European Hydrogen Bank pilot auction results spark renewable hydrogen competitiveness

Seven projects across the EU will receive a total of €720  million, with a plan to produce 1.58 million tonnes (Mt) of renewable hydrogen over ten years, avoiding more than 10Mt of CO2 emissions.

Winning bidders will secure funds per kilogram of hydrogen produced (Kg/H2), sourced from the EU Emissions Trading System (Innovation Fund), bridging the price gap between current production costs and the price that hydrogen offtakers are ready to pay. The premium requested by the awarded project promoters ranged between €0.37 and €0.48 per Kg/H2 – well below the €4.5 ceiling price – for projects located in Spain (3), Portugal (2), Norway (1) and Finland (1).

“In all beginnings dwells a magic! The low prices of the winning bids might be surprising to some but are not anything new in the renewables sector. The competition on the market is high, but we expect the prices to rise before dropping and stabilising in the long term. The diversity in size and geographical position of the selected projects demonstrates how competitiveness and innovation were prioritised over volume,” says Jorgo Chatzimarkakis, CEO of Hydrogen Europe.

90% of the 132 projects bidding to produce around 8Mt of hydrogen over 10 years were eligible for receiving the premium. The high level of participation is a clear signal sent by the industry that the budget for subsequent auctions should be increased even beyond the €2.2 billion earmarked by the EU Commission. Even if all the projects had received support, this would have represented a small fraction (0.8Mton per year) of the required volumes of renewable hydrogen Europe needs to meet the 2030 green deal targets. 

Individual grant agreements for the projects are expected to be signed by November 2024 at the latest. Following signature, project developers must begin production within 5 years.

Further analysis:

• Given the relatively small budget and overall small sample of projects, winning bids are not representative of the whole market. The high levelised cost of hydrogen reported by the projects belies the strict regulatory framework for RFNBO production and the relatively small number bids (compared to our project pipeline database) shows that many promoters are struggling with the strict and complex rules on aid cumulation.
• Numerous projects intended to commission within 2.9 years. This reflects developers’ desire to operate before the restrictive additionality requirements kick in rather than an easy path to commissioning for hydrogen projects.
• The European Commission will launch a second auction by the end of this year, capitalising on the lessons learned from the pilot. Shortening commissioning time from five to three years and altering completion bids requirements based on current results would be premature.
• Instead, cumulation with other EU funding schemes and state aid, completion bonds, time for entry into operations, and a clearer and non-circumventable resilience criteria for the electrolyser procurement strategy should be better addressed by the Commission in the future Terms and Conditions (T&Cs).
• A consultation on the draft T&Cs of the second auction is open until 6 June, while on 12 June 2024, a stakeholder consultation event will be held by DG CLIMA to discuss them.

For more information:

European Commission press release: European Hydrogen Bank auction provides €720 million for renewable hydrogen production in Europe

Draft T&Cs for the 2024 auction: Innovation Fund IF24 Auction – Draft Terms and Conditions