian Hydrogen Forum is currently looking into different models and has not yet landed on a preferred model.
“It’s important that the mechanism gives the industry actors the predictability necessary, so we believe the contracts should last 10 to 15 years, and that it should be well targeted and unbureaucratic.”
Also included in the budget settlement agreement is a possible ban on fossil fuels for energy purposes in heavy industry by 2030, and low-emissions requirements for offshore vessels supporting Norwegian oil & gas platforms from 2025, with a view to zero emissions from 2029 — all of which may well benefit the clean hydrogen sector.