Japan to provide 15-year subsidies for locally produced and imported hydrogen after parliament passes H2 law



The Japanese parliament has today passed the Hydrogen Society Promotion Act, paving the way for the country to provide 15-year subsidies for locally produced and imported low-carbon H2.


The new law actually provides no details about the forthcoming support, merely stating that the Ministry of Economy, Trade and Industry’s (METI’s) Agency for Natural Resources and Energy shall provide subsidies to certified suppliers of any type of “low-carbon hydrogen” (see panel below for definition).


However, Prime Minister Fumio Kishida has previously pledged ¥3trn ($19.24bn) of government to support the roll-out of clean hydrogen under the Act, which will take the form of a Contracts for Difference-style subsidy.


Producers will receive a “strike price” that represents the cost difference between the cost of low-carbon hydrogen and ammonia with the cost of liquefied natural gas and coal, respectively. This seems to be a nod to plans by Japanese energy companies to blend hydrogen with natural gas, and ammonia with coal at existing power plants.


These subsidies — which would be individually set for each specific project — would be paid to producers for 15 years, as long as supply begins before 2030, but they also have to commit to continue supplying clean H2 for a further ten years after the 15-year support period ends.


Importantly, each project will also need to secure end-users in Japan for their H2 (or derivatives) in order to qualify for the subsidies.


Imported hydrogen is expected to play a larger role in terms of production volume than domestically made H2, due to the difficulties of building large-scale renewables projects in densely populated Japan.


According to Tatsuya Terazawa, CEO of Japan’s Institute of Energy Economics, which has close ties to METI, international developers can simultaneously make use of both the Japanese subsidies and production subsidies in their own countries, such as the 45V production tax credits in the US and Australia’s new Hydrogen Production Tax Incentive.


“With its total budget of ¥3trn, the HPA [Hydrogen Promotion Act] could be the trigger of substantial offtakes and a major contributor to the development of a global market for clean hydrogen,” he says.


“The framework for clean hydrogen, under HPA, is probably the most powerful one in the world...[it] provides a great opportunity for the creation of a global clean hydrogen market.”


Terazawa points out that the 15 years of support is higher than the ten years offered by both the 45V tax credits in the US and the European Hydrogen Bank subsidies in the EU.


“To be a global player in the supply of clean hydrogen, I believe that it is strategically important to be selected in the first group of projects to be supported [by the Japanese subsidies]. As the selection process will be highly competitive, the appeal of the projects will need to be “as enhanced as possible” before the formal process proceeds,” he adds.


“While the enhancement may require substantial policy support from the exporting countries, consideration of technologies/players used in the production and transportation will also play significant roles.


“Joining the first group of clean hydrogen suppliers with commercial scale will give those projects the strategic advantage to be leaders in an emerging clean hydrogen market. This opportunity cannot be missed.”


The new law needs to be officially enacted by the government within six months from today, but Terazawa says that this is likely to take place place by the end of the summer.


Once enacted, the formal process of selecting projects will begin, he adds.


Source: HydrogenInsight


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