Contracts for Differences: This instrument has the advantage of providing price certainty to producers, offtakers, and capital markets, and therefore meets two of the program’s three goals. The difficult issues are setting the strike price (i.e., the price above which the subsidy will be provided) and the implicit lack of targeting to specific uses.
Fixed Price Support: Compared to contracts for differences, fixed price support does not permit a reduction in the subsidy as production costs come down over time and, as such, likely is a more inefficient form of support.
Market Makers: We assume that this instrument refers to an entity like Hintco in Europe that can provide long-term offtake contracts to hydrogen producers, reselling the hydrogen to offtakers on a shorter-term basis. This mechanism can ensure stability for hydrogen producers while giving flexibility to the offtakers who may not want to commit to a long-term contract at a high price. In addition, this mechanism can bundle multiple smaller offtakers that may not, by themselves, be sufficient to provide the offtake that’s needed by a large hub producer. However, by purchasing the hydrogen directly, the market maker takes on substantial risk that it can sell the contracted hydrogen at a price that’s not too much lower than the price it pays producers. If that price gap ends up being substantial, the $1 billion that capitalizes the entity could disappear very quickly. In addition, costs of standing up and monitoring such an entity could be high.
