Transitioning hydrogen from its current deployment – produced from hydrocarbons for local industrial use – into a global green commodity is a huge task. The few projects now reaching FID usually involve unique two-party agreements or guaranteed offtake within development consortiums.
The lack of globally accepted standards, and the price risk of long-term contracts, remain major hurdles holding many projects back.
That the nascent industry appears stalled, with few green hydrogen projects reaching finance and construction, is largely due to these hurdles. Issues such as technology, infrastructure, shipping and safety are widely thought to be not as critical – they will be resolved if and when the industry gains momentum.
Instead, the current discussion about hydrogen is more and more about price risk embedded in the long-term offtake contracts that financiers require, and the related concern with standards and procedures to ensure green origin. The leading edge of thinking has come to focus on how to get new hydrogen markets going by lowering risk and creating clear regulatory regimes.
The concerns are being combined in efforts to create new financial markets for exchange of green hydrogen and hydrogen-derived products.
Initiatives in Europe and the Middle East anticipate the development of new commodity markets much like the markets for natural gas, electricity and other widely traded forms of energy.
Such markets will allow trading of standard contracts with related certificates or guarantees of origin to ensure low-carbon sourcing. They will work off benchmark prices and price discovery based on supply and demand fundamentals, with forward positions and hedging that mitigates risk.
Green commodities
“Trading sustainable energy products to reduce carbon will cover a wide range, from sustainable fuels to green hydrogen, green electricity, green products of any sort,” says Jan Haizmann, CEO, Zero Emissions Traders Alliance (ZETA).
“The market for these fuels at this point in time is embryonic, but we are working on market ideas and the mechanics that we have discovered to build these new markets.”
Haizmann, an energy markets specialist, has held various executive functions with the European Federation of Energy Traders (EFET) and the European Energy Exchange (EEX). He recently relocated to Dubai to launch ZETA in the Middle East.
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“I’m confident this region will become a major center for production and export of the new green fuels,” he says. “But only markets can accelerate reaching the net zero goals.”
“I see all the pieces coming into place to begin building regional markets for these new sources of energy.”
He and others look to the high-liquidity markets for major energy commodities, as well as the now well-established instruments of sustainable commodities trade, including carbon credits and renewable energy certificates in the power sector.
These are traded on major exchanges such as Intercontinental Exchange operating in Amsterdam, which handles trade of the benchmark TTF natural gas futures and options, as well as the EU carbon allowances used in the EU’s ETS. In the renewable power sector, Guarantees of Origin and Renewable Energy Certificates (RECs) are traded over-the-counter and on exchanges in North America and Europe. [if !supportLineBreakNewLine] [endif]
Emerging Hy exchanges
These established markets serve as examples for European advocates of new markets to trade sustainable commodities. Market experts are now developing the top level financial architecture and tools for future commodity trading, even as work on the port and pipeline infrastructure continues.
Last month, the first green hydrogen certificate was symbolically handed out during an onshore test event at Port of Rotterdam, awarded to PosHYdon, a Dutch initiative in collaboration with industry partners that plans to produce green hydrogen via electrolysis on a production platform in the North Sea.
The certificate, representing 1MWh hydrogen energy, was delivered by the Dutch certifying agency VertiCer and by HyXchange, a Utrecht-based initiative that is developing a platform for hydrogen trade on the main Dutch pipeline infrastructure. It is supported by the natural gas transport company Gasunie, major ports and companies.
"HyXchange is an initiative to create new exchange products for hydrogen," says Bert den Ouden, Project Director. “We want to kick-start hydrogen markets.”
Under current Dutch rules, hydrogen and the certificates that guarantee it is derived from low carbon sources can be traded separately, an arrangement that market advocates favor. However, European rules coming into force will require the physical commodity and the green certificate to be bundled.
The EU’s Renewable Energy Directive III (RED III) will provide the main guiding regulations, replacing to a large extent the national schemes.
“Europe wants to make sure the green hydrogen coming from an electrolyser is truly green,” says den Ouden. “But they might create rules which by market parties are seen as complicated.”
For instance, RED III rules require correlation, that electricity flows into an electrolyser at same moment it comes from a wind farm. These rules don't exist currently but will exist in the European framework.
“We would welcome simplification,” he says.
A similar effort in neighboring Belgium in HyBex, a project to study the future market for hydrogen in the Belgian pipeline network. Partners include energy infrastructure group Fluxys, strategic consultancy Hinicio, and the Port of Antwerp-Bruges authority.
HyBex is pilot-testing a hydrogen commodity trading hub on this infrastructure, studying the required certification requirements for a national hydrogen network.
“HyBex will prepare the ground for an exchange platform that aims to offer all relevant hydrogen commodity, certificate and balancing products on a market exchange,” says Anton Geers, who is Sustainable Transition Expert at Port of Antwerp-Bruges.
“The product offering is expected to progressively grow in a maturing hydrogen market.”
Trade of the physical commodity and associated contracts and certificates will extend beyond Belgium, as its ports and pipelines connect European buyers to exporters worldwide. These include, for example, Namibian producers exporting into Northwestern Europe through the Port of Antwerp-Bruges.
The European markets will accommodate Guarantee of Origin certificates for voluntary schemes (GOs), as well as for compliance markets that must meet requirements for Renewable Fuels of Non-Biological Origin (RFNBO) according to the RED III directives.
An important certification scheme is the CertifHy hydrogen certification, created at the request of the European Commission, which aims at facilitating the creation of an EU-wide structure of GOs.
Project developers worldwide are watching the emerging European markets and standards for green hydrogen carefully, as their production processes must allow certification according to these standards if they intend to export to Europe. In many cases, their projects will not gain financing without such regulatory certainty. [if !supportLineBreakNewLine] [endif]
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A clean commodity trading hub
Another significant platform for sustainable commodities trading is now taking root in the Middle East, which promises to be a major producer of green hydrogen, ammonia, e-fuels and other new forms of low-carbon and carbon-free energy.
The Zero Emissions Traders Alliance (ZETA) wants to foster the development of a clean energy market in the region.
“We’ll begin with secondary trading of the voluntary carbon offset certificates, then create and develop certificates of guarantee of origin for hydrogen and ammonia,” says Taimoor Zaman, who is an executive advisor to the group.
Zaman is Head of Energy Affairs at ENOWA, the clean energy subsidiary of the Saudi megaproject NEOM. Prior to joining NEOM he was based in the UK, where he traded compliance-driven carbon emission certificates under the EU and UK emission trading schemes, as well as voluntary GO certificates in the power sector.
Saudi Arabia’s Regional Voluntary Carbon Market Company (RVCMC), founded in 2022, has hosted two large carbon offset auctions, opening the possibility of further clean energy commodities trading in the Kingdom.
“From a thought leadership and ZETA perspective, these primary auctions are an excellent start,” says Zaman. “We can now look at the next step, which is to promote liquidity around secondary trading of these carbon offset certificates.”
ZETA also intends to collaborate with stakeholders in Saudi Arabia and internationally to develop certificates that guarantee the origin of carbon-free fuels. Such certificates would go beyond a simple tracking and booking tool to ensure fungibility and tradability in key markets of the EU and Asia.
The group will also develop pricing benchmarks, similar to the LNG spot price benchmark, to create reliable reference points for clean commodities including hydrogen, ammonia, and e-fuels.
“We’re working on very tangible deliverables now, promoting liquidity in secondary carbon offsets, facilitating the development of GO certificates, a pricing index and so forth,” says Zaman.
“Then a whole new ecosystem of derivatives and optimization will naturally emerge.”
The work of these market advocates is in the early stages but could advance quickly to help accelerate the rise of a global commodity market for green hydrogen. Then energy traders may well see Saudi Green Ammonia becoming a global benchmark, up on the board with the likes of Brent, Dutch TTF and other famous ones.
By Alan Mammoser for Oilprice.com
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