Hydrogen and its derivatives could offer a valuable opportunity for Ukraine in the long term. Taking advantage of this opportunity will require action outside and within the energy sector to improve the business case for hydrogen projects. Looking at the economy, improving revenues and public finance and debt management will be crucial to balance the public budget and enable the necessary investments in reconstruction. From the perspective of restoring energy supply, the power sector must be a key priority in order to ensure energy security and capacity adequacy. From the lens of decarbonisation, hydrogen has a key role to play in sectors where emissions are harder to abate, while initial efforts on decarbonisation are needed in the power and heating sectors. As Ukraine’s economy and energy system recover from the war period, a continual reassessment of the state of the hydrogen industry will be needed, with an eye on progress, milestones and actions to be taken based on the latest developments.

Hydrogen development in Ukraine could take place in three distinct stages:

1. Laying the foundations (2-3 years). During this period, efforts would be focused on starting the reconstruction of Ukraine’s energy system. This would include making regulatory changes to enable renewables deployment and support decarbonisation, such as power market reform and energy price liberalisation. For hydrogen, this period can be used to analyse the techno-economic feasibility and define relevant regulations that can provide clarity for investors, and to put in place processes like permitting and certification that will be needed for hydrogen development. The business environment may not yet be conducive to hydrogen deployment, but expansion of renewables to improve security of supply would serve to de-risk investment and develop confidence among project developers and financial institutions that will be useful for renewable hydrogen in subsequent stages. There is limited capital commitment at this stage, but the preparatory work undertaken will be essential for future market growth.
2. Building the experience (5 years). At this stage, attention turns to beginning to execute some of the plans from the previous stage, experimenting with different configurations, players, policies and identifying what works in the national context. As much as possible, processes will be standardised during this place to enable large-scale deployment at the next stage. By now, policy incentives are in place to promote renewable hydrogen supply, the suitability of the existing gas infrastructure for repurposing to hydrogen has been assessed, and plans for the use of pipelines are starting to be executed. Pilot projects of increasing size are being undertaken, the certification scheme is fully in place with criteria that are harmonised with the European Union and recognised bodies, and the critical hydrogen-related EU policies from the EU accession process are now part of the national legislation.
3. Scaling-up and market growth (10-20 years). During this period, all the processes are fully established and standardised, planning is clear and lessons learnt from the earlier stages have been implemented. This stage is characterised by replication and scaling-up, undertaking large-scale projects, achieving economies of scale and driving down costs. There is a mix of domestic use for industrial applications and exports. There is visibility on cost competitiveness and the outlook for phasing out incentives. The power sector and market are now mature and there is experience from the pilot projects for renewable hydrogen. Certification now covers hydrogen derivatives like steel and ammonia, and has also expanded to cover non-GHG aspects like water consumption, land use and social aspects.
   

Supply

Establish targets; identify policy incentives; assess cost, emissions and feasibility. During this early phase, a detailed assessment of the production pathways can be made, covering cost, emissions and sustainability. Feasibility studies for specific locations can be undertaken with a view to deploying pilot projects in the next stage. From a policy perspective, the vision and long-term targets could be defined, as well as the short-term policy instruments that will be used to achieve this vision. Schemes used for renewables could be expanded to hydrogen. Competitive bidding schemes, like auctions, have been successfully applied in other geographies. These combine competition that can drive down the cost (and reduce the extent of public support) with price discovery, which is crucial at this early stage when there is no market and no price index. A bottom-up assessment of the electrolyser cost would help build understanding of how aspects like domestic labour cost; engineering, procurement and construction (EPC) companies; and transport cost affect the total installed cost for Ukraine. By this stage, reconstruction plans would be clearer, allowing for an assessment of potential resource competition between electrolysis and other activities, especially for water withdrawal and consumption. Similarly, the ramp-up of electrification at the local level would enable comparison between the supply cost curves for renewables and the electricity demand from electrolysis and other sectors.

Demand

Quantify market potential and willingness to pay of hydrogen users and identify hydrogen demand hubs. The cost gap is one of the most important barriers in early stages of development. While it can be closed through incentives, there may be some users who have a higher willingness to pay (WtP). This could be a result of high energy prices for the counterfactual commodity, companies’ decarbonisation targets or strategy diversification, for example. This stage would encompass assessment of the WtP of different users and the potential volumes they could take over time, in order to build a demand-cost curve. Based on this, a prioritisation of renewable hydrogen use among sectors could be developed, considering the geographical match with supply and co-location of users to take advantage of economies of scale. A matchmaking platform has been useful in other regions for connecting different actors, which facilitates the emergence of new projects and exchange of lessons learnt, and increases the awareness of new initiatives and ideas, thereby supporting innovation.

Infrastructure

Assess suitability of existing (cross-border) pipelines and underground storage sites for hydrogen. Ukraine has vast gas infrastructure that could be repurposed for hydrogen, which would drastically cut the costs of transport and storage. During this stage, an assessment of the pipeline materials would be made, including their susceptibility to hydrogen embrittlement, and the possibility of changes in operating conditions or practices that would enable hydrogen transport. Once the most promising interconnection points are identified, these could be proposed as EU Projects of Mutual Interest (PMI) in order to facilitate administrative process and access EU funding sources (such as the Connecting Europe Facility). The pipeline corridor from Ukraine to Slovakia, the Czech Republic, Austria, and Germany was already proposed in the first PCI/PMI list from November 2023, but other corridors could be proposed, or this proposal could be renewed. An assessment of the current gas storage sites would be made, quantifying the risk of contamination, hydrogen losses and potential cost of purification (if needed). The specific pipelines that would be used to connect the hydrogen supply centres with the demand hubs, and cross-border pipelines, would be identified and planned in an integrated way that incorporates the expansion planning of the electricity, gas and hydrogen networks.

Supply chain

Map potential supply chains for hydrogen equipment and identify alternatives for de-risking. This stage entails identifying potential suppliers for renewables assets, electrolysis, and balance of plant, improving understanding of risks that could compromise supply, and specifying measures that could be used to mitigate those risks, including identifying alternative suppliers. For example, China was home to more than 80% of the installed solar PV manufacturing capacity in 2023 and utilisation of manufacturing facilities was just 40%. Any risks related to market consolidation, supply disruption, or trade measures could affect both the cost of the equipment, which would affect the levelised cost of hydrogen, and the project execution timeline, which would affect the returns. In contrast, a large share of the renewable potential for Ukraine is from onshore wind, for which Europe has robust manufacturing capacity, with shorter transport distances and lower chances of disruption. Establishing agreements with large, established companies with a track record of deployment (in other regions) could be a way to reduce supply chain risks.

Supply

Refine policy incentives, implement lessons from pilot projects and plan large-scale projects. By this stage, there would be some lessons from the construction of small-scale projects that can be incorporated into feasibility studies and cost assessments of large-scale projects. From the policy perspective, there would be a mix of incentives aiming to close the cost gap, with support for both CAPEX and OPEX. These may allow for subsidy stacking, depending on the type and degree of incentive. The policy instrument used should strike a balance between fiscal efficiency and production reliability and quality. A monitoring system would have been put in place to keep track of the performance of pilot projects and progress towards established targets, as well as a single repository of lessons learnt. Ideally, data from pilots, both for the total public support and operational data, would be publicly available, which would contribute to better cost estimates, price and market formation, and reduce the uncertainty of the business model. Feasibility studies for large-scale projects would be ongoing, considering various hydrogen derivatives, domestic use and export.

Demand

Promote demand creation through a mix of financial incentives, demand hubs and public procurement. As discussed in Chapter 1 ("Taking stock of the effect of war"), domestic hydrogen demand has plunged 80% due to Russia’s full-scale invasion. The low-emissions hydrogen route comes at a premium for ammonia and steel (see Chapter 2 "The hydrogen opportunity"), so additional financial incentives could contribute to closing the cost gap at this early stage when there is limited technology learning. The cost gap could also be addressed in part by using reconstruction as an opportunity to plan industrial hubs that co-locate several hydrogen users, and even supply, to reduce infrastructure costs. Policy instruments targeting the volume component, like quotas, could also be used to provide greater market certainty to supply projects. Another opportunity from reconstruction comes from the vast public infrastructure that will be needed: It has been estimated that reconstruction would trigger steel demand of nearly 66 Mtpa. If reconstruction is carried out over 20 years, this would be equivalent to about 15% of the annual domestic production prior to the invasion. A large share would be for buildings where public procurement and building codes could play a role in promoting the use of low-emissions materials without having a major impact on the final price of the finished building. As an example, in the European Union, public procurement represents 14% of GDP and approximately 1.4% of GDP is allocated to the construction sector. This is expected to be much larger for Ukraine during the reconstruction phase.

Infrastructure

Support construction and/or repurposing of domestic and cross-border pipelines and expand port capacity. Pipelines, underground gas storage facilities and port terminals have long lead-times, which for gas are between 6 and 12 years. As such, for them to be ready at full capacity in the last stage, detailed planning and project execution would need to start at this stage. Feasibility studies and material assessment were part of the previous stage, so here the focus is on execution. If most of the hydrogen infrastructure can use repurposed assets, the timelines may be shorter, but there would be additional steps like sampling, testing and equipment certification. Similarly, if renewables and electrolysis are not co-located, grid reinforcement, or even new lines, might be needed. These also have long lead-teams, so work should begin at this stage. Port capacity should also be expanded as needed, based on both potential export of hydrogen derivatives by ship and the potential import of large equipment (e.g. for onshore wind) for the large-scale deployment of the next stage.

Supply chain

Diversify the supply chain, track components and assess possibility of domestic manufacturing. A diversified portfolio of suppliers from different companies, countries and transport routes would decrease the impact of disruptions and potential delays. Tracking all the components that go into the clean energy equipment would build up the data needed to ensure that technology supply chains are secure, resilient, and sustainable. While domestic manufacturing might be difficult in the first stage, given the additional investment, skilled labour, industry knowledge and cost competitiveness required, by now, following some renewable deployment, Ukraine could consider manufacturing certain equipment. This would depend on the progress of reconstruction and imports might still be a good strategy. To facilitate this, the removal of trade barriers, as far as possible, would be beneficial for cost competitiveness. Equipment that requires little specialisation, like compressors, pumps and meters, could be domestically sourced during this stage.

Supply

Support construction of large-scale hydrogen (derivatives) plants and start to phase out financial incentives. By this stage, all the incentives would be in place, and there would be experience on both the construction and the regulatory side. Processes would now be standardised, from project planning and execution, to administrative regulatory processes like permitting and certification. This would allow for predictability in timelines, higher certainty of project execution and lower risks, translating into higher confidence from investors and a lower cost of capital. This also opens a broader range of capital sources, including long-term investors willing to initially accept lower returns. Limited changes would be introduced from one big project to the next, allowing for replication and cost reduction through technology learning. Equipment would be as modular as possible, with reduced on-site construction enabling faster construction periods and earlier revenue generation. At some point during this stage, when costs start to come down, financial incentives would start to be phased out. This coincides with the steep ramp-up of production, when financial incentives would be significant compared to the fiscal budget.

Demand

Leverage domestic users to anchor hydrogen demand for large-scale projects. If the pre-invasion capacity for ammonia and steel is restored, hydrogen-based processes would allow to build back with lower emissions. In addition, they could also help provide economies of scale, thereby improving the business case for large supply projects. Domestic industrial demand could complement export projects, allowing for larger scales, and provide more certain demand closer to the supply centres. When the emissions tracking from the previous stage is implemented, there might be a premium that can be claimed. By this stage, there should be several buyers willing to pay such a premium given that deep decarbonisation of industrial sectors is expected in importing markets. Uses with smaller typical volumes, like fuel cell trucks, would also benefit from these industrial hubs.

Infrastructure

Expand storage capacity to ensure security of supply and expand the hydrogen network. By now, large volumes of hydrogen would be produced and used, which would enable central planning of the system rather than optimisation of the individual assets. Security of supply for the system can be achieved by using underground storage with large volumes, taking advantage of their lower cost by volume. This stage could also see the expansion of the hydrogen network beyond the main transmission lines. This would be justified by the industrial hubs and export, but there might be additional (smaller) uses that could also make use of the main network.

Supply chain

Perform regular risk assessments to ensure diversification of the supply chain. Clean technology supply chains should now be mature and diversified. However, new risks might have emerged that require a reassessment of sourcing, and additional measures to ensure secure and robust supply chains for all the clean technology equipment used for renewable hydrogen.

Legislative framework

Identify laws that would require changes for hydrogen and establish a simplified and centralised administrative process. The first step is to map any existing legislation covering hydrogen (e.g. as an industrial gas) and identify the changes needed for its use as a fuel and feedstock. This has been done in Australia, for example, where existing acts, standards and policies across the gas supply chain were mapped to identify potential barriers in scope and coverage for the uptake of sustainable fuels. Another approach is to take a specific project and map all the administrative steps and documents needed by project stage. An example is from the H2Uppp programme, which did this for ammonia in Mexico. It is important to identify the government agencies and departments involved in each of these processes, with the aim of centralising the process and ideally developing a single entry point for project developers to use for the entire process rather than having to apply to different agencies. Government agencies have been mapped in the United States. The concept of a one-stop shop has not been fully implemented in any country, but a centralised overview of all the funding opportunities has been developed in Germany and the Netherlands, for example. Permitting for renewables projects has delayed project timelines in developed markets. Ensuring this is standardised and expedited would help to de-risk hydrogen projects. Good practices are available, for example, from the European Union. This step would also be forward-looking, identifying any new legislation needed to promote hydrogen, and tailoring the choice and design of the instrument to the relevant part of the value chain.

Hydrogen network

Define the regulation of the hydrogen network including technical and quality standards. Governance and unbundling of activities are some of the aspects to consider. Vertical unbundling (separation of production from transmission) and horizontal unbundling (separation of gas and hydrogen transmission operation) are some of the design choices to be made at this stage. There could also be separation of ownership and operation of the network. Fees for accessing the network can be regulated with fixed prices or with negotiated prices between parties, with more freedom on contract conditions. The choice will affect the role of the regulatory authority in this process, as well as competition and price. Financing and cost recovery should also be part of the regulation. An asset base with regulated returns (like in the United Kingdom or Germany) with a regulated return could be an option. The design should also take into account lower utilisation during early phases: some options include subsidies or a tariff deferral system, with some of the early losses compensated by higher revenues later. These choices do not have to be fixed over time, and the regulatory framework can be adapted to market maturity and network size. Changes to regulation could be defined either based on a clear timeline or based on indicators or milestones (e.g. transported flow). Exemptions might also be considered for pipelines that are too small, short, or between two specific assets. In either case, it will be important to define a set of principles at the beginning to guide the subsequent decisions. These include predictability, transparency, non-discrimination, monitoring and oversight by a regulatory authority.

Certification

Establish a digital hydrogen certification scheme, ensuring consistency with the European Union. There are several aspects to consider in the design of the scheme. First is the methodology to measure GHG emissions, including boundaries of the system, allocation of co-products, and consideration of supply chain emissions, among other aspects. Ukraine could consider using the existing ISO Technical Specification that defines all these aspects, and which will turn into a set of full standards over 2025/2026. Within the scope definition, the system could include hydrogen derivatives, which could be an attractive way for Ukraine to export hydrogen. Second, define the sustainability criteria and whether anything beyond GHG emissions (e.g. water) will be included, and the standards that will be used to measure those parameters. Third, governance, including the roles and responsibilities of the accreditation body, the certification body and the scheme owner. Fourth, the rules for issuing, trading and cancelling certificates. This also includes the registry of certificates and the auditing process. Fifth, the chain of custody model which defines the correspondence in trading the certificates and the actual molecules. Sixth, Ukraine could consider the adoption of digital technologies for the issuing and tracing of certificates, including blockchain and digital passports. These could improve the accuracy, accountability, automation, scalability, transparency and security of the system. Lastly, Ukraine could consider using some of the certification schemes already approved by the European Union. This would ensure consistency and recognition by the European Union, thereby facilitating trade.

Integration with EU policies

Assess the impact of the EU accession process and identify legislation that would need amendment. Ukraine applied for EU membership in February 2022 and started negotiations in June 2024 as part of a broader process across the entire economy. For hydrogen demand specifically, there are quotas for renewable hydrogen in the Renewable Energy Directive (RED) (targeting industry and transport), FuelEU Maritime and ReFuelEU Aviation1. Being a Directive, RED would need to be transposed into national legislation, and there is some flexibility regarding the specific instruments that will be used to reach the targets. It also provides visibility until 2035. In contrast, the other two instruments are regulations, which mean they are directly applicable, and targets that extend to 2050. The Emissions Trading System (ETS) would also be useful to close the cost gap for industrial applications. Ukraine has a carbon tax of less than USD 1/t CO₂ (see Chapter 1 "Taking stock of the effect of war") and is planning to introduce an ETS in 2025, but adopting more ambitious reduction targets would contribute to higher carbon prices and a smaller cost gap for renewable hydrogen. ETS certificates traded at EUR 55-80/t CO₂ in 2024 and could reach levels of EUR 100-150/t CO₂ by 2030. This 2030 level would be equivalent to roughly USD 1-1.5/kg of cost penalty for the conventional gas route, and would therefore not close the cost gap on its own. The hydrogen and decarbonised gas package defines the full regulatory framework for hydrogen networks discussed in the previous point, so adopting such a policy would simplify policy design and would also facilitate trade by pipeline.

Legislative framework

Amend existing legislation and put in place new policies to support hydrogen uptake. The legislation mapped in the previous stage would be amended at this stage. Similarly, the policy instruments that were designed during the previous stage would come into force during this stage, providing clarity to the private sector and paving the way for reaching scale at the next stage. On the supply side, the power market could compensate for the flexibility that electrolysers can provide. Hydrogen could act as energy storage and provide services like time shifting or load smoothing, but electrolysers could also act as a positive load ramping down the capacity when the residual load is high. The power market should be able to compensate the different forms of demand response and energy storage. Hydrogen storage is usually needed for the last share of decarbonisation and it is meant for longer durations that couple well with wind (while batteries are usually better for the daily cycles of solar PV). However, long-duration storage could also enhance the role of batteries. All of this will only be possible once the power market reform from the first stage has been implemented and the market allows for different market windows, and incentivises different types of flexibility. On the demand side, a high carbon price, either from the upcoming ETS or the existing carbon tax, would help to close the cost gap for renewable hydrogen use.

Hydrogen network

Integrate electricity and gas network expansion planning and compensate operators for lower utilisation. Large-scale electrolysis would start in the next stage, but if infrastructure planning is not co-located with renewables, it should start in this phase. This would be necessary for hydrogen pipelines and electricity transmission lines, both of which have long lead-times. Utilisation of the hydrogen should still be low by the end of this stage, so the mechanism to compensate network operators for lower utilisation should be in place. If Ukraine’s gas infrastructure can be repurposed to hydrogen, then most of the capital investment will have already been written off, leaving the OPEX as the main driver of the transport cost, and no need for such compensation. Either way, the network tariffs should by cost-reflective2 and, ideally, all the information regarding network financing and tariff-setting should be publicly available.

Certification

Expand the scope of the certification scheme, digitise and revise based on market development. If not already defined in the previous stage, this stage would expand the scope of the scheme to cover the transport step and hydrogen derivatives. Ideally, it would also expand the sustainability criteria beyond GHG emissions to cover aspects like water, land use and social criteria. This stage would transition (or at least provide a clear timeline for transition) to (sub-)hourly measurement of GHG emissions to increase the accuracy of measurement, but also to reduce the risk of increasing the system’s emissions. By now, the scheme should be fully digitised in a single registry enabling the secure trading of certificates and access to the data. The scheme should be fully compatible with the EU schemes, with an automatic equivalence (if not the same). Ideally, the registry information would be publicly available to enable transparency and allow further analysis from civil society. Experience from the first stage would provide information on the feasibility of measuring and achieving the sustainability criteria, and whether a revision of the reduction trajectory is needed.

Integration with EU policies

Assess the impact of the European Union’s 2040 policy package and align hydrogen network development. In February 2024, the European Commission set a target of 90% GHG emissions reduction by 2040. Based on the timeline for development of previous targets, the legislation for the 2040 targets could be in place by 2027-2028. The implications for hydrogen in Ukraine are twofold. First, more ambitious targets would trigger a larger hydrogen demand and a higher WtP in the European Union, making the case for export more attractive in terms of price premium and volumes. Second, if the EU policies are adopted as part of the accession process, domestic hydrogen demand could also be higher. With regards to infrastructure, every 2 years, the network transmission operators create a non-binding Ten-Year Network Development Plan (TYNDP) that provides visibility of the network flows and enables planning for capacity expansion or changes. Since 2018, a combined TYNDP has been developed by gas and electricity networks, given the increasing level of interaction between both systems. Ukraine could participate in such a process to ensure there is adequate capacity at the right time in the EU network for the export flows by pipeline. Aligning with the European Union’s energy security policy (e.g. days of gas – or, in the future, hydrogen – storage) would also be beneficial for Ukraine at this stage.

Legislation framework

Incorporate the value of long-duration energy storage in the power market. The power sector should be well on its decarbonisation journey by this stage, with high shares of renewables. At this point, the need for flexibility extends beyond hours and days, and seasonal variability becomes more important. Hydrogen can provide seasonal flexibility in two ways. First, by ramping up and down the electrolyser and changing the demand profile. Second, by coupling the electrolyser with storage and using the hydrogen for power generation during periods of low renewable generation. This pathway has a relatively low (21-27%) roundtrip efficiency, which means the initial electricity price will be multiplied by a factor of 4-5. The power market should be designed to promote these additional sources of flexibility, for example through a capacity market.

Demand

Unbundle the gas and the hydrogen networks. Hydrogen flows should be quickly ramping up during this stage, reducing the need for cross-subsidisation from the gas network and its users. Subsidies for low utilisation should be phased out during this stage, and there would be greater visibility of the ramp-up of volumes in view of the net zero targets for the system.

Certification

Align sustainability criteria with a net zero trajectory. By now the scheme would be fully in place and will have been continuously used. The main action would be to revise the sustainability criteria, especially the GHG emissions, to align with system-wide GHG targets and the net zero trajectory. This could be enforced by phasing out incentives for higher-emissions routes earlier or introducing (additional) penalties for those routes. Since the basic sustainability criteria should now be covered, alignment with the broader set of Sustainable Development Goals (or equivalent) should be sought.

Integration with EU policies

Revise legislation targeting a net zero trajectory, considering domestic constraints. With clarity on the 2040 policies, this stage would provide visibility on the path to net zero emissions. While the time horizon enshrined in the EU Climate Law is 2050, the point in time for Ukraine to reach this target may be different, based on the progress of the reconstruction process and other factors. New policies (e.g. carbon removal) might also be needed to achieve such a goal, so this stage would cover both the expansion of existing policies and drafting of new ones.

Financial needs

Assess the investment needs for the hydrogen supply chain, uncertainties and potential funding programmes. A complete assessment of the investment needs would be carried out at this stage, to understand potential uncertainties from current capital costs (which still correspond to a first-of-a-kind plant) and the cost reduction potential from innovation, learning and economies of scale. Considering the export case by pipeline, a big uncertainty lies in the possible use of existing cross-border gas pipelines based on their material and condition, but that should also be cleared at this stage (see “Infrastructure” section). Estimates for the entire supply chain allow for an order of magnitude estimate of the capital needs, but a more accurate estimate will be needed for the first pilot projects of the next stage. In parallel, mapping the potential risks associated with the capital deployment would allow for identification of risk mitigation instruments and matching with capital sources that seek a similar risk profile.

Risk mitigation

Identify risk mitigation instruments that can address war and political risks. There are currently three types of organisations covering these risks. First, among international financial institutions, the World Bank has provided USD 215 million of coverage against war risk since 2022. Part of the support was the launch of a specific trust fund for political risk insurance (and credit enhancement) that was worth USD 114 million by October 2024, which could grow to USD 300 million. Second, development finance institutions can also provide insurance to mitigate war risks. For example, the development finance institution from the United States has committed USD 407 million for political risk insurance targeting manufacturing and agriculture3. The European Bank for Reconstruction and Development also launched a USD 113 million war risk insurance facility in November 2024, initially covering inland cargo, damage to motor vehicles, and railways. Third, Export Credit Agencies (ECA). For example, Bpifrance offers an insurance to French companies looking to invest in Ukraine, covering up to 95% of the investments and covering risks for property damage or political events. The Ukrainian ECA has been able to insure investments against political and war risks since the beginning of 2024. Its coverage of Ukrainian exports reached 45% (from 16%) in June 2024, and the ECA supported almost USD 200 million of exports in 2024.

Risk mitigation

Use credit enhancement mechanisms to decrease the risk of early investments. By October 2024, about USD 16.5 billion of financial guarantees had been committed by several governments. Only a fraction of this capital targets the energy sector, but it is an example of capital that can decrease the risk of investment losses and improve the quality of credit. This allows for a lower cost of capital for loans. Guarantees have the advantage over other types of instruments in that they are only used upon an instance of non-payment from a borrower. This enables the mobilisation of more capital per dollar deployed. An example of these guarantees is the Advancing Needed Credit Enhancement (ADVANCE) Trust Fund from the World Bank which provides over USD 1 billion of capital and includes renewable energy generation as one of the areas targeted. The European Union also announced EUR 350 million of loan guarantees for investments in renewables, storage, transport, industry (including steel) and construction materials. Like the political risk insurance, some of the capital is also being deployed through ECAs to enable foreign companies to invest in Ukraine and to ensure the continuation of exports to Ukraine. In an example from Austria, the government expected the effective interest rate for the funds attracted to not exceed 3%. OECD countries also define the minimum interest rates that official financing support for export credits should have (as a function of maturity). In February 2025, these were 2.9%, 5.2% and 5.1% for Euro, US dollar, and British pound denominated bonds.

Capital sources

Identify capital sources that could be used for the different stages considering leverage ratios and leveraging development finance. This stage would aim to match the finance needs by part of the value chain to potential investor types depending on the risk profile. This would ideally be done considering the different maturity levels of the market, but given the high uncertainty associated with the post-war period, the key step would be to determine the sources that could be used for the pilot projects from the next phase. For this, part of the reconstruction funds and development finance targeted to renewables and industry could be expanded to include hydrogen (e.g. direct reduced iron production). While the investment needs for hydrogen are large (see Chapter 2. "The hydrogen opportunity"), investments at Stage 2 are smaller, given the focus on pilot projects, and there is also a large amount of capital targeting reconstruction of the energy sector (see Chapter 1. "Taking stock of the effect of war"). Some assumptions around the way the public capital will be deployed are also needed at this point since different financial instruments have different leverage ratios. A dollar channelled through direct funding instruments (e.g. loan) will mobilise a different amount of private capital to one channelled through risk mitigation instruments (e.g. guarantees) or market incentives (e.g. fixed premium). A loan guarantee could mobilise more than ten times the amount of public funding provided, while capital deployed by multilateral development banks (where around two-thirds of the finance is through loans) mobilises on average less than USD 0.4 for every USD of public funding.

Financial needs

Update finance needs with cost data from pilot projects. This stage should provide some initial data on the real performance of projects. Even though the data are small scale and refer to first-of-a-kind plants, they could serve to calibrate cost estimates and reduce the uncertainty regarding the projects in the next stage. This increases the certainty of the capital needed and allows for better matching with the capital sources and funding programmes.

Financial needs

Split finance needs by project type and risk profile to match with capital sources. The risk allocation in hydrogen projects will be different if it is a stand-alone production project for export, a hub with co-located demand or just the infrastructure. At this stage, the risks associated with each project type need to be identified to understand how those risks are allocated across the different stakeholder types, and to be able to match the finance needs along the value chain to the right stakeholder. For example, debt-based infrastructure funds usually have longer time horizons (up to 30 years) but could require a higher premium. A development finance institution has a higher risk tolerance and also requires a lower premium, but their contribution is usually a much smaller share of the total project cost. A pension fund might be more suitable for refinance during the operational phase once the construction and technology risks have been cleared.

Risk mitigation

Address offtake risk to unlock final investment decisions for the large-scale projects of the next stage. One way to split the hydrogen project risks is by stage (pre- and post-final investment decision [FID]). The most critical pre-FID project-specific risk is the offtake risk, which can be decomposed into certainty (binding character), price (premium over production cost) and volume (share of the production that is covered). Some alternatives to deal with the volume component include (sectoral) quotas such as those of the European Union, public procurement (e.g. for steel, discussed previously in this chapter), a double auction mechanism (which also tackles the price risk), and demand aggregation platforms that bring different users together to avoid projects needing to rely on a single off-taker. The price risk could also be tackled through fixed premiums, Contracts for Difference or Carbon Contracts for Difference (converted to hydrogen prices), which have a common duration of 10-15 years. To enhance certainty, long-term offtake agreements could be used to provide visibility on the revenues over time, which is essential when project finance is used. To date, these contracts have typically been for periods shorter than the lifetime of the project, but as Ukraine reaches this stage, the global hydrogen market might be more developed, with contracts from (European) off-takers that have a longer duration. Once the project takes FID, the offtake risk changes to counterparty risk and it is linked to the creditworthiness of the off-taker. Credit guarantees could be used to decrease this risk (as already done for other parts of the economy), as could credit enhancement mechanisms like credit default swaps or loan loss reserves.

Capital sources

Develop a sustainable finance taxonomy aligned with international standards. A sustainable finance taxonomy is a classification system that identifies the activities, assets and project categories that deliver climate and sustainability objectives towards identified targets. Such a taxonomy could allow Ukraine to tap into a new pool of capital. In 2023, more than USD 1.2 trillion of sustainable debt was issued, with more than 40% of this for energy and utilities. Over three-quarters of sustainable debt issuance is concentrated in developed regions, but there are signs of expansion in emerging markets and developing economies (EMDEs). NEOM, one of the largest projects with an FID in an EMDE, used “green loans” as part of its financing structure. By February 2024, there were 47 taxonomies around the world, so there are plenty of examples that Ukraine could use as reference. Some of the aspects to be covered in the taxonomy design are the strategic goal, the environmental objectives, sectoral coverage, performance criteria, governance and reporting guidelines. Finance taxonomies are closely linked to rules for debt issuance and reporting requirements for financial institutions. The taxonomy should be closely aligned with guidance on transition finance for the private sector, for which there are multiple guidance documents from organisations such as ICMA, CBI, GFANZ, OECD and others. Ukraine already has a starting point: in June 2021, a law establishing green bonds as a new financial instrument was passed, and there is previous analysis on developing a green finance taxonomy for Ukraine.

Risk mitigation

Perform an ex-post assessment of the effectiveness of risk mitigation measures. Deployment to full scale will take several years, creating the opportunity to learn from early projects and adapt policies and regulations as needed. In the United Kingdom, for example, the government has launched two rounds of the Hydrogen Production Business Model, a mechanism that provides revenue support by providing subsidies to producers with allocation taking place through a competitive scheme. The government is developing the approach for future allocation rounds based on lessons learnt from the first two rounds to ensure they deliver on the government's priorities. Similarly, in the European Union, the terms and conditions of the second auction of the European Hydrogen Bank were changed with regards to the ceiling price and terms of the completion guarantee, and a specific portion was assigned to a sector (maritime). A similar approach could be followed to design the policy instruments in the last part of Stage 3 when the market starts to mature.

Capital sources

Tap into alternative models of financing to unlock capital for the large-scale projects. Given that the investment needs for hydrogen are relatively large for a single funder, blended finance instruments that pool resources from different stakeholders could be used, making the individual contributions accessible to a broader range of actors. This approach has been used in the Green Hydrogen Facility Fund in Chile, for example4. This is a USD 1 billion fund which combines funding from multilateral and national development banks with national funds5, and is expected to leverage USD 12.5 billion of private capital. This capital would be enough to finance the full size of the hydrogen valley in Reni (see Chapter 2. "The hydrogen opportunity") of 3 GW of electrolysis. Project finance can also be an alternative to fund hydrogen projects. In Ukraine, the conditions that favour project finance include its potential use for capital-intensive assets in countries with high political risk and weak creditor rights, while not impacting the credit record of the borrowers, since the loans are linked to the cash flows of the project rather than the creditworthiness and balance sheet of the borrowers. At the global level, more than half of the climate finance in 2022 was in the form of project finance. This varies by region, sector and technology. For the electricity sector, project finance can account for about one-third, and for transport, about 45%. Solar PV and wind are increasingly financed on a project basis. For example, project finance is used for over 95% of the solar PV capacity in Germany, and for over 70% of the offshore wind capacity in the European Union. This will only be possible for Ukraine once the market matures towards the end of Stage 3.

Capital sources

Increase reliance on debt rather than equity for large-scale projects. Higher-risk projects are usually financed with more equity than debt given its higher expected returns, which are only possible upon a higher exposure to risk. The debt-to-equity ratio is affected by geography (country and political risks), technology/sector and market maturity. For example, across technologies, low-carbon fuels had a debt share of about 20% between 2018 and 2023, whereas low-carbon power generation had debt shares of 50% for the same period. Similarly, a developed market like Europe had average debt shares of 55% across energy assets, while India had 20%. In terms of maturity, an example is from offshore wind in Denmark, which went from (estimated) debt shares of nearly 25% in 2008 to 70% in 2017 with capacity nearly tripling during this period. Likewise, the (real) debt ratio for solar PV in Germany went from 70% in 2003 to almost 90% in 2017. The average debt ratio for renewable projects is 70-85% for most European countries. What this means for hydrogen projects is that more equity will most likely be used during early stages of deployment, with more debt used as the market matures, decreasing risks and bringing down the expected returns to the typical range of debt. This will most likely happen in the latter part of Stage 3, since initial large-scale first-of-a-kind projects (at that size) might still be perceived as risky.

Capital sources

Transition to self-finance of the hydrogen infrastructure. During the early stages of market development, when the flows through the pipelines are too low, which could lead to high transmission fees, some alternatives to provide cash flows to the hydrogen network operator are subsidies, a tariff deferral system or temporary cross-subsidisation (e.g. from the gas network). At this stage, the hydrogen exports by pipeline should be ramping up, so the tariffs for the network should be cost-reflective and the need for subsidies should be lower. The hydrogen network operator will probably not have a large balance sheet to fund new investments, but this might be less relevant in the case of Ukraine, given the large natural gas infrastructure that could be repurposed (see Chapter 2 "The hydrogen opportunity").

International collaboration

Promote knowledge exchange between domestic and foreign financial institutions, research centres and companies. Low-emissions hydrogen production and its use in new applications are already taking place around the world. Ukraine could benefit from this experience by establishing partnerships and platforms to exchange knowledge. Engaging a mix of foreign and domestic contractors and project developers in deployment can increase the chances of on-time and on-budget delivery, and allows for domestic contractors to benefit from the experience of foreign companies while building domestic capacity. Arcelor Mittal, for example, is the largest foreign company in Ukraine and is planning to develop multiple H₂-DRI plants across Europe. For renewable hydrogen production, CWP Global acquired a 73 MW onshore wind farm in Ukraine in 2021, which was supposed to start operations in 2023 (later delayed to 2026). CWP Global has already developed over 6 GW of renewable capacity around the world, has operations in several southeast European countries and has a global portfolio of hydrogen projects that would require over 140 GW of renewable capacity. Knowledge exchange can also benefit financial institutions. While pilot projects could be funded with grants and equity from project developers, commercial banks will have an important role in subsequent stages, so it is important to get them involved early in the process. Exchange with banks and debt funds from other regions at this stage will be essential to develop confidence and knowledge about hydrogen projects. Lastly, local innovation capability could be developed, ready to improve hydrogen technologies and project designs in the last stage. This can be supported by knowledge exchange between research institutions and universities.

International collaboration

Establish bilateral agreements with potential importers and participate in hydrogen-specific platforms. Participating in hydrogen-specific platforms could be useful to build awareness of activities and identify policies, programme and project approaches that have been successfully implemented in other countries. This could inform high-level decision-making, facilitate dialogue in areas that require global co-ordination (e.g. certification), lead to joint analysis and support the development of new analytical tools, among other benefits. The Hydrogen Initiative from the Clean Energy Ministerial, which was launched in 2019, pursues most of these goals. It has 21 members including some of the largest hydrogen producers today and frontrunners in low-emissions hydrogen deployment. Mission Innovation also has a dedicated initiative for hydrogen, with the objective to reach a cost level of USD 2/kg and facilitate the delivery of 100 large-scale hydrogen valleys worldwide by 2030. The initiative has 20 members and is oriented towards research. Participation in the International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE) would be useful for technical standards. In the area of bilateral foreign relations, Ukraine has received specific analytical support for hydrogen through the H₂-diplo initiative of the German Federal Government, and there is a German-Ukrainian partnership which has been focusing on energy policy, modernising the energy market and addressing bottlenecks for renewables. In 2023, Ukraine also signed an MoU with the European Union on biomethane, hydrogen and other synthetic gases, which includes alignment on definitions and methodologies, harmonisation of regulation, market integration, and cost reduction, among others.

Capacity building

Assess skills gap in the workforce and define a roadmap to close them. Large-scale education and training programmes will be needed to ensure there are enough qualified people for hydrogen development (see Chapter 2 "The hydrogen opportunity"). Mapping the jobs to skills at different parts of the value chain will be needed, followed by an identification of training requirements. Australia provides an example where this mapping has been done in detail. Elsewhere, a skills framework has been proposed for the United Kingdom, and Namibia has a roadmap for implementation. Part of the hydrogen workforce could come from retraining some people working in the renewable sector, but given the large numbers, dedicated tertiary education programmes will be needed. These should begin at this stage so that the workforce is ready when the large-scale projects start to be deployed. For reference, in the academic year 2022/2023, there were about 10 000 engineering graduates in Ukraine at undergraduate level and nearly 3 500 at Master’s level. An international exchange programme for students (and researchers) might help to close the gap, with the expectation that some of them will stay (or return). Public workers in the various agencies of the government should also have enough knowledge to design, implement and evaluate the policies. Agencies should be well-staffed in line with the ramp-up and considering adjacent areas such as renewables. In the European Union this has been one of the action areas to accelerate renewable deployment.

Technical standards

Establish the technical standards for the hydrogen value chain and their governance. The first step is to perform a gap assessment to understand what standards are needed by part of the value chain and which are missing. This would be followed by a survey of international standards to determine which can be directly adopted. The remaining gaps would need to be prioritised, specifying a timeline for development under the leadership of working groups. This should be done together with other standard-setting organisations such as the European Committee for Standardization (CEN) and European Electrotechnical Committee for Standardization (CENELEC) and the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) to avoid duplication of efforts and shorten development timelines. Previous exercises that could serve as a reference for Ukraine include those in Australia, Europe, and India. The government agency overseeing the process should also be defined at this stage, along with working groups dedicated to specific topics and an annual work plan setting out activities and milestones.

International collaboration

Co-ordinate public support and finance to facilitate lighthouse projects. A lot of the hydrogen ramp-up depends on how exports develop, and these in turn depend on the evolution of the demand (mostly in northwest Europe). This provides the opportunity to use domestic and European finance to fund some of the projects that are export-oriented, pooling resources with different risk tolerance and time horizons. Co-ordinating public support is also essential to ensure that ramp-up of deployment happens at the same time as ramp-up of demand. A close monitoring of market developments, as well as developments in the European import corridors, will be needed to inform policy implementation.

Capacity building

Promote joint projects between foreign and domestic actors and establish specific hydrogen teams within government agencies. While activities in Stage 1 focus on exchanging knowledge to develop domestic capabilities, the focus of this stage is execution. The pilot projects will have been co-developed with foreign companies (which is especially important during the engineering and construction phases). Dedicated teams within the government will be trained and ready to roll out the policies needed for the large-scale deployment of the next stage. These are also benefitting from technical assistance programmes from development institutions and from international collaboration. The (re)training programmes identified in the previous stage are already in place and some initial hydrogen-specific courses and degrees are starting to emerge towards the end of the stage. Examples from Europe, France, Germany, and the United Kingdom might be useful for envisioning how these programmes could look.

Technical standards

Develop a public repository of hydrogen standards and standards under development. A single repository could be useful for project developers, like the repositories available in the European Union and the United States. Ideally, this would also be linked to an overview of the applicable regulations and incentives. Standards can take 4-8 years to go from pre-normative (research) activities to being in place, so keeping a public record of the development status will be important for project planning. The next stage should see the use of transmission pipelines for exporting hydrogen, so this stage should ensure that the corresponding standards to clean, convert, inspect and maintain the repurposed natural gas pipelines (if applicable) are in place. A definition of the operating conditions, frequency and type of inspection needed will be necessary to ensure the mechanical integrity of the pipeline given the potential occurrence of hydrogen embrittlement.

International collaboration

Exchange knowledge on experience from large-scale projects and establish partnerships for exports beyond the European Union. To maximise cost reduction, learning should not be limited to domestic experience, but should also extend to similar projects being undertaken elsewhere. Any efforts around standardisation and replication, in either the technology, policy or project execution areas, would be useful to accelerate deployment. International platforms that exchange knowledge on these large-scale projects would be useful for this purpose. At this stage, projects in Ukraine would be achieving economies of scale and, as costs go down, new avenues of export might open. This will depend on how global trade, markets and the technology costs for shipping and (re)conversion have evolved, so a reassessment would be useful at this point.

Capacity building

Establish a process for industry to provide feedback on the educational curricula. At this stage, the first batches of students from the new hydrogen-oriented programmes would be entering the workforce and the first large-scale projects would be under construction, providing an opportunity for learning about the skills and professions needed. For example, the focus might have shifted from ammonia production to steel, which requires different specialist knowledge. The government could consider putting in place a way for industry to provide input on the curricula and reap the double benefit of satisfying the market needs while increasing the chances of students finding a job upon graduation.

Technical standards

Review new standards based on experience and participate in pre-normative research activities. By this stage, Ukraine should have developed some domestic research capabilities which would enable participation in research activities that could inform new technical standards. Based on the experience from the pilots and first large-scale projects, Ukraine could propose changes to existing standards. This could be done through the networks and collaboration established in the first stage. By now, the technical standards would be clear for project developers and already embedded in the design, construction and operation of the plants.