The European Commission has launched its second European Hydrogen Bank (EHB) auction of green hydrogen subsidies as its doubles down on its strategy to accelerate the development of a domestic production base.

The auction has a budget of €1.2b ($1.26m), up by €400m from the first auction. Subsidies totalling €1b, awarded as a fixed premium over a maximum term of ten years,  will be offered to producers of renewable hydrogen regardless of their target offtake markets, while €200m will be dedicated to projects with offtakers in the maritime sector. Successful bidders will sign grant agreements within nine months after the closure of the auction.

The EU has given developers until 20 February 2025 to bid for subsidies, the funding for which will be allocated via the EU Innovation Fund, from revenues raised by the EU Emissions Trading System (ETS). Successful bidders will sign grant agreements within nine months after the closure of the auction.

“Under the Innovation Fund, we are putting revenues from the ETS to work, once again” Hoekstra, EU commissioner for climate, net zero and clean growth

“Under the Innovation Fund, we are putting revenues from the ETS to work, once again,” said Wopke Hoekstra, commissioner for climate, net zero and clean growth.

The EU has tweaked the rules for the second auction after the first round attracted surprisingly low bids. First-round bids were deemed to be well below the level projects would need to bridge the gap between their real production costs and the price that offtakers would be willing to pay. The bids ranged from €0.37–0.48/kg of hydrogen produced, far below the auction’s upper limit of €4.50/kg. The low bids were partly a reflection of the intense competition for subsidies among project developers—the auction was five times oversubscribed.

Second-round auction terms and conditions include a five-year timeline for projects to be commissioned and a 2.5-year deadline for projects to reach FID.

The second-round rules also include a protectionist element: projects bidding in the auction are not allowed to source more than 25% of their electrolyser capacity from China. The rule is designed to be a “contribution to achieving security of supply of essential goods and contribution to Europe’s industrial leadership and competitiveness”, the EU said.

The Commission is also offering an ‘auctions-as-a-service' mechanism, which allows member states to finance projects that had bid in the auction but were not successful.

“This enables member states to use national funds to support projects on their territory without the need to run a separate auction at national level, reducing the administrative burden and cost for all parties,” the commission said. Spain, Lithuania and Austria have recently announced their participation in auctions-as-a-service this year, pledging up to €836m in national funds to support projects located in their countries.

Frontrunner

The launch of the second EHB auction highlights the EU’s determination to continue funding the growth of a domestic green hydrogen sector as part of its wider green industrial strategy, despite uncertainty over the sector’s near-term prospects. Green hydrogen projects continue to struggle to secure finance as industrial consumers shy away from signing long-term offtake deals because of high costs.

German elections early next year may also have an impact on that government’s hydrogen strategy. Germany is one of western Europe’s leading project developers, accounting for about 17% of active projects in the region, according to Gulf Energy Information’s GEI database.

The EHB auction should help to consolidate Europe’s position as the global frontrunner in green hydrogen, especially given the uncertainty surrounding the sector in the US under the incoming Trump administration.

GEI is tracking nearly 680 active hydrogen projects in western Europe, accounting for nearly half of the total market share in active hydrogen projects globally.

The US hydrogen sector, initially supercharged by the promise of world-leading subsidies under the Inflation Reduction Act, has lost momentum in recent months because of uncertainty over the application of the 45V tax credit, the rules of which have yet to be published. Developers expect some clarification by the end of the year. However, Trump’s readiness to support clean hydrogen remains unclear, with planned import tariffs also seen having a potential impact on the sector’s growth.

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Author: Stuart Penson