Direct answer: long-term contracts are essential for green hydrogen because production costs are still higher than those of fossil-based hydrogen, and no financier will provide capital for a plant without prior assurance that someone will purchase the product at a fixed price for the period required to repay the investment. Without this contract, the project does not move forward, even with mature technology and available renewable resources.
Direct summary
- Green hydrogen is more expensive to produce than fossil-based hydrogen (LCOH gap).
- Long-term offtake contracts transfer this demand and price risk from the producer to a defined buyer or intermediary.
- Without a firm contract, banks and infrastructure funds do not finance the project through project finance.
- The German H2Global model and the Brazilian HINT.CO/PHBC use the same approach: 10-year contracts with a price equalization mechanism.
- In Brazil, the main bottleneck is the lack of firm contracts and a final regulatory decree.
What is an offtake contract and why does it change everything
An offtake contract is an agreement in which a buyer commits, in advance, to purchasing a defined quantity of hydrogen (or its derivatives, such as ammonia and methanol) at an agreed price and for a specified term, typically 10 to 20 years.
This type of contract solves a specific problem: green hydrogen is more expensive to produce than hydrogen made from fossil sources. As long as this cost difference remains, no bank will finance a plant without first having assurance that the product will be sold at a predictable price. It is this commitment—not the electrolyzer itself—that transforms a project from an idea into a bankable asset.
What is the main bottleneck for green hydrogen in Brazil
Brazil is home to some of the sector's most promising projects:
- Pecém Complex (CE): projects involving Australia's Fortescue and France's Qair.
- Port of Açu (RJ): a long-term development timeline.
- Green ammonia projects in Bahia: have undergone significant reassessments.
They all have one thing in common: they have progressed in engineering and commercial development but remain stalled before reaching the final investment decision (FID). The reason is structural: many still rely on memorandums of understanding rather than offtake contracts with guarantees and pricing structures that support project finance. A memorandum signals interest. A long-term contract transfers risk, defines volume, establishes pricing, and gives lenders something they can evaluate with confidence.
Added to this is a second factor: although Brazil has made significant progress in establishing its legal framework, it is still awaiting the regulatory decree that will turn that framework into an operational mechanism.
How did the world solve this problem? The H2Global model
In 2022, Germany created a mechanism that has become the global benchmark for enabling long-term contracts in the green hydrogen sector. It works in four steps:
- A double auction separately selects hydrogen (or derivative) sellers and buyers.
- An intermediary, Hintco, signs 10-year purchase agreements with producers.
- The same Hintco signs short-term sales contracts with European buyers.
- The price difference between the two ends of the transaction is covered with public funding through a Contract for Difference (CfD) mechanism.
The practical outcome: Fertiglobe, together with Scatec in the Egypt Green Hydrogen project, won the mechanism's first pilot auction with a contract worth up to €397 million, with deliveries starting in 2027 and increasing volumes reaching a cumulative total of 397,000 tonnes by 2033. It was this contract that unlocked the project's progress toward FID.
Brazil vs. Germany: a direct comparison of the mechanisms
| Criterion | H2Global (Germany) | HINT.CO / PHBC (Brazil) |
|---|---|---|
| Structure | Double auction with an intermediary (Hintco) | Long-term procurement on one side, short-term sales on the other |
| Contract term | 10 years | 10 years |
| Support mechanism | Contract for Difference (CfD) | PHBC tax credits, phased in through 2032 |
| First tangible result | Contract worth up to €397 million (Fertiglobe) | First auction expected between late 2026 and January 2027 |
| Current status | Operational, with subsequent funding rounds | Advanced regulatory framework, decree still pending |
What does a long-term contract solve in practice?
- Reduces demand risk: before building the plant, the producer knows who will buy the product and at what price.
- Enables project finance: banks require predictable cash flows over a period of 10 to 20 years.
- Anchors electricity costs: electrolysis depends on long-term power purchase agreements (PPAs) for renewable electricity.
- Establishes a market price benchmark: each signed contract becomes a reference point for future negotiations.
- Accelerates environmental and social permitting: reduces the risk of legal challenges delaying the project timeline.
Frequently asked questions
Does Brazilian green hydrogen currently have long-term contracts?
Not yet. Most announced projects still rely on memorandums of understanding rather than firm offtake contracts.
When will Brazil's first low-carbon hydrogen auction take place?
The government is preparing the first PHBC (Low-Carbon Hydrogen Development Program) auction, expected to take place between late 2026 and January 2027.
What is the typical duration of a green hydrogen offtake contract?
In general, 10 years, the same term adopted by H2Global in Germany and by HINT.CO in Brazil.
Why do banks require a long-term contract before financing a project?
Because project finance depends on predictable cash flows over a period of 10 to 20 years to repay the initial investment, and the contract provides the guarantee of that predictability.
