The Federal Association of the Energy and Water Industry (BDEW) has advocated in a position paper for the introduction of Contracts for Difference (CfDs) as a key instrument for scaling up the hydrogen market. The association proposes anchoring a dedicated budget item for hydrogen CfDs in the Climate and Transformation Fund (KTF) in the federal budget 2027.
From the BDEW's perspective, the scale-up of the hydrogen economy is stalling, and a market has not yet developed. Renewable and low-carbon hydrogen is significantly more expensive than fossil alternatives in the early scale-up phase. Additionally, there is a lack of long-term secured demand, standardized products, and reliable reference prices. As long as the gap between the willingness to pay of buyers and the provision costs is not closed, final investment decisions (FIDs) along the value chain will remain absent.
BDEW: Funding Instruments Fall Short
According to the association, existing funding instruments often only address individual stages of the value chain – such as production, transport, or specific buyer groups. To address the entire value chain, an instrument is needed that brings initial quantities to the market, reduces investment risks, and enables the development of reliable supply chains.
A hydrogen CfD could reduce the cost gap between renewable or low-carbon hydrogen and the current willingness to pay of buyers. Companies should bid in competitive tenders. A claw-back mechanism should ensure that part of the funds flow back to the state if market development is more positive than assumed at the time of bidding. The CfD is thus "not a blanket subsidy, but a competitive and controllable market scale-up instrument," the paper states.
Contract Terms of 15 Years Required
According to BDEW's vision, the contracts should generally have a term of 20 years, but at least 15 years, to enable the necessary planning and investment security. The foundation for further tender rounds in this legislative period (2027, 2028, and 2029) and beyond should already be laid in the federal budget 2027.
Without this planning capability, the hydrogen scale-up risks being further slowed down by wait-and-see attitudes, project delays, and lack of financing. It is crucial that the instrument is quickly implemented and not hindered in the first phase by excessive complexity and bureaucratic effort.
Broad Participant Base and State Aid Compliance
According to BDEW, several points should be considered when introducing the instrument. The CfD should be open to a broad range of energy suppliers. Producers and traders who bundle hydrogen quantities, build portfolios, and develop demand-oriented products should be able to participate. The more standardized the underlying product, the more cost-efficiently and effectively the CfD mechanism works.
The auction design must also ensure that the necessary economic and operational commitment is behind the bids and that awarded quantities actually reach the market. The funding mechanism should be designed from the outset to be compatible with the EU state aid approval framework – particularly the Clean Industrial State Aid Framework (CISAF) – and generally combinable with other funding, provided there is no double funding.
BDEW sees complementary guarantee instruments as a sensible addition, such as a "First Loss Portfolio Guarantee" modeled with KfW Bank as a potential guarantor. These should secure default risks in the early scale-up phase, reduce financing costs, and improve the bankability of hydrogen projects. The funded quantities should also support the filling and operation of the hydrogen core network, thus contributing to the utilization and liquidity of the emerging infrastructure.
