Thought piece by Kirsten Stone, Research Associate for European Hydrogen.
The latest updates from the European Hydrogen Bank (EHB) pilot auction mark a significant milestone in advancing renewable hydrogen across Europe. Here are the key highlights:
· Project Announcements: Seven projects spanning four countries have been announced.
· Clearing Price: The clearing price stands at 0.48 €/kg, nearly 10% of the auction ceiling.
· Electrolyser Support: A significant 1.5 GW of electrolysers will receive support.
· Geographic Distribution: Iberia leads with five projects totalling 1.3 GW in Portugal and Spain, while the remaining two projects are in the Nordics (Norway and Finland).
· Funding Allocation: A substantial sum of 720mn € will be awarded, with the remaining 80mn € rolled over for the next round.
European Hydrogen Bank Pilot Auction Overview
The EHB pilot auction, with an 800mn € budget, concluded on 30 April with a clearing price of 0.48 €/kg. Seven winning projects in Spain, Portugal, Norway, and Finland secured a total of 720mn € in support. These projects collectively represent over 1.5 GW of electrolyser capacity.
To ensure the successful completion of these projects, the pilot auction established rigorous terms and conditions, including a 4% completion guarantee and a five-year project initiation timeline. These measures aim to boost project realisation, ensuring that the awarded funds lead to tangible progress in the hydrogen sector.
Green premium for renewable hydrogen
While this support may marginally reduce prices by approximately 0.4 €/kg, it alone cannot bridge the gap between grey and renewable hydrogen. However, there are alternative avenues to optimise economics. For instance, some offtakers are willing to pay a green premium price for hydrogen, which was seen in the results of the EHB pilot auction.
Industry and mobility emerged as the primary offtakers for this auction, driven by recent policy initiatives such as RED III and RefuelEU’s targets promoting the transition to renewable hydrogen. The auction results indicate that offtakers in these sectors are willing to pay a premium for renewable hydrogen due to stringent regulatory targets. This willingness to invest in cleaner energy solutions highlights the growing commitment across these industries to support the hydrogen transition.
Auctions-as-a-Service and Additional Funding
The introduction of Auctions-as-a-Service (AaaS) extends the EHB pilot auction guidelines to additional state funding by allowing European Economic Area (EEA) Member States (MS) to allocate extra national funds to projects not covered by the Innovation Fund (IF) budget. By leveraging the EHB’s auction structure, MS can streamline the distribution of their own state aid, aligned with the Climate, Energy, and Environmental Aid Guidelines (CEEAG). This scheme simplifies the state aid notification process through the European Commission’s auction templates.
Germany has already taken the lead by providing an additional 350mn € in funding. This approach allows MS to set an additional ceiling price determined by their national budgets, facilitating the participation of projects in countries adopting the AaaS model. As a result, the scalability and impact of the EHB initiative are expected to be significantly enhanced, leveraging additional resources to further drive the hydrogen economy.
Looking Ahead: The Second EHB Auction
The European Commission has released the draft terms and conditions for the second EHB auction, incorporating lessons learned from the pilot auction. Key revisions include:
· Increased Completion Guarantee: Raising the guarantee amount from 4% to 10% to enhance project commitment.
· Reduced Operation Timeline: Shortening the maximum time allowed for projects to enter operation from five years to three years.
· Technology Basket Distinctions: Differentiating between technology types to better manage the auction process, including a specific budget category for projects involving maritime sector offtakers.
· Lowered Auction Ceiling Price: Reducing the ceiling price from 4.5 €/kg to 3.5 €/kg to encourage more competitive bidding.
· Enhanced Procurement Strategy: Requesting more detailed information on electrolyser procurement strategies.
These updates reflect the EHB’s commitment to continuous improvement and responsiveness to market feedback, ensuring future auctions are even more effective in promoting renewable hydrogen projects. We expect the second round of the EHB auctions to open towards the end of 2024.
Conclusion
The EHB pilot auction represents a significant step forward in Europe’s renewable hydrogen journey. With substantial funding, ambitious projects, and a clear commitment to continuous improvement, the future of hydrogen in Europe looks promising. We continue to provide insights and support to subscribers as the hydrogen market evolves.
Stay tuned for more updates and insights as progress in the renewable hydrogen landscape continues.
