The European Commission is considering topping up national funding for hydrogen Important Projects of Common European Interest (IPCEI) in a bid to support the sector as it contends with cost increases, delays and a mismatch between announced and disbursed funding by member states.

The IPCEI scheme allows national governments to circumvent EU state aid rules to support approved projects. The funding relies entirely on member states’ finances, with some countries appearing unable to afford to subsidise selected projects, said Demos Spatharis, head of unit, IPCEI, environment and innovation at the European Commission’s Directorate-General for Competition.

Some €18.9b ($21.2b) in funding was approved under four IPCEI waves in the last five years, aimed at supporting a total of 122 projects in the technology (H2Tech), infrastructure (H2Infra), industrial end-users (H2Use) and mobility (H2Move) hydrogen segments.

“Some companies jumped on the bandwagon thinking it is going to rain euros” Spatharis, EU Directorate-General for Competition

However, just 68% of funding has been disbursed by countries on average, ranging between highs of more than 75% in states including Germany, Italy, France, the Netherlands and Belgium and lows of 1% in Slovakia and 3% in Greece, according to trade association Hydrogen Europe.

Only 21% of IPCEI hydrogen projects have reached FID, Spatharis told an event hosted by industry group Hydrogen Europe.

“The hydrogen value chain is the largest IPCEI we have dealt with. It is a pity that, after 4–5 years, not a lot of projects have taken off,” he said.

One reason is that the IPCEI is a state-aid instrument and there is no EU central fund. “We are now working on how to better synergise EU funding with state aid funding, but currently the IPCEI projects are funded exclusively, or almost exclusively from national budgets—member states are in the driving seat,” he said.

“Legally, there is no way for the commission to force [a member state] to spend money it does not want to, and no company has a right to receive subsidies under EU laws,” he noted.

Asked whether the Commission was planning to top up IPCEI projects funding through existing EU funds and whether this would allow for cumulation of funds, Spatharis said that “this is the intention”, but that “the final decision will the subject of negotiations.”

This follows the announcement of the EU Clean Industrial Deal, which aims to speed up the roll-out of clean energy sources by removing barriers and bureaucratic hurdles. This is key for Europe to continue to compete on the global stage against China and the US, Spatharis said.

“One criticism is that it took so long for the IPCEI [projects] to be approved and then once approved there is delay at member state level to approve funding,” he continued.

Meanwhile the “technology cycle becomes smaller and smaller [with] technology changes every two, two and a half years,” he said, rendering some projects outdated.

Initial rush

Looking back, the market experienced an initial “rush, a hype in order to very quickly develop a hydrogen market, which meant lots of projects were not the best quality and required lot of calibration”, Spatharis said.

Moreover, many projects were “abandoned as well, as they were poorly conceived at the beginning and also the hydrogen market did not develop as quickly and as robustly as hoped”.

He noted some 40% of projects initially proposed have been withdrawn or are facing “severe delays and are asking for extensions”, with many being “subject to significant changes due to costs, and revenue projections have changed dramatically…It is not the rosy picture we had hoped for.”

“We had withdrawals as some projects are not mature enough and financial data did not make sense… In 2019 there was a big hurry; some companies jumped on the bandwagon thinking it was going to rain euros” he said.

Aside from funding issues, inflation, changes in cost and revenue projections, difficulties in stipulating offtake agreements and a slow permitting process have all been weighing on projects, said Jacek Truszczynski, in charge of net-zero industries at the Directorate-General for Internal Markets, Industry, Entrepreneurship and SMEs (DG GROW).

DG GROW recently issued its first report on the progress of the IPCEI hydrogen programme, which focuses on the first two waves. It highlighted a “rather bleak” picture with “two thirds of projects not on track”.

Above all, projects are facing “unfavourable framework conditions for the hydrogen market”, he said.

For its part, the Netherlands is looking at ways to top up subsidies for IPCEI projects under a national subsidy scheme for green hydrogen, as funding already granted was “not enough for many projects (due to) cost increases,” Mirthe Kuenen, senior policy advisor at the Dutch Ministry of Climate Policy and Green Growth, said.

68% – Average fund allocation

However, even with the additional funding, many projects will likely not reach FID due to multiple factors, such as securing PPAs. “Funding is not the only solution,” she added.

The Netherlands selected IPCEI projects eligible for financing through a tendering process, but unpredictable approval timelines and difficulty in aligning national and EU processes had been a major hurdle for projects, she said.

In Italy, engineering firm Saipem and electric utility Edison are progressing with a hydrogen valley project in the southern region of Puglia that secured €370m in subsidies under the IPCEI’s H2Infra scheme.

The project hinges on two hydrogen production plants located in Brindisi and Taranto for a total capacity of 160MW, said Giovanna Villari, green solutions commercial manager at Saipem.

The hydrogen produced will be transported through pipeline to industrial consumers through both new and repurposed gas pipelines that will connect with national and European hydrogen networks, she said.

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Author: Beatrice Bedeschi