POWER-TO-X

What next for the European Hydrogen Bank?

The European Hydrogen Bank has backed seven projects with €720m of subsidy support in its first green hydrogen tender, and is set to launch a second tender with a €2.2bn budget in autumn. But why are subsidy prices predicted to rise in future tender rounds?

RICHARD HEAP

May 14, 2024

  • The European Hydrogen Bank has backed seven green hydrogen projects
  • Total subsidies of €720m have been awarded, with €2.2bn in auction two
  • Despite fierce competition, the EU expects prices to rise in future rounds

 

On 30th April, the European Commission revealed the results of the first auction of its European Hydrogen Bank funding initiative.

This long-awaited announcement confirmed that seven winning projects from four EU countries would receive a total of €720m financial support. These funds aim to help green hydrogen operators bridge the gap between the current cost of making the fuel and the price that off-takers are willing to pay.

The winning prices have attracted comment in the industry because they are low — between €0.37/kg and €0.48/kg each — and the support is from the EU Emissions Trading System. The ‘bank’ is part of the EU’s REPowerEU plan to cut European dependence on Russian fossil fuel imports, and the results have raised hopes that adoption of green hydrogen in Europe could be done in a cost-effective way.

One of the main costs for green hydrogen production is the price of the renewable energy itself, so it is little surprise that the seven winners come from countries with strong reputations for renewables production. Three are in Spain, two in Portugal, and one each in Finland and Norway. They were picked from the 119 projects that met pre-qualification criteria, from the 132 projects in 17 countries that took part.

The seven winners are:

  • eNRG Lahti (90MW) by Nordic Re-Gas in Finland (€0.37/kg)
  • El Alamillo H2 (60MW) by Benbros Energy in Spain (€0.38/kg)
  • Grey2Green II (200MW) by Petrogal in Portugal (€0.39/kg)
  • Catalina (500MW) by Copenhagen Infrastructure Partner’s Renato PtX Holdco in Portugal (€0.48/kg)
  • Hysencia (35MW) by Angus in Spain (€0.48/kg)
  • MP2X (500MW) by CIP’s MadoquaPower2X in Portugal (€0.48/kg)
  • Skipavika Green Ammonia (117MW) by Skiga in Norway (€0.48/kg)

Green hydrogen production at these seven projects has to start within five years of the developers signing the grant agreement, which is due by November 2024. They will gain support on a semi-annual basis for ten years based how much hydrogen they make, which is due to be 1.58million tonnes in all seven over the ten years.

Jorge Chatzimarkakis, chief executive of trade association Hydrogen Europe, said the low subsidy prices are the result of high competition in this first auction, but he added that he predicted they would rise in future auctions. This is because many of the same projects would bid again and the lowest-price projects have already won support, so would not compete in future rounds.

“The low prices of the winning bids might be surprising to some but are not anything new in the renewables sector. The competition in the market is high, but we expect the prices to rise before dropping and stabilising in the long term.”

He added that “the diversity in size and geographical position of the selected projects demonstrates how competitiveness and innovation were prioritised over volume”.

Given the fierce competition, it is perhaps surprising that only €720m of the auction’s €800m subsidy budget was taken up. The EU has clarified that this is because these seven projects were the obvious winners, and that adding more would have meant exceeding the €800m budget or picking projects that were not the most competitive.

The remaining €80m of support is due to be included in the EU Commission’s plan for a second green hydrogen suction, which is due to start this autumn.

In the medium term, the appetite from developers in round one has encouraged the EU to look at different models of procurement after round two. For example, it may move from the fixed-premium model used in round one to a Contracts for Difference style model that we have seen in other parts of the renewable energy sector, notably offshore wind. That would help developers to stabilise their revenues, although there needs to be greater transparency over how much off-takers pay for green hydrogen.

This tender is important to help unlock investment in green hydrogen in the EU, and follows the UK government’s award of £2bn support to 11 facilities totalling 125MW in a landmark auction in December 2023. The competitive landscape will continue to evolve but this tender support can provide the sector with the kickstart it nee