Second European Hydrogen Bank auction underway with revised T&Cs

Seven bidders across four European countries have emerged as winners through a competitive bidding process and will be awarded a total of €720 million under the European Hydrogen Bank initiative. Collectively, these projects are expected to produce 1.58 million tonnes of renewable hydrogen over ten years, avoiding more than 10 million tonnes of CO2 emissions.

The initiative was announced by President von der Leyen in her State of the European Union address in 2022, and is set to facilitate the EU's domestic production and imports of renewable hydrogen through the EU Innovation Fund. It aims to unlock private investment in the EU by addressing investment challenges, closing the funding gap and connecting future renewable hydrogen supply to consumers.

The seven winning projects fended off strong competition, as the first pilot auction attracted 132 bids from 17 countries. These selected projects will generate hydrogen through electrolysers connected to a mix of onshore wind and solar PV technologies, or a combination of both. They submitted bids between €0.37 and €0.48 per kilogram of renewable hydrogen produced, and also met the other qualification requirements. The projects will receive subsidies to bridge the price difference between their production costs and the market price for hydrogen, ranging from €8 million to €245 million.

Renewable energy expert Garrett Monaghan of Pinsent Masons described the announcement as significant on various fronts. The European Hydrogen Bank is a core pillar of the EU’s REPowerEU plan, and is a quasi-political construct intended to underpin minimum levels of hydrogen production in the EU, he said.

“The auction results are a firm market signal of support to funders, investors and developers of EU-manufactured hydrogen. The support structure is based on the well-established contract for difference (CfD) model, which should facilitate simplified risk analysis and debt structuring on projected hydrogen revenues. This will also have positive knock-on influence in the offshore wind and other renewable energy sectors,” said Monaghan.

The winning projects will proceed to sign grant agreements with the European Climate, Infrastructure and Environment Executive Agency (CINEA) by November 2024. They will have to start producing renewable hydrogen within a maximum of five years. They will then receive the awarded fixed premium subsidy for up to 10 years for certified and verified renewable hydrogen production.

At the same time as announcing the winning projects of the pilot auction, the Commission has published revised draft Terms & Conditions for the second auction round, which is to be launched by the end of this year.

Renewable energy expert Susan Kinlan of Pinsent Masons said that the draft guidelines show a reduced ceiling price and shortened ‘time to entry into operation’ period from five to three years, as well as a new separate funding pot for maritime end-use.

The Commission said it will draw on lessons learned from the pilot auction and also further consult stakeholders before launching the next auction.

“The auction awards are clearly supply focussed and are consistent with several stated EU policy goals, including security of supply. Clearly, adequate levels of demand need to be in place to meet projected levels of production. We will now need to see committed offtake structures emerging in power production and alternative fuels such as ammonia and methanol,” said Kinlan.

In addition to the EU-level programme, European Economic Area (EEA) countries can participate in the “auction as a service” scheme, which allows member states to opt to use national budget resources to support national hydrogen projects. Germany is the first country to participate in this scheme, and will make €350 million available in national funding for the highest ranked projects in Germany which did not qualify for EU-level support but which did meet the eligibility criteria.