Seven hydrogen production projects spanning Spain, Portugal and the Nordic region will share a total of €720m ($768.96m) of subsidies over ten years after submitting winning bids in the first competitive auction under the EU’s European Hydrogen Bank (EHB) scheme.

The winning projects plan to produce a combined 1.58mt of renewable hydrogen over ten years. The bids for subsidies range from €0.37–0.48/kg of hydrogen produced, far below the auction’s upper limit of €4.50/kg.

The subsidies granted to individual winning projects range from €8–245m. Subsidies are paid as fixed premiums and are intended to bridge the gap between the cost of green hydrogen production and the price consumers are willing to pay, in a market where non-renewable hydrogen is still significantly cheaper to produce.  In other words, the subsidy is designed to cover the green premium, to encourage buyers to switch to renewable hydrogen.

However, the low level of clearing price in the EHB auction looks unlikely to cover the full green premium, which amounts to several €/kg at current prices.

Oversubscribed

The low bids are partly a reflection of the intense competition for subsidies among project developers—the auction was five times oversubscribed. They may also reflect the lower production costs achieved by projects in southern Europe and the Nordic region because of access to cheap renewable power. The Nordics and Spain stand out for offering the most cost-effective hydrogen, according to a recent report by UK-based Aurora Energy Research.

€0.37/kg – Lowest bid

The auction results also signal there is a “willingness to pay” attitude among offtakers of green hydrogen, according to Matthew Hodgkinson, hydrogen analyst at information provider S&P Global Commodity Insight. To enter the auction, production projects need to have secured offtakers. The seven successful bidders in the EHB auction have secured offtakers in various sectors including refineries, low-carbon ammonia and gas-grid injection, Hodgkinson added.

The EHB auction cleared at lower prices than other recent subsidy auctions by EU member states, Hodgkinson said. The recently concluded auction in the Netherlands offered an average of about €2/kg. The Danish auction in 2023 awarded support at a level of €0.80–1.33/kg. However, the UK’s recent auction produced far higher prices, awarding £2b of funding to 125MW of electrolysers at an average subsidy of £9.50/kg. “The contrast between the UK and EU auction results is likely down to the EU’s 2030 targets on renewable hydrogen uptake,” Hodgkinson noted.

Signing up

The winning projects in the EHB auction will now start preparing their individual grant agreements with the European Climate, Infrastructure and Environment Executive Agency. These agreements are expected to be signed by November 2024 at the latest, the Commission said. Projects must start producing hydrogen within a maximum of five years after signing the grant agreement.

The next EHB auction, which is scheduled to happen by the end of 2024, has lowered the ceiling price to €3.50/kg from €4.50/kg, although this could prove relatively immaterial if the second round attracts a similar number and level of bids, according to S&P Global Commodity Insights.

FIG.1: EHB AUCTION RESULTS

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Author: Stuart Penson