Japan to offer $20bn towards subsidies for hydrogen producers

According to reports, Japan will make a decision on which companies will be in receipt of subsidies from its massive ¥3trn ($20.3bn) fund for clean hydrogen supply by the end of 2024.

Domestic producers and importers of low-carbon hydrogen are hoping for a slice of the government’s Contracts for Difference-style (CfD) subsidy programme, announced in December, that aims to plug the cost gap between “clean” H2 and fossil equivalents.

The 15-year programme will be financed by Japan’s GX (Green Transformation) Economic Transition Bonds, which Tokyo plans to begin issuing to the market in February.

A bill outlining the regulatory framework enabling the subsidy regime is due to be tabled during the current session of Japan’s Parliament, which began on Friday and will continue until 23 June.

Once the bill becomes law, the government plans to solicit business plans from potential subsidy recipients, before allocating resources by the end of the year.

Japan’s CfD-style programme envisages producers and importers of clean hydrogen and its derivatives receiving a top-up payment above a set reference price — and paying the government the difference if production and transportation costs end up lower than the reference price.

This means that clean H2 — made from renewable hydrogen or blue H2 produced from fossil gas and carbon capture and storage (CCS) — and its derivatives can compete with fossil-fuel alternatives even if the market fluctuates, and makes offtakers more likely to commit to buying volumes over the long term.

This, in turn, gives investors the financial certainty they need to bring the projects to fruition.

However, the Japanese government has given no indication as to whether the decision on fixed premiums will be made via an auction process or whether the government plans to allocate funding on the basis of business plans alone.