Will hydrogen be cheaper? EC to allocate nearly €720 million for hydrogen production

Demand for low-emission hydrogen is expected to increase significantly in the near future. The European Commission, aiming to support its production, will allocate nearly 720 million euros to seven low-carbon hydrogen projects in Europe. They will be selected in the European Hydrogen Bank‘s first auction. The funding provided by the European Commission is intended to support the production of the element in Europe and reduce its price relative to hydrogen obtained from non-renewable sources.

European Hydrogen Bank’s first auction

The first auction of the European Hydrogen Bank began on November 23, 2023, as we wrote about in a previous issue of Water Matters: Hydrogen bank – first auctions next month. 800 million euros in EU support and ended on February 8, 2024. As part of the initiative, 17 European countries submitted 132 bids, which ultimately increased the €800 million budget by more than 15 times. In the verification process, as many as 119 applications were deemed eligible and acceptable, and were ranked according to their bid price in preparation for evaluation European Agency for Safety and Health at Work. Climate, Infrastructure and Environment (CINEA). Valuations in the prepared bids ranged from 0.37 to 4.5 euros per kilogram of renewable hydrogen produced.

Low carbon hydrogen – innovative projects

After evaluation, seven renewable hydrogen projects were selected to receive project support from the Innovation Fund of nearly 720 million euros. It is the EU’s largest program for financing the deployment of innovative carbon-neutral technologies, with a final estimated budget of €40 billion, financed by revenues from the sale of allowances under the EU Emissions Trading Scheme from 2020-2030.

The seven selected projects had bids ranging from €0.37 to €0.48 per kilogram of hydrogen derived from renewable fuels based on the pay-as-bid model of the pilot auction. They will receive innovation fund grants ranging from €8 million to €245 million. The selected projects will include a total of 1.5 gigawatt (GWe) electrolyzers and will produce a total of 1.58 million tons of hydrogen RFNBO (renewable fuel) over ten years. Renewable hydrogen produced by the selected projects will be used in sectors such as steel production, the chemical industry, maritime transportation, fertilizer production, etc.

Selected projects will have to be implemented within 5 years of signing the grant agreement. They will receive fixed funds in the form of bonuses for up to 10 years for certified and verified renewable hydrogen production.

Auctions as a service

In order to avoid fragmentation in the early stages of establishing a hydrogen market in Europe and to save the administrative costs associated with the EEA’s development of different support systems, the Commission is extending the innovation fund’s pilot auctions to all interested countries. It will take the form of an easily accessible platform.

With the new Auction-as-a-Service mechanism, Germany has made nearly €350 million in national funds available for the country’s top-ranked projects. They did not qualify for EU-level support, but meet the required criteria. The European Commission is encouraging other member states to use this service in the future.

Support for the hydrogen economy in the EU

To date, authors of more than 100 projects have signed grant agreements worth 6.5 billion euros under 3 calls for proposals. On November 23, 2023. The first auction of the European Hydrogen Bank implemented with the innovation fund in mind was launched.

Initiated auctions enable the allocation of funds to technologies in a cost-effective manner, provide cost-effective support through a market-based instrument, enable price level setting and market formation in the EU, and involve less administrative burden for applicants than other grant processes.

Following the success of the first auction, the European Commission has announced plans to hold another auction before the end of this year. The body noted that the new edition will build on the experience and lessons learned from the pilot project, and will conduct further consultations with stakeholders before launching the next edition.