European Hydrogen Bank auction updates

Last week, the European Commission announced the seven winning projects of the European Hydrogen Bank’s pilot auction, which has already been explained in the SynerHy technical articles (First European Hydrogen Bank Auction | SynerHy). With the lessons learned from this pilot auction, the managing body has made a few modifications to the regulatory documents for future calls.

Projects subsidised in the first auction

The European Commission will award €720 million to renewable hydrogen projects selected through the European Hydrogen Bank’s first competitive bidding process. The seven projects were selected from a total of 132 bids received in the first auction. The successful bidders will produce renewable hydrogen in Europe and will receive a subsidy to compensate for the price difference between production costs and the market price of hydrogen (currently set by non-renewable hydrogen).

The winners estimate that they will be able to produce a total of 1.58 million tons of renewable hydrogen over the next 10 years, thus avoiding the emission of 10 million tons of CO₂.

As seen above, the Iberian Peninsula is the monopoliser of the large number of subsidised projects, with 5 of the first 7 winners. Going into further detail, some of these projects will be structured as follows:

Catalina Project

This is a project driven by a consortium between Copenhagen Infrastructure Partners, Enagas Renovables and Fertiberia for large-scale renewable hydrogen in the province of Teruel, which aims to develop 1.1 GW of renewable generation in the form of a combined wind-photovoltaic plant with a 500 MW electrolyser. Connected directly to a green ammonia plant in Sagunto via a 221 km hydrogen pipeline, Catalina will produce up to 84,000 MW of electricity per year.

Catalina will produce up to 84,000 tons of hydrogen per year (15 % of total consumption in Spain). The project will use the hydrogen production to meet the demand of local, regional, and national industries, mainly in the fertiliser sector. In addition, it is intended to inject this hydrogen into the natural gas grid in the form of blending.

Construction of the project is expected to begin in 2025, with start-up of the facilities in 2028 through 2056, thus meeting the criteria imposed by the European Hydrogen Bank.

Hysencia Project

This project comprises a renewable hydrogen production plant in the Autonomous Community of Aragon. It will have a 35 MW electrolyser powered by a 49 MW photovoltaic installation. It is expected to start operation with a production of 1,680 tons of renewable hydrogen per year.

MP2X Project

The Portuguese project located in the industrial zone of Sines will use renewable energy electricity production to feed a 500 MW electrolyser with the capacity to produce 150,000 tons of renewable hydrogen and 300,000 tons of ammonia. The project, promoted by the consortium formed by Madoqua Renewables, Power2X and Copenhagen Infrastructure Partners, is expected to generate economic growth in the region with an activity classified as sustainable according to EU taxonomy.

The seven selected projects will have to prepare individual grant agreements with the European Climate, Infrastructure and Environment Executive Agency (CINEA). These agreements are expected to be signed in November 2024. The selected projects will have to start producing hydrogen no later than 5 years after signing the grant agreement. The projects will receive the fixed subsidy in the form of a bonus for a maximum of 10 years to produce certified and verified renewable hydrogen.

Modifications to the Auction rules

Due to the large number of subscriptions from the 2023 pilot auction, the European Commission will launch a second auction to support renewable hydrogen production in member countries. For this second auction, and through the experience gained in the pilot test, modifications have been made and presented in the Draft Terms and Conditions document.

For a better understanding, the different design elements of the auction have been divided into 5 categories:

1. General auction design elements.
2. Qualification requirements.
3. Auction procedure.
4. Rights and obligations.
5. Auction framework conditions.

Within these categories, slight modifications have been made with respect to the first pilot auction document, as follows:

General auction design elements

• New restrictive value (Budget not determined): the total volume of RFNBO hydrogen for which support will be awarded is derived from the total available budget and the individual bids with their respective bid prices and volumes. The European Commission may decide to use the budget flexibility rule up to an additional 20 % of the total available budget of the projects received.

• Safeguards against over-subsidisation: ensuring competition through market testing, total budget available, a maximum price and the level of competition from round to round.

• Minimum and maximum production thresholds: there is no upper or lower limit on expected annual production, as indicated in the bid. However, the maximum grant amount requested per proposal must remain within 1/3 of the total Innovation Fund budget. For the basket of marine projects, the maximum amount will be 1/2.

• Differentiation of technology baskets by regions or actors: there will be two budget baskets: (i) budgets for maritime projects and (ii) a general basket. The remaining budget will be allocated to projects that do not have contractors in the maritime sector. If a portion of the budget remains unallocated in the maritime basket, this amount will be moved to the general basket.

• Electrolyser-related requirements: the bidder shall provide as part of its electrolyser procurement strategy information on: (i) the percentage of the electrolyser value allocated to critical raw materials, (ii) end-of-life plans/recycling strategy, (iii) responsible business conduct, (iv) compliance with safety and performance requirements and standards, and (v) public subsidies received for the manufacture of the electrolyser.

Qualification requirements

• Completion guarantee: increase of the completion guarantee value from 4 % to 10 %. Start-up time reduced from 5 to 3 years.

• Minimum or maximum restriction for the size and volume of the project bid: a maximum grant amount has been specified for the maritime basket (1/2 of the maximum budget available). The minimum technical requirement is 5 MWe of newly installed electrolyser.

Auction Procedures

• Price caps: will be reduced from €4.5 to €3.5/kg of hydrogen produced.

• Compensation mechanisms and marginal bidding: the flexibility rule may be used up to 20% of the total available budget.

• Minimum bidder volume: possibility to adapt the auction volume within the limits of the 20 % budget flexibility rule.

Rights and obligations

• Sanctions in case of non-compliance with the requirements: the achievement of EiO (European Investigation Order) must be approved by the executing authority. For projects participating in the maritime basket, termination if they do not comply with the requirements at the time of reaching financial closure, and reduction of the grant in case of non-compliance at the end of the implementation period.

• Reporting requirements: in the case of maritime projects, reporting is required during implementation (at FC and at the end of the monitoring period). Need to confirm during implementation the absence of cumulation, as required in the T&C.

Auction framework conditions

• Auction scheduling and frequency: the scheduling of new auctions based on the participation of the previous auctions.

Conclusions

After the first award of the European Hydrogen Bank grants, the potential of the Iberian Peninsula for the development of hydrogen production and use projects in the Iberian Peninsula is completely clear, since of the 132 projects presented in all member countries, the Peninsula is able to host 5 of the 7 winners and to have 53 projects participating in this first auction.

For this reason, it is important that the governments and investing companies of Spain and Portugal are able to take advantage of this casuistry, making the Iberian territories a large renewable industry capable of self-consuming the generated product, in this case renewable hydrogen, and exporting it to the rest of the European Union.

This could mean a change in the balance of European industrial powers, making the South a producer region of an energy vector and the North an importer of energy.