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Comment: Bankability and HPAs

Thought piece by Emma Woodward, Principal for European Hydrogen.

According to our global electrolyser database, where we track announced electrolyser projects at all operational stages, just 3.5% of projects globally have passed final investment decision (FID), with even fewer having secured project financing. In order to be bankable, there are significant hurdles which projects must overcome. These include, but are not limited to, access to land, water, and grid connections; access to transport and storage; access to renewable electricity, technology risk, and allocation of those risks via appropriate warranties; and access to support schemes and required certification to achieve these. However, securing an offtake agreement with a creditworthy counterparty is the most critical factor in financing a hydrogen production project, as at present there is no merchant market in which hydrogen can be bought or sold. A project developer must, therefore, be confident that they will be able to sell their product bilaterally over a period of time long enough to ensure their investment can be recovered, which will also be a key consideration for project financiers. For an offtaker facing the costs of fuel-switching, certainty on the availability of fuel will also be critical.  

A Hydrogen Purchase Agreement (HPA) is the key tool for which offtake agreements can be made and is a bilateral, contractual agreement between a producer and an offtaker, specifying hydrogen sale and purchase terms. They are structured so as to mitigate the risks to developers, project financiers, and offtakers.  

As offtake agreements are being structured, multiple factors must be considered to ensure the needs of the developer, offtaker, and power producer are met and that support can be accessed. Access to finance will depend on all of these considerations being met. 

  • The need to ensure accessibility to subsidy support will be a key driver of the power procurement strategy for the electrolyser to ensure hydrogen produced can be classified as renewable (in the EU), or low carbon (in GB). 
  • The required hydrogen offtake profile will also be a key driver of the power procurement strategy as hydrogen producers will need to ensure hydrogen will be available in the periods when required by offtakers. 
  • The power procurement costs between the renewable asset and the electrolyser will be a key driver of the HPA price. 
  • The presence of an HPA will be a key factor demonstrating project viability when developers apply for subsidy support. 

Pricing for HPAs must therefore factor in all of these components.  

HPA pricing 

At present, HPAs tend to be very project-specific, with global standards yet to emerge. Key variables that impact pricing which must be considered within an agreement include: 

  • Pricing mechanisms (fixed vs indexed vs tolling); 
  • Tenor of an agreement and renegotiation periods; 
  • Hydrogen quality or certification standards that must be met; and 
  • Required offtake volumes and load factor profiles. 


Pricing mechanisms 

There are three main pricing mechanisms emerging for HPAs:  

  • Indexed: Under an indexed model, the HPA price is variable and will follow the cost of another commodity, usually the power costs of the electrolyser. This option is also common for grey hydrogen offtake agreements, where the purchase price is indexed to the cost of natural gas. 
  • Tolling: Under a tolling model, the offtaker is responsible for the costs of power procurement and pay a fixed cost per unit amount of hydrogen to make up for the CAPEX components of the cost of hydrogen production. Tolling models favour offtakers with better access to credit compared to project developers. 
  • Fixed price: Under a fixed price model, the offtaker pays a fixed price per unit of hydrogen over the duration of the contract tenure. If a contract is structured in this way, the developer will usually look to procure power at a fixed price over the same tenure. 


Required offtake volumes & load factor profiles 

Many offtakers require a specific hydrogen load factor profile in order to meet their own process requirements. Standard offtake profiles may include the following requirements: 

  • As produced: Here, the end-user can offtake hydrogen during the periods where renewable energy is available. Typically these offtakers would be expected to have an alternative source of hydrogen available (such as grey hydrogen) or would have sufficient onsite storage capacity to balance their own requirements. 
  • Baseload: Here, the end-user requires a constant offtake, typically to allow a continuous industrial process to take place. Meeting a baseload profile either requires the electrolyser to utilise grid electricity in periods where renewables are not generating, which may impact the ability to meet renewable or low-carbon hydrogen standards, or the producer must have access to storage in order to smooth the offtake profile. 
  • Daily pattern: Here, the end-user has a consistent offtake requirement at a set frequency. This may be for use in transports where heavy duty vehicles are required to charge overnight. In this case, hydrogen storage is generally required in order to meet the required offtake profile. 


Pricing under a baseload offtake profile for a fixed price HPA 

As there is no merchant market for hydrogen, unlike for power purchase agreements or long-term supply contracts for gas or LNG, there is no market price against which prices for long-term hydrogen offtake can be benchmarked. 

Therefore, when considering how HPA pricing will be structured, there are three main factors to consider: 

  • The cost of producing hydrogen that meets the requirements of the offtaker: This can be built up from the cost component of the electrolyser (on a levelised basis), the costs of importing renewable energy, any additional grid imports or hydrogen storage costs required to meet the offtake profile in question, plus the costs to transport to the delivery point. Developers must also consider the costs of capital at risk, and any value that can be achieved via hedging, before they can evaluate the total cost of delivered hydrogen. 
  • The offtaker willingness to pay: At present, this is likely to be lower than the total cost of delivered hydrogen and is typically based on the opportunity cost of fuel switching from a fossil-based fuel to hydrogen for a given offtaker, alongside the costs of any penalty to switching and green premiums that may be available for the end product. Offtaker willingness to pay will differ by offtaker.  
  • The availability of subsidy support: The final component that must be considered is subsidy support, which will impact the final price paid by the offtaker. Successful projects are likely to need sufficient support to bridge the gap between production costs and the offtaker’s willingness to pay. 

Stay tuned as we delve into two critical aspects in our service in the coming months: “Offtakers’ Willingness to Pay.” For more information on how you can purchase a Hydrogen product subscription, please contact

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