Empirical estimates of cost of capital for industrial-scale green hydrogen projects in Germany

Green hydrogen projects are capital-intensive. Projects employ different funding structures, through a combination of debt and equity. The cost of capital of such projects plays an important role in determining their feasibility. Yet, it is difficult to find accurate estimates of the cost of capital for green hydrogen projects because of the confidential nature of the developments. Studies tackling cost of capital for green hydrogen are few, due to the nascent nature of the technology, however existing ones rely on assumed uniform rates, stylized global scenarios, expert surveys or a priori assumptions that equate cost of capital to interest rates. Quantitative estimations based on empirical data are lacking. Knowledge of the cost of capital is important for accurate modelling of cost projections of green hydrogen and comparability with other decarbonization alternatives. It is also a vital piece of information in designing effective support policies to encourage private investment, as has formidably occurred with solar and onshore wind in OECD countries over the past decade. We carry out an econometric estimation of cost of capital for industrial-scale green hydrogen projects in Germany in final investment decision or operational phase. This study contributes to the literature by providing a geographically and technologically specific cost of capital estimate for use in energy models and aids decision makers in developing tailored policies to spur the development of decentralized green hydrogen industrial facilities.