OECD – Leveraging De-Risking Instruments and International Co-ordination to Catalyse Investment in Clean Hydrogen
To put the global economy in a trajectory aligned with the Paris Agreement, more investments in clean energy technologies are urgently needed. In this context, interest for clean hydrogen has grown considerably, as there is a strong case to deploy this technology to decarbonise hard-to-abate sectors. However, very few large-scale clean hydrogen projects already are in construction or operation, as they struggle to reach final investment decision.
In October 2024, the COP29 Presidency published a COP29 Hydrogen Declaration as part of its Action Agenda, aiming to scale up renewable, clean hydrogen production and deployment and accelerate decarbonisation of existing hydrogen production from unabated fossil fuels to facilitate energy transitions and achieve near-zero GHG emissions from hydrogen production, targeting particularly end-use sectors that are difficult to decarbonise, taking into consideration national circumstances. This declaration pays particular attention to the need to support financial and technical assistance to deploy effective, efficient, and scalable instruments, particularly in developing countries, to accelerate investment in renewable, clean hydrogen and its derivatives across the value chain. Furthermore, 11 national and international development finance institutions (DFI) endorsed a Joint DFI Communique on the 10 GW Lighthouse Initiative and pledged their collective support to foster collaboration towards bringing renewable hydrogen projects of between 100 MW and 1 GW in size in EMDCs to Final Investment Decision (FID) stage by 2030, as a contribution to the COP-centred Breakthrough Agenda.
Risk mitigation will be key in attracting and mobilising private capital for clean hydrogen development. Based on novel research of the OECD and the World Bank and inputs from financial sector actors, project developers, and governments, the report stresses that instruments, such as offtake guarantees, political risk and foreign investment insurance, technology guarantees, and partial credit guarantees can help better allocate risks. Importantly, the report argues that these instruments should be integrated within risk mitigation packages, as each project comes with own specific challenges. Moreover, it highlights that supporting policies and a range of enabling conditions are prerequisites to create a conducive investment environment and improve the effectiveness of risk mitigation instruments.
This report provides insights into the landscape of existing international initiatives on hydrogen financing. It underscores key actions to enhance coordination of these initiatives such as the creation of investment platforms to channel capital flows and bilateral cooperation agreements to appraise and finance projects.
At this critical period of increasing the ambition of climate action across all sectors of the economy and recognising the role of clean hydrogen for this purpose, this report informs governments and the financing community in the design and implementation of economic, de-risking and financing instruments for clean hydrogen projects. It has been developed as a collaboration between the OECD’s Environment Directorate and the World Bank’s Energy Sector Management Assistance Program (ESMAP), building on their joint report Scaling Hydrogen Financing for Development published in the first quarter of 2024. The report lays the groundwork for further joint work under the World Bank-led Hydrogen for Development Partnership (H4D), through its Workstream 3 on “Investment, financing, business models and procurements”. Future research could provide new insights on innovative financing mechanisms and scalable business models tailored to the unique challenges of emerging markets and developing economies.
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OECD – Leveraging De-Risking Instruments and International Co-ordination to Catalyse Investment in Clean Hydrogen, source
