March 28. 2024. 11:21

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First hydrogen bank auction will help gauge market, EU Commission says


The first auction to support green hydrogen production in Europe will help understand supply and demand on the emerging EU market when it takes place at the end of the year, according to the European Commission.

The European Commission outlined plans to create a Hydrogen Bank in March 2023, aiming to bridge the cost gap between clean hydrogen and current hydrogen production based on carbon-emitting fossil fuels.

“This is the first time we do such an auction, and we really, truly hope that it will also give clarity on the market and the market price,” said Alexandre Paquot from the European Commission’s climate department who spoke at a EURACTIV event on 25 May.

Renewable hydrogen produced from water electrolysis is considered a possible low-carbon feedstock for industry, a fuel for hard-to-electrify industrial sectors and an energy storage solution.

The EU aims to reach 20 million tonnes of renewable hydrogen production by 2030, half of which should be met by domestic supplies. But production still costs more than fossil hydrogen processes, and there are only 40 gigawatts of electrolyser capacity currently in the pipeline, compared to the 160 gigawatts needed across the EU.

“There needs to be support, and this is why we came up very clearly with this Hydrogen Bank,” said Paquot, adding that this is accompanied by further support from EU countries, including state aid and money from the EU COVID recovery fund.

Brussels unveils ‘Hydrogen Bank’, with €800m initial funding

The European Commission wants to lower hydrogen prices by subsidising production, paying a part of the bill for every kilogram of hydrogen produced, a move that drew cheers from the industry and criticism from experts.

Details still to be decided

The auction aims to efficiently allocate funds to scale up Europe’s industry and reduce costs by rewarding renewable hydrogen production with a fixed premium per kilogram produced for a maximum of 10 years.

The hydrogen industry has welcomed the scheme, particularly as it focuses on operational costs, which comprise 70% of the levelised cost of hydrogen production, also praising the simplicity of the conditions set so far.

The auction’s terms and conditions will be announced by the Commission at the end of the summer

According to Paquot, the EU executive wants a transparent auction without a fixed ceiling to see “where the market will end”. This competitive bidding mechanism will help drive cost-effectiveness, he added.

The hydrogen industry wants to widen the scope of auctions to attract volume from all industries considering green hydrogen for decarbonisation.

“If the Hydrogen Bank will say, ‘No, it’s only for steelmakers in the next round’, what if the steelmakers are not ready? What if their product is not yet in that moment where they can bid? Or what if they just want to make a small investment first and then ramp up?” asked Daniel Fraile, chief policy officer at industry group Hydrogen Europe.

“Let the competition give you the most competitive product, which will be the lowest premium, and therefore more and more volume can be supported,” he argued.

Others ask the EU to ensure its money is not wasted, as public funds are required to support the deployment of renewables and energy-saving technologies.

“If we only have a set chunk of money to spend, […] then we need to be really clear and efficient about how we’re spending that money,” said Rheanna Johnston, a policy officer working on the EU’s energy transition at the climate think-tank E3G.

She added hydrogen would remain relatively expensive and scarce for the next decade, so the EU needs to be smart about its use.

The European Commission says it is aware that hydrogen is rare and is why it must be directed towards industries that need it most and cannot electrify easily.

“When we look at the long-term decarbonisation of our economy, we see clearly some sectors will need more of this hydrogen than others,” Paquot remarked.

Hydrogen Europe suggested having sectoral auction calls to enhance fair competition between offtakers, insisting the bank should not be exclusive to specific sectors.

Not enough money

The first pilot auction will be based on €800 million drawn from the EU’s Innovation Fund, fed by the bloc’s carbon market.

However, it is widely acknowledged it will not be enough to drive the growth required in green hydrogen production, with that sum barely covering one project, according to Patryk Demski from Tauron, a Polish electricity company.

Similarly, Greek EU lawmaker Maria Spyraki (European People’s Party) said the EU must match US subsidies to be competitive.

“In my opinion, we’ll have to set it at least equal with the US premium. We have to send a clear message to the global market that Europe is the place to invest on clean hydrogen,” she said.

The Commission knows the €800 million is insufficient and insists the sum is just for the pilot round. But Paquot also warned against starting a subsidy race with the US.

“If we compare with the Inflation Reduction Act and what they are offering in terms of tax reduction, this is a lot of money, and I’m not sure we want to enter into that level of competition,” he said.

“We want to let the markets come with the most cost-effective way of producing hydrogen and, with the auction, we will support the best projects,” he added.

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