EU's Hydrogen Bank auction clears below 50 euro cent/kg, funding 1.5 GW

The first auction under the European Hydrogen Bank mechanism has cleared well below expectations, with the seven winning projects bidding at 37-48 euro cent/kg (40-51 cents/kg) for a total 1.5 GW of electrolysis.

The EU will provide Eur720 million to the projects, which will produce 1.58 million mt of green hydrogen over 10 years, the European Commission said in a statement April 30.

The subsidy amounts range from Eur8 million to Eur245 million, with two 500-MW projects -- Renato Ptx's Catalina project in Spain and MadoquaPower2X's project in Portugal -- taking the bulk. The EC had set a price ceiling for the inaugural auction of Eur4.50/kg.

"The results of our first EU-wide auction for renewable hydrogen production are very encouraging," European Commissioner for Climate Action Wopke Hoekstra said in the statement. "These innovative auctions, funded by the revenues from emissions trading, are a game-changer when it comes to producing renewable hydrogen in Europe."

The seven selected projects will now prepare grant agreements with the European Climate, Infrastructure and Environment Executive Agency, to be signed by November.

A total of Eur800 million was available for the fixed-premium auctions, designed to close the cost gap between renewable hydrogen and conventional production derived from fossil fuels.

To secure construction and hydrogen supply, successful bidders must put down a non-refundable deposit equivalent to 4% of the subsidy, and projects must come online within five years of the subsidy grant.

Platts, part of S&P Global Commodity Insights, assessed the cost of green hydrogen production via alkaline electrolysis in the Netherlands, backed by renewable power purchase agreements, at Eur8.27/kg ($8.87/kg) on April 29, up from Eur6.59/kg at the start of the month.

The assessment reflects one possible pathway for producing EU Renewable Energy Directive-compliant green hydrogen.

Winning bidders came from four countries, with three projects in Spain, two in Portugal and one each in Finland and Norway. The geographical spread also reflects access to cheap renewable power in the Iberian Peninsula and the Nordics.

The projects will supply hydrogen to the steel, chemicals, marine fuel and fertilizer sectors, amongst others, the EC said.

The pilot auction drew 132 bidders, with the fund many times oversubscribed, and bids between 37 euro cent/kg and Eur4.50/kg. A total of 119 projects were found to be eligible and admissible, and ranked by bid price, the EC said.

European Hydrogen Bank auction winners

Source: European Commission

Internationally competitive

The European Hydrogen Bank auction prices are well below other recent European support schemes, with a recently concluded auction in the Netherlands offering an average of Eur2/kg, across a range of Eur1.28-3.50/kg.

Danish auction results in 2023 were even lower, at 80 euro cent-Eur1.33/kg.

The UK, which has introduced a contracts-for-difference style subsidy, with natural gas setting a price floor, awarded GBP2 billion of funding across 11 projects totaling just 125 MW, under its first electrolytic hydrogen allocation round in December.

The EU's more competitive price level is likely down to the bloc's 2030 renewable hydrogen uptake targets, S&P Global Commodity Insights hydrogen analyst Matthew Hodgkinson said.

"The Renewable Energy Directive III has established a demand target for fuel suppliers which is encouraging these companies to bid for subsidies, contrasting to the UK where there currently isn't a legally binding obligation for fuel suppliers in 2030," Hodgkinson said.

The Hydrogen Bank auction bodes well for the nascent green hydrogen industry in Europe, as winning projects must have offtake agreements lined up, suggesting plentiful demand.

Future auction rounds

The launch of a second auction under the mechanism will be pushed back to autumn 2024, to take on learnings from the first round, EU Innovation Fund policy officer Johanna Schiele said on April 10.

The second round had previously been expected to launch in the spring, with a budget of Eur2.2 billion.

The second round has lowered the price ceiling to Eur3.50/kg, and reduced the timeframe for project startup to three years following subsidy grant, according to draft terms and conditions published by the EC on April 30.

The Commission is also proposing a budget flexibility rule for an additional 20% of the total budget, based on the pipeline of projects received.

In addition ,the second auction will include a dedicated fund for maritime transport offtakers.