Europe hydrogen auction paves way for industry investment
The European Hydrogen Bank’s auction in November, and a second planned in the spring, is the latest step in the 27-country bloc’s strategy to build supply and demand for clean hydrogen in the region.
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The European REPowerEU plan aims to diversify and safeguard energy supply following sanctions against Russia after the invasion of Ukraine and includes billions of euros for the creation of a clean hydrogen industry.
On November 23, the European Hydrogen Bank (EHB) launched its pilot auction with an initial 800-million-euro budget ($877-million), sourced from the Emissions Trading Scheme (ETS) through the Innovation Fund, which itself launched a fund call for 2023 with a 1.4-billion-euro budget.
Since the launch of the European Green Deal in 2019 the hydrogen economy was ‘blooming’, according to European Commission President Ursula von der Leyen in a speech to mark the start of the European Hydrogen Week 2023.
The EC has already authorized over 17 billion euros in state aid for around 80 hydrogen projects across the EU, von der Leyen said.
Von der Leyen also announced the next step for the EHB; a second round of auctions in the spring of 2024 worth a further 2.2 billion euros as well as work on the international leg to secure diversified imports of renewable hydrogen from suppliers outside of the European Union.
“The first hydrogen buses are running in European cities, from Riga to Barcelona. Construction works have just begun on the Port of Rotterdam, to build a hydrogen network that will span for over one thousand kilometers. And weeks ago, the world's first plane powered by liquid hydrogen cruised the skies of Slovenia,” von der Lyon told industry attendees in Brussels.
“It is the dawn of the clean hydrogen era.”
The auction allows hydrogen producers to submit bids for EU support for a fixed-price premium of up to 4.5 euros per kilogram of hydrogen produced over 10 years.
Winners must commission their projects within five years and projects must be above 5 MW size, but cannot take more than a third of the total auction budget.
Auctions-as-a-Service
The EHB will also offer a new mechanism which will help EU member states finance projects that have not been selected for Innovation Fund cash due to budget limitations.
Auctions-as-a-service allows countries to award national funding to additional projects using the EHB structure, removing the need for separate auction mechanisms at a state level, saving in costs, and simplifying hydrogen-related subsidies across the bloc.
Auction-as-a-Service (AaaS) Process
(Click to enlarge)
Source: European Commission
For the new hydrogen market to flourish, it is crucial that market fragmentation through different national support schemes and their resulting price signals are avoided, the European Commission says, adding that project developers would also benefit from a single set of rules for subsidies.
The EC’s drive to create a harmonized market, both through the adoption of the ‘Three Pillars’ that help define clean hydrogen, and through subsidy efforts such as the EHB and the AaaS process, have been well received.
“The industry needs clear rules, global standardisation, and effective market making mechanisms and support schemes. The rules that have been finalised over the last couple of years are clear, even if they are not exactly how we would have wanted them to look. This is a success,” says Daniel Fraile, chief policy officer of Hydrogen Europe.
“Market making mechanisms are forming – H2Global in Germany, Denmark’s hugely successful domestic auctions, and now the European Hydrogen Bank. These are hugely positive steps, and more countries are following suit.”
From home and abroad
The European Union strategy is aiming for 10 million tons (MT) of clean hydrogen produced domestically and 10 MT imported by 2030, though these goals are already considered to be overly ambitious by many.
“We think it's quite unlikely that we will get anywhere near those numbers, not least internally, because we simply don't have the space for the renewable energy,” says CEO of the Green Hydrogen Organisation Jonas Moberg.
“It takes time to get permits, and renewable energy in Europe is going to be bringing premium with it, because we need to decarbonize our grid, and a lot of other things.”
Von der Leyen, during the same speech, announced hydrogen partnerships with Egypt, Kenya, Nambia, as well as EU support for a 10 GW production facility in the Brazilian state of Piaui as part of a two-billion-euro investment in the hydrogen value chain in Brazil.
The facility will ship clean hydrogen and ammonia to the island of Krk in Croatia where it will serve industrial offtakers in South-East Europe.
Building demand
In Europe, meanwhile, creating demand is a key part of constructing the new clean hydrogen economy.
Demand will initially come from fertilizer and chemical companies that are already using the hydrogen produced from fossil fuels.
In October, the European Council adopted the Renewables Energy Directive which, among other things, states that 42% of hydrogen used by industry should come from renewable fuels of non-biological origin (RFNBOs) by 2030, and 60% by 2035.
EU initiatives such as FuelsEU Maritime and FuelsEU Aviation have forced airlines and shipping companies to examine their own consumption and turn toward hydrogen and its derivatives as an alternative.
“Continued pressure on the (maritime and air transport sectors) to decarbonise (through incentives, targets, and penalties) will motivate stakeholders to seek cleaner options for their fleets,” says Hydrogen Europe’s Fraile.
The final piece of the puzzle for the European hydrogen sector is removing red tape for permits and siting, something Russia's invasion of Ukraine has helped fast track.
“There are issues to be ironed out and that is a symptom of policymakers in Brussels trying to balance the interests of 27 different member states, some of whom will benefit massively from this,” says Jonathan Roberts, Senior Associate at law firm Vinson & Elkins covering energy transactions and projects.
“Spain, Germany, Denmark … anyone around the North Sea or the Mediterranean basin with access to huge amounts of renewable energy, good storage facilities, and suitable industries along the coastline are likely to be the big winners.”
By Paul Day