Hydrogen is set to play a crucial role in the energy transition, but the necessary investments are lagging behind expectations. A market where hydrogen can be traded as a commodity will provide insight and transparency into prices and volumes, both now and in the future. The assumption is that this insight will improve the investment climate for hydrogen infrastructure.

In collaboration with Porteg Consultancy Novitam has executed a research into possibilities for making the hydrogen market in the Netherlands more transparent and accessible to accelerate investments in the chain. The research consists of multiple phases, with phases 0 and 1 already completed.

In phase 0 – Market Comparison, an exploration was conducted into reference markets to gain insights and information on why certain infrastructure, in combination with a specific energy carrier, develops into a fully-fledged energy trading market while other combinations remain limited in development. Criteria were established in the exploration for a reference market to stimulate trade, including:

The hydrogen market was ultimately mirrored against six reference markets to describe a possible hydrogen market and identify bottlenecks. Based on the above criteria, both the gas market and the market for Guarantees of Origin (GoO) were selected as the most suitable references.

In phase 1 – Hydrogen Trading Market, the basic elements of a mature commodity market were developed and specified. These basic elements are outlined in Figure 1:

[Figure 1: Basic Elements of a Commodity Market]

In Figure 1, it is assumed that a commodity market goes through the basic elements 1) Market structure, 2) Governance and Infrastructure, 3) Financial trading, and 4) Physical trading in broad strokes to mature. It is likely that this happens in sequence, but the basic elements within a market also develop in parallel. As these basic elements develop, the market will become increasingly transparent regarding price and volume.

For each basic element, a number of characteristics were determined and further elaborated in phase 1. An overview of the characteristics per basic element is shown in Figure 2:

[Figure 2: Basic Elements and Characteristics]

The characteristics were explained in the elaboration, providing examples of how they are shaped in the chosen reference markets. Additionally, it was briefly indicated to what extent the characteristic could be important for the hydrogen market and where potential bottlenecks could arise. Characteristics for 1) Market structure and 2) Governance & Infrastructure were specifically elaborated since the development of a hydrogen market focuses on these first two basic elements. Examples were also provided for certain characteristics on how they could accelerate the development of a hydrogen market, such as the use of indexes and reference prices or regional auctions for shortages and surpluses.

An initial and cautious conclusion is that the hydrogen market is characterized as a closed market where long-term contracts between producers and consumers are bilaterally concluded. Production and consumption take place within geographical clusters with little transparency about prices and volumes.

Looking at it from the reference markets, there are characteristics within the hydrogen market that could be important for gaining more insight into price and volume. Examples include defining a standard product, introducing standard contracts, and implementing a reference price.

If the development of the basic elements for a hydrogen market follows the direction of the reference markets, the vision from phase 1 is that the current 5 hydrogen clusters in the Netherlands could eventually become part of a “trading hub,” a central point for hydrogen, similar to the TTF Gas virtual trading point:

[Figure 3: Structure of a Trading Hub for Hydrogen]

However, it is necessary for the basic elements 1) Market structure and 2) Governance & Infrastructure to reach a high level of maturity.

In phase 2 of the research, consumers and producers of hydrogen, traders, investors, public organizations, and network operators will be asked about their vision on the development of a hydrogen market. The goal of this phase is to uncover the blueprint: to what extent the parties see the establishment of a hydrogen market as essential for their current investment plans, which elements from the blueprint they would prioritize, and who should take the lead. The conclusions from phase 2 will be a starting point for discussions with policymakers and other stakeholders about a socially effective development of a hydrogen market. The conclusions will also provide Invest-NL with a basis for communicating the desired development of the hydrogen market and offering better insight into the desired measures and resources to eliminate potential bottlenecks and barriers in the hydrogen market.