Bids in European Hydrogen Bank pilot auction total 8.5 GW

Bids submitted in the European Hydrogen Bank’s pilot auction come from projects with a combined electrolyser capacity of 8.5 GW, but only a small proportion are likely to be successful. The second, larger round of the auction is likely to start in the autumn rather than in spring 2024 as planned, Argus reports.

The European Hydrogen Bank (EHB), established by the European Commission to support the EU hydrogen economy, launched a pilot auction on 23 November this year to support the production of renewable hydrogen for European consumers.

The amount of support available to successful projects in this pilot auction is €800 million. Funding will be provided through the Innovation Fund in the form of a fixed premium for each kilogram of renewable hydrogen produced and certified over a 10-year period. The maximum fixed premium that participants can bid for is EUR 4.50/kg (approximately EUR 113/MWh). This cap will be reviewed in subsequent auction rounds and may be adjusted if necessary.

The pilot auction, launched in November 2023, closed in February 2024. Bids were submitted for a total of 132 projects in 17 different countries, meaning the average electrolyser capacity per project was 64.4 MW. The European Commission said the projects could produce a combined 880,000 tonnes of renewable hydrogen per year. If all the projects were built, they would cover 10 percent of the target of 10 million tonnes per year of domestic production set under the REPowerEU initiative.

“I am pleased by the strong interest from project developers, which resulted in a large number of bids in this first pilot auction of the Innovation Fund for renewable hydrogen. This shows that industry wants to lead the transition from fossil fuels to clean fuels. Successful projects will expand CINEA’s portfolio of clean investments shaping emerging markets for decarbonised products,” said Paloma Aba Garrote, director of the European Climate, Infrastructure and Environment Executive Agency (CINEA).

However, given that the auction budget was capped at €800 million, only a small proportion of the projects will receive support. The EU set a maximum fixed premium of EUR 4.50/kg, but successful bids are likely to be significantly below this cap, as projects requesting the lowest amount of support will be selected.

This is also indicated by the Danish auction already held, in which successful bids were around EUR 0.85/kg. At this price, the European pilot auction’s budget would be enough to subsidise approximately 94,100 tonnes of hydrogen per year, or less than 12 percent of the potential 880,000 tonnes per year. For the budget to cover support for just one-third of the bids, successful bids would need to average around EUR 0.27/kg.

In the Danish auction, the highest successful bid was EUR 1.05/kg (approximately EUR 26/MWh), while the lowest was just EUR 0.16/kg (approximately EUR 4/MWh), well below the fixed premium cap of EUR 2/kg. A total of 6 projects received support, with combined electrolyser capacity of 280 MW.

Next steps

The European Climate, Infrastructure and Environment Executive Agency (CINEA), which implements the programme, will notify successful applicants by April or May. Grant agreements are expected to be signed by November 2024. The selected projects will then have five years to begin production, meaning they should be commissioned by November 2029 at the latest.

The Commission plans to launch the second round of the hydrogen bank auction by the end of the year. This will likely delay the original plan to launch the second auction round in spring 2024. The second auction could, however, have a significantly larger budget of up to €2.2 billion, unless member states increase it further. In total, the European Hydrogen Bank has been allocated a budget of €3 billion from the European Innovation Fund.

National funding options – “auctions as a service”

Projects that do not receive support because of the limited budget can turn to a new mechanism called “auctions as a service”.

This instrument, created by the Commission under the EHB, will allow member states to fund projects in their territory that took part in the bidding process but were not selected because of budget constraints. They will thus be able to support initiatives using national funds without having to organise a separate auction, reducing the administrative burden and costs for all parties.

Germany is the first EU country to use this feature, providing EUR 350 million from its own budget. These incentives will also not be considered state aid.