The European Commission has released more details about the pilot auction for its Hydrogen Bank, aimed at incentivising green hydrogen production within the EU. 

The auction will open on 23 November  and award producers a total of up to €800m ($869m) in the form of a fixed premium, with priority given to the lowest bidders. The maximum grant amount for any one project will be limited to €266.7m.

Projects can come into operation five years after signing the contract, and bidders will be required to provide a guarantee, issued by a bank or other financial institution, for 4% of the grant amount.

The project sets a maximum bid for the fixed premium of €4.5/kg. No upper or lower limits to the expected average yearly production need be stated in the bid, but hydrogen must be produced in accordance with the delegated acts previously published by the European Commission, which place geographical and temporal correlation on renewable energy assets used to power electrolysers.

Projects are required to have 5MW of newly installed electrolyser capacity, which must be in a single location. Other than that, no special rules for different technologies, regions or actors are outlined, although they may be in later auction rounds.

The bank is not targeting any specific volume of production to be supported: the volume of production awarded will be determined by the combined bids of the individual suppliers.

Industry response

Industry body Hydrogen Europe said the newly published details, following consultation with industry, represent a much-improved framework from the initial draft.

“We are delighted to see that the Commission has taken on board most of the points raised in the consultation. We commend them for clarifying and expanding upon the rules, which will help ensure a smooth bidding process in November,” said Daniel Fraile, chief policy officer at Hydrogen Europe.

Changes include an extension of the completion period from 3.5 years to 5 years, an increase in the ceiling price from €4/kg to €4.5/kg, and a reduction in the grant amount from 7.5% to 4%.

€266.7m – Maximum grant available for any one project

Hydrogen Europe also welcomed that there is no longer a requirement to show the electricity used has been procured solely through a power-purchase agreement, with promoters instead having to provide broader information on the business cases and electricity procurement strategy for at least 60% of the expected production volumes.

However, a problem remains in that the fixed premium is not indexed to inflation, a detail that could prove important considering events in the offshore wind sector.

“The lack of indexation in the offshore wind sector means companies have not been able to mitigate rising material and construction costs, leading to companies cancelling multibillion-euro projects. This same issue could be a dealbreaker for hydrogen,” said Hydrogen Europe CEO Jorgo Chatzimarkakis.

Hydrogen Europe has also previously told Hydrogen Economist that the bank is significantly under-capitalised and that the restrictions outlined by the delegated acts need to be loosened if the sector is to flourish.

Innovation drive

The auctions are being financed by the EU Innovation Fund, which gets its funding from the sale of allowances in the EU emissions trading scheme. The European Commission has said that projects best suited to apply to the auctions will be close to commercial deployment, with low technology and construction risks, but still facing some profitability issues.

A competitive bidding auction process is being used as there is no existing liquid market for renewable hydrogen and its derivatives. The Commission will publish price points from the auctions to help give the market some transparency over pricing.

The pilot auction operationalises the domestic pillar of the Hydrogen Bank, with a second pillar to establish international imports still being developed. 

Germany has indicated it could link its H2Global Foundation to the bank to operationalise the second pillar, opening the funding model to all EU member states to support international hydrogen imports.

“It might very well be that Hintco and H2Global are integrated in some way with the Hydrogen Bank process, but it remains to be seen,” Timo Bollerhey, managing director of H2 Global, told Hydrogen Economist earlier this year.

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Author: Tom Young