Hintco, a subsidiary of German government-backed hydrogen market maker H2 Global, has unveiled the terms to contract at least EUR 2.5 billion of renewable ammonia from a geographically-dispersed slate of international producers.
The main mechanism for the second H2Global auction is a series of regional competitions between prospective sellers from four potential production basins to secure contracts worth up to EUR 58.7 million per year for delivery into Germany. The four regional lots, supported by German government funds, could be delivered as hydrogen, ammonia or methanol.
A separate auction, known as the ‘global lot’, would see Hintco act on behalf of the Dutch and German governments to contract at least EUR 567 million of hydrogen. This tranche calls for volumes to be delivered in hydrogen form to either country regardless of technological vector used to transport it. Volumes can be sourced from any location outside the two importing countries.
The ultimate aim of the auction is for Hintco to aggregate volumes from prospective sellers under a Hydrogen Purchase Agreement (HPA) before selling these on in a back-to-back arrangements with final offtakers under a Hydrogen Sales Agreement (HSA).
Under the auction process, HPAs are scheduled to be concluded by the second quarter of 2026 with the earliest deliveries expected in 2028. Hintco acknowledged that the global lot may need a deferral on its 2028 start date to allow time for the construction of import infrastructure required to convert hydrogen back into its gaseous form.
The second round increases the emphasis of price competitiveness as the core bid criteria. Under the auction criteria, 90 per cent of the bid score would be assessed on an annualised volume-weighted bid price for the base volumes with the remaining 10 per cent based on the seller’s ability to offer additional firm option volumes in excess of the base amount.
The final weighting towards price has increased since a communication in September in which H2 Global had planned a 70 per cent assignment to price with the balance based on volumetric factors.
Similarly to the first auction, offtake agreements must be signed with a fixed price since indexation is prohibited. In order to qualify as Renewable Fuel of non-Biological Origin (RFNBO) hydrogen would need to achieve a 73% saving versus the fossil fuel comparator on delivery in Germany and the Netherlands, the documentation confirmed.
Further eligibility criteria mandate that at least one consortium member hold a ‘good’ credit rating or be able to supply a completion bond; that the consortium has relevant experience and the project be able to deliver first volumes within five years of the HPA award.
The total duration of the process in this round is planned at up to 15 months from launch to contract award, greater than the planned timeline for the first round but five months fewer than the total after delays. The first stage would be an initial 10-week roadshow, and 8-week application phase followed by an initial negotiation before binding bid prices are submitted and evaluated.
Figure 2 – Timeline for H2 Global Second Round Auction (Hintco)
The terms of the auction reflect the learnings shared by Hintco after the inaugural process, but also expose the compromises and practical challenges in implementing these fixes.
In the wake of the original auction, Hintco targeted increasing economics of scale in future rounds, after some participants baulked at the bid volumes, which would only account for a modest proportion of output of many planned ammonia plants. In practice, the new terms balance this concern with the need for global diversification of supply chains and inclusion of smaller projects.
Under the latest auction terms, the maximum HPA for an individual project would increase by a maximum of 50% relative to the EUR 394 million package awarded to Egypt Green, aligning to the average electrolyser bid size if the first auction of 145MWel. This number could be expanded further through the inclusion of additional volumes on which Hintco would have an effective call option, the right but not obligation to purchase at the contract price. The activation of this mechanism would depend on Hintco’s ability to secure downstream hydrogen sales agreements (HSAs).
However, other considerations in the auction limit the push to capture economics of scale. The division of the main pot into regional tranches reveals a geopolitical concern to foster a diverse global market, but does guarantee the lowest overall bid price. Additionally, in order not to exclude smaller facilities, the minimum electrolyser to receive support is capped at only 5MWel, theoretically opening the prospect of attracting a higher number of small participants in some regions.
A further reflection shared by Hintco after the first auction was that the relatively short tenor of contracts, in practice limited to seven years, was insufficient to ensure bankability. The new auction has targeted an extension of contract duration to 10 years, although this has met with the practical challenge that the funding hangs on approval of the German government budget, which itself rests on the outcome of the country’s federal election of 23 February.
A final learning has been to set a timeline appropriate to allow projects time to reach the level of maturity. Hintco executive director Timo Bollerhey cited an effective eight-month delay in the first auction to allow projects to reach front-end engineering design (FEED) stage extending the competition to 20 months.
In the first auction, the winning bid from Egypt Green was secured at a cost of EUR 811 per tonne of ammonia ex-plant equating to EUR 1,000 per tonne on a delivered basis, while the average bid price stood 23% higher.
Replicating or improving upon the winning price across all of the regional lots is assessed to be achievable, according to Veyt ammonia market modelling. However, an analysis of Egypt Green’s own economics reveals the high degree of sensitivity of ammonia projects to variables including capital support, transport economics and the existence of brownfield facilities.
The Egypt Green phase 2 project, itself an expansion of an existing 15 MWel project, benefited from relative proximity to NW European markets and the usage of an existing ammonia plant owned by the contractual counter-party Fertiglobe. Prior to the competition Egypt Green had secured a USD 80 million tranche from the European Bank for Reconstruction and Development (EBRD) and has subsequently received a EUR 30 million (USD 32 million) grant from an arm of German export credit agency KfW. Further multilateral agencies including the European Investment Bank (EIB) are expected to participate in the project financing, according to consortium member Scatec.
Veyt modelling shows that a weighted average cost of capital (WACC) of below eight per cent would have been needed to achieve the project bid price had a newbuild ammonia plant, representing USD 144 per tonne of the final LCOA, been required. By contrast, after-tax WACCs for Egyptian solar and wind investments stood at 13 per cent in 2023, according to the International Renewable Energy Agency (IRENA), while hydrogen facilities are expected to incur an additional risk premium.
According to Veyt analysis of global ammonia projects at an advanced stage, RFNBO-compliant projects could theoretically improve on the ex-plant costs in the first tender without significant capital or financing subsidies in three of the four bidding regions as well as Europe itself.
After controlling for both delivery costs and projects where production is expected to target domestic markets, projects leveraging baseload hydroelectric generation in Brazil are expected to be among the most competitive potentially achieving ex-plant costs in the mid-USD 700s per tonne prior to any CAPEX subsidies, multilateral financing or revenue support.
Within Africa, projects will likely need to follow Egypt Green in seeking multilateral financing to achieve competitive pricing. However, advanced projects on both Egypt’s Mediterranean coast and in Morocco, which would also backfill existing ammonia plants with renewable hydrogen, could theoretically achieve a lower delivered price by 2029 due to greater proximity to NW Europe and modest expected falls in electrolyser costs. Morocco, where possible contenders include OCP’s Jorf Hydrogen project (JH2P) and Tarfaya schemes, also enjoys lower financing costs for renewable schemes than Egypt.
The long-term impact of second H2 Global the auction for the European hydrogen market depend not just on the prices that can be achieved but its role in fostering scalable production assets.
Assuming a similar price could be secured from the latest round, the total base volumes offered in the auction would be expected to meet only approximately five per cent of the RePowerEU target of 10 million tonnes of hydrogen imports by 2030.
Expanding this to a material volumetric contribution will therefore hinge on two factors. The first is Hintco’s ability to convert secured volumes into downstream sales, in turn creating a virtuous cycle allowing the further procurement of option volumes. The second, interrelated, factor will be the commitment of European governments to continue to scale future rounds at the same pace to a level ultimately commensurate with the EU Commission’s own objectives.
Veyt specialises in data, analysis, and insights for all significant low-carbon markets and renewable energy.
