EU hydrogen bank pilot results due imminently
The European Commission is set to publish the results of the first EU-wide hydrogen bank pilot auction at the end of April 2024.
The European Commission will release a wide range of information about the bids in the auction, including the expected total costs of hydrogen production and the intended origin of the electrolysers which must be used in the successful projects.
The auction is understood to have established a ceiling price of €4.50/kg for bids submitted.
Through the auction, the Commission is to award production subsidies for up to ten years for the successful projects. The bid winners will be those which are able to produce as much renewable hydrogen at an optimal cost.
The Commission has stated that, upon the closing of applications in February 2024, there were 132 projects for which applications were received emanating from 17 different countries. These prospective projects have a total electrolyser capacity of 8.5GW with the potential to produce 880,000 tonnes of ‘green’ i.e. renewable hydrogen per annum. However, only a small number of these applicants are likely to be awarded subsidies in this round of bidding.
In order to be considered at auction, prospective developers were required to submit a completion bond for 4 per cent of the subsidy value which they will lose if they do not finish their projects. Following award, plants have to be built within five years.
Hydrogen bank
In March 2023, the European Commission set out new plans to stimulate and support investment in sustainable hydrogen production through the establishment of a European Hydrogen Bank (EHB).
The auctions are a new development funded by the EU Innovation Fund under the umbrella of the European Hydrogen Bank. The Commission has stated that the objective of the auction mechanism is to expand the portfolio of support mechanisms that the Innovation Fund currently provides through grants, project development assistance, and other blended financial instruments.
It is also envisaged that it will enable a faster rollout of innovative technologies needed for the green transition, especially in hard-to-abate sectors.
European Union decision-makers have outlined that the hydrogen bank helps address the initial financial challenges in the production of green hydrogen to create an emerging renewable hydrogen market. The bank also has international dimension which aims to facilitate renewable hydrogen imports to the EU.
Under REPowerEU, the European Union is aiming to produce 10 million tonnes (Mtoe) of renewable hydrogen by 2030, coupled with 10 Mtoe of imports.
There are four pillars of the EHB, of which the first two are financing mechanisms aimed at scaling the EU domestic market, and for international imports into the EU.
The third pillar is linked to transparency and coordination – assessing demand, infrastructure needs, hydrogen flows, and cost data.
The final pillar is streamlining existing the financial instrument – coordinating and blending these with new public and private funding, both in the EU and internationally.
In order to achieve the 10 Mtoe of domestic renewable hydrogen production foreseen in the REPowerEU plan, total investment needs are estimated at €335 billion and €471 billion including between €200 billion and €300 billion needed for additional renewable energy production.
The vast majority of this will come from private funding, but public funding (through the EU financial instruments and state aid) will play an important role in ‘pump priming’ in order to eventually leverage increased private investment, particularly in the early days of establishing the hydrogen market.
Second auction
Results of the first auction are imminent, but the Commission has already outlined plans for a second auction to take place before the end of 2024.
The second auction’s budget is to increase from €800 million to €2.2 billion, with the EU outlining that there will be new developments in light of the experience throughout the process of the first auction.
However, the timing marks a significant delay to ambitions outlined by the President of the European Commission, Ursula von der Leyen, who has previously stated that her ambition is to have the second round of auctions take place in the spring of 2024.
