EC to launch Eur1.2 billion second renewable hydrogen auction in December

The European Commission is to launch the second auction under the European Hydrogen Bank scheme on Dec. 3, with a budget of up to Eur1.2 billion. In updated auction rules published Sept. 27, the EC lowered the ceiling price to Eur4/kg from Eur4.50/kg in the first auction.

Winners of the first auction came in well below the cap, with the seven successful bids between 37 euro cent/kg and 48 euro cent/kg of hydrogen across 1.5 GW of electrolysis.

Platts, part of S&P Global Commodity Insights, assessed the cost of producing hydrogen via alkaline electrolysis in Europe at Eur6.04/kg ($6.74/kg) on Sept. 26 (Netherlands, including capital expenditures), based on month-ahead power prices. Proton exchange membrane electrolysis production was assessed at Eur6.30/kg.

Projects have a five-year timeline for commissioning from the grant award and a two-and-a-half-year deadline to reach final investment decision -- conditions roundly welcomed by industry lobby group Hydrogen Europe.

"The new terms set out for the second call of the Hydrogen Bank create a fertile environment for companies to invest in Europe,” Hydrogen Europe CEO Jorgo Chatzimarkakis said in a Sept. 27 statement.

The fixed premium subsidy helps bridge some of the price gap between production costs and the market price for renewable hydrogen over 10-year contracts.

Chinese electrolyzer restrictions

The EC also restricted the use of Chinese electrolyzers the upcoming subsidy auction, changing its rules in response to industry concerns over price dumping by manufacturers in China.

"It is assessed that there is a significant risk of increased and irreversible dependency of the EU on imports of electrolyzers originating in China, which may threaten the EU's security of supply," the Commission wrote in the updated auctions rules Sept. 27.

New rules stipulate that projects have to limit the sourcing of electrolyzer stacks from China to 25% of megawatt capacity in the critical manufacturing steps of surface treatment, cell unit production and stack assembly.

"Special measures are justified in this nascent industry, contributing to the objectives of the Net Zero Industry Act," the Commission wrote, referring to its legislative package aimed at reshoring clean energy supply chain and diversifying sourcing.

Chinese electrolyzer production capacity is already more than 50% of global production, the EC said.

Some European manufacturers have accused Chinese companies of dumping product, in part because of what they see as unfair access to cheap government finance.

Without naming China, the EC addressed these concerns in its auction rules. Market distortions caused by foreign subsidies or incompatible state aid granted by EU members, or imports being unfairly subsidized or dumped into the EU market, may be investigated under the bloc's foreign subsidies or EU trade regulation, the EC noted.

The Chinese Chamber of Commerce in the EU did not respond to a request for comment about the auction rules before press time.

Initial European hydrogen industry responses welcomed the decision.

"The EU has certainly taken significant steps towards ensuring a level playing field," Constantine Levoyannis, head of government affairs at Norwegian electrolyzer-maker Nel ASA, said in a Sept. 27 email.

“The introduction of resilience criteria marks a pivotal moment not only for the hydrogen sector but for the European Union as a whole," Hydrogen Europe’s Chatzimarkakis said.

The EC's pilot auction in April requested bidders to provide information on the electrolysis machines they were planning to procure, including the expected origin.

Data from the EC shows half of the bidders who provided information planned to use EU-made product, while a quarter would use non-EU product and the other quarter planned to use a mix of EU and non-EU electrolyzers.

Among the selected projects, about 35% of the planned capacity is linked to intended use of electrolyzers from outside the European Economic Area, which includes EU member states and Norway.

Only one project out of the seven winners explicitly plans to procure an electrolyzer from China.