Low-Carbon Hydrogen Production Support Schemes

This chapter examines whether long-term fixed-price contracts, particularly Contracts for Difference (CfDs), can replicate in low-carbon hydrogen the cost-reduction and scaling benefits achieved in renewable electricity. While CfDs were highly effective in capital-intensive renewables such as wind and solar, hydrogen presents a different profile: production costs are dominated by volatile electricity inputs, infrastructure remains underdeveloped, and demand trajectories are uncertain. These factors limit the ability of CfDs to deliver the same transformative impact. The analysis highlights three main challenges: the misalignment between hydrogen’s cost structure and fixed-price incentives; asymmetric risk allocation between producers and off-takers; and the uncertainty of long-term demand. It also cautions against unintended consequences such as fiscal burdens, market concentration, and technological lock-in. The chapter concludes that CfDs can help reduce financing risk for early projects but should be embedded within a broader policy mix—combining carbon pricing, targeted subsidies, mandates, and certification—to mobilise investment while preserving flexibility and innovation.