The intermediary, such as Hintco in the case of H2Global, addresses the duration mismatch between a supplier’s need for long-term offtake commitments with a solvent contract partner and a buyer’s desire for flexibility to account for business and operational cycles. For example, in the case of H2Global’s first auction, the 10-year Hydrogen Purchase Agreement improves a supplier’s project bankability, while the 1-year Hydrogen Service Agreement allows a buyer to develop offtake experience with greater flexibility. Future auctions may align the duration of supply and purchase agreements. The double-sided auction design is highly flexible, allowing for the tender duration to reflect different sectors, jurisdictions and counterparty needs.

This mechanism allows an intermediary to absorb volume and counterparty risks, which is intended to provide greater investment certainty across the value chain. The volumes of green commodities contracted with the intermediary provide a supplier with the certainty required to design and develop a capital-intensive project. Similarly, the corporate buyer has greater certainty of the volumes of green commodities purchased, as the intermediary bears risks associated with supply shortfalls, interruptions and breaches of the producer’s obligations. A ‘take or pay’ clause can be embedded into the green market maker’s contractual agreements to provide greater volume certainty.

The double-sided auctions allow for price discovery in nascent markets where there are no historic reference points. For example, H2Global provides an initial price signal for clean hydrogen and its derivatives. The auction reduces the cost gap by optimising prices, meaning that green commodities are purchased at the most competitive, lowest price and sold to buyers with the highest willingness to pay. This price optimisation also reduces the amount of concessionary capital required to bridge the cost gap.

This mechanism addresses delivery risk for businesses since the intermediary serves as the initial buyer of the low-carbon product. Therefore, the intermediary takes on much of the risk associated with delivery terms, schedules and negotiations. For suppliers, this mechanism addresses the risks associated with negotiating offtake contracts with individual buyers. The intermediary has already purchased the commodity from the supplier and is therefore responsible for finding a buyer for it.

The intermediary can set clear and consistent specifications for low-carbon products over the duration of the contract and absorb the change in law risk for contracting parties. This helps suppliers understand exactly what is needed for their products to be considered low-carbon and assures corporate buyers that the products they buy comply with the regulatory requirements outlined in the tender.

The mechanism could potentially serve as a signal of market activity in a sector and geography that would spur investment in the development of enabling infrastructure. There is potential to leverage demand aggregation, such as hydrogen hubs or valleys, and use this mechanism as a vehicle to transect with parties and catalyse investment.

This mechanism does not necessarily address regulatory uncertainty. However, should there be a change in law risk for green commodities in the EU, H2Global provides supplier and offtaker certainty by setting clear product specifications at the tender outset and absorbing regulatory risk for contracting parties.

This mechanism largely removes the need for direct trust between a supplier and a buyer. Both the supplier and buyer will be interacting with the intermediary, who absorbs much of the risk. In the absence of a liquid market, the green market maker improves trust by absorbing counterparty risk and allowing for price discovery, volume certainty and stable product definitions.

This mechanism de-risks the investment decision for the board by allowing an intermediary to bear the risks associated with a ‘take or pay’ clause, which is typically considered a material risk for executive boards.

Not deemed relevant.