Hydrogen Purchase Agreement · Glossary

A Hydrogen Purchase Agreement, HPA for short, is a long-term contract for the supply and purchase of hydrogen or of downstream products such as ammonia or methanol. It specifies who supplies or purchases which quantity on which terms, how long the contract runs, what quality is owed, where delivery takes place and how price, volume and default risks are allocated. An HPA is particularly important for projects in which new production, new infrastructure and industrial demand must emerge at the same time.

The term has two meanings. In general, it stands for any bilateral hydrogen offtake contract. In Germany and the EU, it is also the name of a specific contract type within the H2Global funding instrument. There, the intermediary company Hintco concludes long-term HPAs with producers and resells the volumes to buyers through shorter Hydrogen Sales Agreements (HSA). Readers of the term should therefore check which meaning is intended.

The name is modelled on the Power Purchase Agreement. A PPA governs the purchase of electricity, an HPA the purchase of hydrogen. Both share a role in financing: the producer can show banks, investors or funding bodies that there is a creditworthy buyer for its future product. In return, the buyer secures a future source of supply and can plan the conversion of its processes. However, an HPA is usually more complex than an electricity contract, because hydrogen is not merely energy. It is a physical substance with quality requirements, transport limits and industrial specifications.

Quantities may be stated in kilograms, tonnes, standard cubic metres or as energy in megawatt hours. This makes a difference. One kilogram of hydrogen contains around 33.3 kilowatt hours based on the lower heating value and around 39.4 kilowatt hours based on the higher heating value. A contract in megawatt hours must therefore specify which heating value applies. For many industrial processes, not only the energy content matters, but also purity, moisture, impurities, delivery pressure, temperature and a steady supply. A refinery, an ammonia plant or a steel mill values hydrogen differently from the operator of a filling station or a seasonal storage facility.

Distinction from PPA, supply contract and declaration of intent

An HPA is not a PPA for a different molecule. The production of green hydrogen is closely tied to electricity procurement, often through a PPA for renewable electricity. The HPA, however, governs the outcome of a conversion chain. This includes electrolysis, water treatment, compression, storage, transport and, where applicable, certification. Costs, outages and legal obligations can arise at each of these stages.

An HPA differs from an ordinary supply contract above all through its role in project finance and its duration. Short-term deliveries can be handled using standard contracts. An HPA, by contrast, is often meant to make an investment possible in the first place, for example in an electrolyser, an import chain, a pipeline connection or the conversion of an industrial plant. It therefore often contains minimum offtake quantities, take-or-pay clauses, price formulas, adjustment mechanisms, commissioning deadlines and compensation for non-delivery or non-acceptance. The H2Global model terms also provide for a take-or-pay arrangement.

An HPA must also be distinguished from a memorandum of understanding, a letter of intent or another declaration of intent. Many projects announce partnerships or planned offtake volumes early on. Such statements can be strategically important but often do not create enforceable obligations. For banks, what matters is whether a contract promises binding payments, which conditions precedent are still open and whether the buyer is creditworthy. Announced interest is no substitute for a robust offtake contract.

What an HPA must govern

Quantity and delivery profile: Besides the annual quantity, the timing matters. An electrolyser that runs mainly when wind and solar power are plentiful produces unevenly. An industrial customer often needs a steady supply. Intermediate storage, backup sources, delivery windows and balancing rules must bridge the gap between the two.
Price: It may be fixed, indexed or composed of several components. Possible reference variables are electricity prices, inflation indices, natural gas and CO₂ prices, transport costs or support mechanisms. A fixed price makes costs predictable but shifts risks. The contract must specify who bears additional costs if electricity prices, grid charges or regulatory requirements rise. Producers often use the levelized cost of hydrogen (LCOH) as a cost benchmark.
Delivery point: Hand-over can take place at the electrolyser, at an injection point into the hydrogen network, at the port, at the factory gate or in the form of a derivative such as ammonia. The delivery point determines who is responsible for transport, compression, losses, customs, connection and quality testing. In the case of imports, conversion steps are added, such as liquefaction, ammonia synthesis or reconversion (cracking).
Quality and origin: Purity, pressure, permissible impurities and proof of production must be regulated. An HPA must state clearly whether physical hydrogen, a certified greenhouse gas reduction or a specific regulatory classification is owed.

Whether hydrogen counts as renewable in the EU within the meaning of the RFNBO category (renewable fuel of non-biological origin) is determined by Delegated Regulation (EU) 2023/1184. It has been in force since 10 July 2023. Under it, grid electricity generally counts as fully renewable only if requirements for additionality, temporal correlation (temporal matching) and geographical correlation are met. A renewable installation counts as new for the purposes of additionality if it came into operation no earlier than 36 months before the hydrogen plant. Exceptions exist, for example, for bidding zones with more than 90 percent renewable electricity and for hours in which the day-ahead price is at most 20 euros per megawatt hour. Under the transitional rules, temporal correlation becomes gradually stricter: initially monthly, from 2030 hourly. For plants that enter operation before 2028, the additionality criterion applies only later. Guarantees of origin for electricity do not automatically meet these criteria. For an HPA with a ten-year term, this means: the rules may become stricter during the term, and the contract should specify who bears this risk.

Significance for investment and the power system

A hydrogen market does not emerge simply because electrolysers are built. A producer invests only if electricity supply, grid connection, water, permits, buyers and financing fit together. An industrial customer converts its processes only if price, availability and quality are foreseeable over a longer period. The HPA contractually links both sides and thereby coordinates project development, industrial policy, infrastructure and financing.

An HPA matters for the power system because green hydrogen requires additional electricity and can at the same time offer flexibility. Electrolysers can shift their production to periods of high renewable generation if buyers and storage allow it. However, they can also create new loads that change the grids, the need for additional generation capacity and the residual load. If an HPA demands steady delivery without sufficient storage, the electrolyser is more likely to become a continuous large consumer. Flexible delivery windows, by contrast, allow it to respond to price and grid signals. Contract design thus shapes the operation of the plant and not only its financing.

For industrial customers, hydrogen is often not an interchangeable energy carrier. In chemicals it is a feedstock, in steelmaking a reducing agent, in refineries a process gas. If it is missing, electricity or natural gas cannot take over the process at short notice. An HPA therefore treats security of supply differently from many electricity contracts. Replacement deliveries, storage obligations, force majeure rules and liability limits have a direct effect on production.

The HPA in the H2Global model

H2Global shows how an HPA can interact with funding. In a double auction, Hintco purchases hydrogen or derivatives at a fixed price through long-term HPAs. The lowest bid wins. Resale takes place through shorter HSAs to the highest bidder, in the current rounds usually with a term of one year. Public funding covers the difference between the higher purchase price and the lower sale price. Because Hintco is the contracting party on both sides, producers do not bear the full credit and sales risk vis-à-vis individual end customers.

In the pilot tender, an HPA with a fixed term of ten years (2026 to 2036) was awarded in the lot for renewable ammonia. The contract was awarded to a subsidiary of Fertiglobe. At that time, the first delivery was planned for 2027. The drafts for the second round provide for deliveries between 2028 and 2036. These timetables are based on information from 2024 and 2025 and may have changed.

Typical misunderstandings

An HPA does not guarantee a hydrogen supply. A contract can create an obligation to deliver. But it does not build a pipeline, does not speed up a permit and does not make an electrolyser technically available. How robust an HPA is depends on the upstream prerequisites: electricity supply, grid connection, water, supply chains for plant components, transport infrastructure and regulatory recognition.

The term green hydrogen is also often used in a shortened way. If an HPA provides for hydrogen from renewable electricity, it must be clear under which set of rules this characteristic is proven, for example under the EU's RFNBO criteria through a recognised certification scheme. For quotas, funding programmes or reporting obligations, a general wording is usually not sufficient. Otherwise, delivered hydrogen may be usable in operation but may not have the expected effect from a regulatory perspective.

HPA prices are hardly comparable without context. A low price may be based on funding, unresolved transport costs, relaxed quality requirements or limited delivery obligations. A high price may reflect secured availability, strict certification, storage provision or delivery free at plant. Prices can only be compared once quantity, term, delivery profile, delivery point, product form, origin requirements and risk allocation are known.

Long-term contracts do not necessarily prevent competition. In a young market, they can make competition possible in the first place, because they make investments financeable and use up the capacity of the first infrastructure. However, very long terms, exclusive purchase obligations or state-backed price guarantees can also make market access more difficult. The assessment depends on the specific contract structure, the market phase and whether the infrastructure remains accessible to third parties.

Institutional context

HPAs often stand alongside funding agreements, contracts for difference, grid access rules and industrial policy programmes. Instruments such as H2Global or Carbon Contracts for Difference can cushion price risks but do not replace every arrangement between producer and buyer. A funding agreement can close the gap between production costs and willingness to pay. The HPA must still clarify what is delivered when, where and in what quality.

Responsibilities are distributed. Electricity rules influence electrolysis costs, the regulation of hydrogen networks the transport costs, renewable energy and climate law the eligibility for crediting, and state aid law the possible funding models. Industrial companies bear the process risks. An HPA can link these levels but cannot resolve contradictory requirements. A carefully designed HPA does not prove that a hydrogen market is already functioning. It does, however, show which conditions must be met for announced production and announced demand to become a reliable supply relationship.

Sources

Delegierte Verordnung (EU) 2023/1184 der Kommission zur Festlegung einer Unionsmethode für RFNBO — Europäische Kommission / EUR-Lex; 2023-02-10 (veröffentlicht 2023-06-20, in Kraft 2023-07-10; konsolidierte Fassung 2024-06-10). Erwägungsgründe 1–8; Art. 5–7 und Übergangsbestimmungen
Frequently Asked Questions – Hintco — Hintco GmbH; unbekannt. Abschnitte zum Auktionsverfahren und zur zweiten Ausschreibung
H2Global Term Sheet: Hydrogen Purchase Agreements (Draft 7 July 2022) — Bundesministerium für Wirtschaft und Klimaschutz; 2022-07-07 (Entwurf). Term Sheet, Abschnitte zu Auktionsmodell, Lieferpunkt und Take-or-pay
Results of the H2Global Pilot auction — H2Global Stiftung (Präsentation, bereitgestellt über ESMAP); 2024-09-04. Folien zu Los 1 (erneuerbares Ammoniak) und zu den HPA-Bedingungen
H2Global Update: German Hintco Prepares First Resale and Second Import Tender for Renewable Hydrogen — Linklaters (Sekundärquelle); unbekannt (ca. 2025). Abschnitte zur zweiten Ausschreibungsrunde und zur ersten HSA-Auktion

Related glossary entries

Edited by eCMS on 12.11.2026 05:10