Blended finance as a key to the transition to green hydrogen

Green hydrogen plays a crucial role in the energy transition, but development is progressing slowly due to a lack of investment. The high production costs of green hydrogen compared to grey, non-sustainable hydrogen, make it financially unattractive for investors. Invest-NL presents in a new report how blended finance can help facilitate the financing of electrolysis projects – which produce green hydrogen – and thus accelerate the transition to sustainable energy.

The Netherlands aims to achieve 4GW of electrolysis capacity by 2030. This ambition, outlined in the National Hydrogen Program, is under pressure due to changing market conditions. Investment decisions for building electrolysers are delayed, mainly because of the high costs of green hydrogen production compared to grey hydrogen. The Ministry of Economic Affairs and Climate Policy (EZK) has asked Invest-NL to explore alternative approaches to this financing challenge.

What is an electrolyser?

An electrolyser splits water (H₂O) into hydrogen (H₂) and oxygen (O₂) through electrolysis, where electricity breaks chemical bonds. This process produces hydrogen as a clean energy carrier, especially when renewable energy is used. Green hydrogen, produced with renewable electricity, is crucial for a sustainable energy transition.

Alternative financing for green hydrogen

Last week, we published a vision document on blended finance. This structuring method combines public and private resources to make projects with high risks financially viable, and where possible, enables public funding to be partly or fully revolving. For example, public money can cover the unprofitable top in the business case for electrolysers, attracting private funds and making the green hydrogen market profitable.

In the publication 'Alternative financing options for green hydrogen electrolysers', Invest-NL maps out which financing products the government can deploy to cover various risks.

Covering risks with public funds

The Invest-NL report identifies the main risks for the business case of electrolysers. For each of these risks, the report suggests blended finance products that can be used to mitigate them.

A selection of the mentioned blended finance products, in the order in which they are best used:

Guarantee of fixed hydrogen price:
This guarantees a fixed selling price for hydrogen, mitigating price risks and encouraging long-term investments.
PPA guarantee/fund:
This fund provides guarantees for Power Purchase Agreements, making it easier for projects to enter into necessary energy contracts without substantial upfront capital investments.
Stand-by cost-overrun facility:
A facility that covers cost overruns during construction and operational phases, providing projects with financial security and better handling delays.
Contract-for-difference:
An subsidy instrument offering a fixed price for the produced hydrogen, reducing price uncertainty and increasing investment security.

Bringing public and private capital together for major transitions

The use of blended finance products can act as a catalyst for making projects and enterprises that are important for large societal transitions to a sustainable and innovative Netherlands financially feasible. By deploying the right combination of public and private funding, Invest-NL can help realise projects that might not otherwise get off the ground.

"With blended finance, we make financially viable what currently seems impossible. This report provides tools to accelerate the scale-up of electrolysis in the Netherlands, thereby making green hydrogen the norm," says Dolores de Rooij, senior business development manager at Invest-NL.

By collaborating with market parties and the government, we can lower financial barriers and pave the way for a more sustainable future.