Unlocking Investment: Financing Hydrogen Infrastructure in the EU
Key Ideas
  • The EU Hydrogen and Gas Decarbonisation Package aims to create a level playing field for the hydrogen market and infrastructure by removing development barriers.
  • Funding hydrogen infrastructure remains a challenge due to high upfront costs and demand uncertainty, discouraging private investment.
  • Regulations allow recovery of infrastructure costs over time through inter-temporal cost allocation mechanisms to address funding gaps.
  • Various financing mechanisms are being explored at the EU level to de-risk projects and attract private finance, but implementation remains limited.
The EU Hydrogen and Gas Decarbonisation Package, adopted in May 2024, is set to update the rules on the EU natural gas market and introduce a new regulatory framework for dedicated hydrogen infrastructure. Member States are required to transpose it into national law by mid-2026 to facilitate the development of the hydrogen market and infrastructure. However, funding remains a significant hurdle in this sector. Traditional regulated tariffs for funding hydrogen infrastructure may lead to high fees for early users, potentially hindering further demand. To tackle this issue, the Regulation on hydrogen and decarbonised gas market permits Member States to enable hydrogen network operators to recover infrastructure costs gradually. While mechanisms like the Connecting Europe Facility provide funding for infrastructure projects, there is still a substantial gap between required investment and available risk-mitigation measures. The investment environment is challenging due to high costs, long payback periods, and demand unpredictability. To attract private capital at scale, effective de-risking strategies need to be more widely deployed. The European Union is exploring various financial instruments to finance hydrogen infrastructure, aiming to de-risk projects and facilitate investment decisions. Despite the potential of risk-sharing tools to attract private finance, their adoption remains limited at the EU level. A panel of experts and decision-makers will discuss these challenges and explore financing mechanisms that suit the diverse needs of projects in different countries and regions during the H2 talk series.
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