On 30 April 2024, the European Commission unveiled the results of the pilot European Hydrogen Bank (EHB) auction, designed to support the creation of new facilities producing hydrogen from renewable electricity.
The auction, launched on 23 November 2023 and closed on 8 February 2024, attracted bids from 132 project proposals from 17 EU countries, with more than a third of these (46) coming from Spain. A total of 119 proposals were deemed to meet bid criteria which included Renewable Fuel Non-Biological Origin (RFNBO) compliance and completion within five years of the award, after a review by CINEA (The European Climate, Infrastructure and Environment Executive Agency).
The seven successful bidders were allocated an expected total of EUR 800 million from the European Innovation Fund under the EHB’s auction clearing mechanism. The revenue support will be available as a fixed premium of between EUR 0.37 and EUR 0.48 per kilogram of hydrogen produced, payable on a semi-annual basis for up to a decade subject to successful operation and verification of RFNBO compliance.
With a commanding 2.9 GWel of electrolyser capacity, Spanish developers dominated the competition, offering bids three times larger than those of Germany, the second-highest bidder.
Analysis of the bids published by the Commission revealed a strong preference for Industrial offtakers, which were identified as the target market for 62% of the 132 competing bids. The analysis also showed that while project proponents were closely split between Proton Exchange Membrane (PEM) and Alkaline electrolyser technology, 70% of projects were planning to use EU-manufactured electrolysers for all or part of their production.
Insights
The winning bids reflected the respective competitive advantages of the EU’s southern and northern latitudes, with three projects from Spain, two from Portugal and one each from Norway and Finland.
The five Iberian projects dominated in terms of the volume supported, accounting for 86% of the volume supported, with four projects using a mixed portfolio of renewables and one relying on dedicated solar alone.
However, the lowest bid of EUR 0.37/kg was submitted by Finland’s eNRG Lahti, which will use wind-based hydrogen to produce synthetic methane for the higher-paying transport sector with the aid of CO2 from an existing biomass plant. The winner with the highest capacity factor of 82% was Norway’s Skiga project, which expects to produce hydrogen for green ammonia from a mixture of wind and hydroelectric sources.
Green ammonia featured heavily as an offtake route among the successful projects, accounting for nearly three-quarters of the awards by volume. Spain’s Catalina project aims to transport 40 kilotonnes green hydrogen by pipeline to Fertiberia’s Sagunto fertiliser plant while MP2X will produce ammonia for local requirements and export at the port of Sines in southwestern Portugal.
In terms of participants, the awards were also notable for the success of Copenhagen Infrastructure Partners, a renewable energy fund manager with EUR 28 billion under management. The Denmark-based financial was successful through its participation in the 500MWel Catalina and MP2X projects. Both projects bid at EUR 0.48/kg, representing expected production grants of EUR 230.5 and 245.2 million respectively, falling narrowly below the EUR 266.7 million maximum bid eligibility threshold.
Analysis of the bids published by the Commission revealed that industrial offtakers are anchoring the initial uptake of clean hydrogen, despite the sector showing a lower willingness to pay than transport applications.
A total of 82 projects were in negotiations with Industrial buyers at an average hydrogen price of EUR 5.67/kg, in comparison to 37 with a preliminary agreement from the mobility sector with an average price of EUR 8.34/kg, according to EU Commission data.
In the absence of an obvious price reference for green hydrogen, the data showed offtakers were also favouring fixed-price deals. A total of 57% of producers intended to rely solely on a flat pricing structure, with 13% using a variable indexation and the remainder combining the two or arranging a different commercial structure.
Both PEM and alkaline technologies are being considered by the project developers and the majority stated an intention to procure electrolyzers manufactured in the EU. This development could please proponents supporting implementation of the Net-Zero Industries Act, which mandates 40% of European hydrogen production to use locally manufactured equipment.
The long-term power price forecast for Iberia and Nordic countries is indicative of the reason for the lower levelized cost of hydrogen in the bids received from projects in these regions. Availability of supportive government policies and regulations could further enhance the competitiveness of hydrogen projects in the region.
Of the projects which submitted bids in the auction, Spain had the third lowest expected Levelised Cost of Hydrogen (LCOH) at EUR 5.80, which was bettered only Greece (EUR 5.30/kg) and Sweden (EUR 5.53/kg). Finland (EUR 7.57/kg), Norway (EUR 7.61/kg) and Portugal (EUR 8.77/kg) ranked fourth, fifth and seventh cheapest by LCOH respectively.
Projects in Europe’s central regions were less successful in the bidding process. Analysis of the bid data suggests the lowest bid from outside Iberia and the Nordics was submitted at around EUR 0.60/kg and only half a dozen developers from the remainder of Europe submitted bids below EUR 1.00/kg.
Veyt analysis of long-term power prices shows that power prices in the four countries from which winning bids were drawn will be among the lowest in Europe in 2040 and 2050.
Average capacity factors among the bids submitted were highest in the Nordic countries, reflecting the high availability of hydroelectric power.
The high level of participation, diversity of business models and competitiveness of winning bids allowed the EU Commission to present the auction as a clear signal of a maturing European market. Maroš Šefčovič, Executive Vice-President for the European Green Deal, described the result as ‘A clear signal of confidence in the market and this key technology’.
Indeed, the outcome will also serve as a qualified validation of the Commission’s support measures for hydrogen, which had been criticised as falling below the attractiveness of international competitors in the United States. In particular, the use of a reverse auction process for revenue support has allowed the Commission to achieve a level of subsidy considerably below the United States and other international regimes.
In a sign of confidence in market mechanisms, the Commission has reduced the ceiling price in the next auction round later in 2024 to EUR 3.5/kg, which would still be more than seven times the level of the winning bids. It will also be buoyed by the strict conditionality of the EHB support, which constrains the CAPEX and OPEX support mechanisms available to successful projects through alternative schemes.
However, the award will not immediately assuage the concerns of end-users in the industrial centres of northwestern Europe, where projects appear likely to proceed at these support levels. The success of projects in Europe’s northernmost and southernmost regions will place a renewed focus on the need for cross-border and maritime infrastructure to transport hydrogen and derivatives around the continent.
Ultimately, the success of Europe’s hydrogen development will hinge on a myriad of schemes at both national and supra-national level. In Germany, a separate auction will allocate EUR 350 million of funding to highest-bidding schemes within the country as part of the EHB’s separate Auctions-as-a-service initiative. Separately, CAPEX support has been made available independently of State Aid rules under Important Projects of Common European Interest (IPCEI) mechanism.
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