Japan to start selecting first low-carbon hydrogen supplier for price gap framework

Japan is set to soon start accepting applications for the country's first low-carbon hydrogen and its derivatives supplier to be adopted in a newly-established framework for supporting the price gap between the cost of production and transportation and the price of conventional fuels, a government source said Oct. 24.

The move follows the enforcement of the Hydrogen Society Promotion Act Oct. 23, when amendments to the JOGMEC Act also took effect, laying out legal foundations to help promote Japan's supply and utilization of low-carbon hydrogen and its derivatives.

The Hydrogen Society Promotion Act stipulates special measures involving the formulation of basic policies, setting up a program for approving business plans from both supply and demand sides, providing support measures for businesses that have received approval for their plans, granting special regulatory exemptions, and setting out the conduct standards to be addressed by hydrogen suppliers.

In what will be a stepping stone to develop a supply chain, Japan is about to formally start a process to select the first low-carbon and its derivatives project to be certified for receiving support for the price gap between the cost of domestic or overseas hydrogen production and transportation, and the price of conventional fuels such as LNG and coal.

The move paves the way for Japan to accelerate its push to introduce the use of large-scale hydrogen by 2030 as part of efforts to help decarbonize hard-to-abate sectors for the country's energy transition.

It was not immediately clear when the government would be able to choose the first project after receiving company proposals in the application process, which had been scheduled to start in summer and get adopted by the end of 2024.

Subsidy design

A formal certification of the low-carbon hydrogen project for the price gap support by the Minister of Economy, Trade and Industry will be followed by a procedure to apply for subsidies covering the cost of domestic or overseas hydrogen production and transportation, and the price of conventional fuels from the Japan Organization for Metals and Energy Security.

JOGMEC, which will administer "support focusing on the price gap" and "support for the development of a hub" in cooperation with the ministry, said Oct. 23 it will provide subsidies to finance the supply of low-carbon hydrogen and the development of low-carbon hydrogen hubs.

The subsidies are designed to cover the gap between a "base price" covering project costs for imports as well as for domestic production and a "reference price" such as CIF import price for existing fuels -- LNG and coal -- that will be replaced by low-carbon hydrogen and its derivatives.

Eligible companies will be able to receive subsidies for 15 years from the start of low-carbon hydrogen and its derivatives supply. However, the companies receiving subsidies will be obliged to continue supply for another 10 years from the end of support.

Japanese companies view the government subsidies and support a key to deploy a large-scale hydrogen supply network in the country.

In June 2023, Japan set a goal of 12 million mt/year of hydrogen use by 2040 in connection with amendments to the national hydrogen strategy to bridge the gap between its initial target of 3 million mt in 2030 and 20 million mt in 2050, as part of efforts to accelerate the development of low-cost hydrogen supply.

Under the current sixth Strategic Energy Plan formulated in October 2021, Japan plans to introduce 1% hydrogen/ammonia in its power generation fuel mix by fiscal year 2030-31 (April-March), when it also aims to begin 30% coburning of hydrogen at gas-fired power plants or mono burning of hydrogen for power generation, as well as commence 20% coburning of ammonia at coal-fired power plants.