Scaling Hydrogen Financing for Development

The Promise: Clean hydrogen—a gas produced using renewable energy or fossil fuels with carbon capture—is a promising energy source that could help the world shift away from polluting fuels. It’s especially useful in industries that are hard to abate, i.e. make environmentally friendly, like steelmaking and long-distance transport.  

The Challenge: Clean hydrogen currently makes up less than two percent of global hydrogen production. To grow this sector, it needs to become more financially attractive, especially in emerging markets and developing countries where renewable energy is available and building up a hydrogen industry helps create jobs and economic growth.   

The Plan: ESMAP and its partners have developed a strategic action plan to accelerate clean hydrogen deployment in emerging markets and developing countries, with a strong focus on financing and private sector engagement.  

10-Gigawatt Lighthouse Initiative: Through international collaboration with other multilateral development banks and development finance institutions, the Lighthouse Initiative aims to make clean hydrogen affordable, accessible and commercially viable. It will develop a diverse portfolio of renewable hydrogen projects, ranging from 100 megawatts to 1 GW and implemented across various countries and settings. The goal is to demonstrate technical and commercial viability, reduce financing cost premiums, and create scalable, replicable models that build investor confidence and attract broader market participation. 

It is complemented by the fast-growing Hydrogen for Development (H4D) multi-stakeholder partnership which helps strengthen the market foundations in emerging markets, ensuring the necessary knowledge and networking for project and infrastructure design, sustainable growth, energy security, and job creation. 

De-Risking: A key barrier to private investment in clean hydrogen is the high capital cost driven by multiple risks—such as uncertain revenue streams (offtake risk), political and regulatory instability, access to enabling infrastructure, and permitting delays. The plan proposes robust de-risking mechanisms, including government-backed guarantees, blended finance structures, and support from multilateral development banks. These tools aim to lower the weighted average cost of capital and improve project bankability. Development finance institutions are expected to play a pivotal role in improving enabling conditions, harmonizing approval processes, and reducing transaction costs. 

Financing: ESMAP’s plan calls for mobilizing both public and private capital, encouraging governments to act as first movers by absorbing early-stage risks and fostering favorable policy environments to attract private sector players through a range of instruments including guarantees, blended financing and streamlined approval processes. Special attention is given to hydrogen and ammonia feedstock for sustainable fertilizer production. 

_{Citation: Energy Sector Management Assistance Program (ESMAP), Organisation for Economic Co-operation and Development (OECD), Global Infrastructure Facility, and Hydrogen Council. 2023. Scaling Hydrogen Financing for Development. ESMAP Paper. Washington, DC: World Bank. License: Creative Commons Attribution CC BY 3.0 IGO}