EC announces Eur1.2 billion for second hydrogen bank auction

The European Commission has announced a Eur1.2 billion ($1.3 billion) budget for the second auction under the European Hydrogen Bank mechanism, expected in the autumn.

The news came at a stakeholder workshop on the European Hydrogen Bank organized by the EC's Directorate-General for Climate Action, trade association Hydrogen Europe said late June 12.

The budget is substantially less than the Eur2.2 billion previously expected for the second round, though some funding will also go to support hydrogen imports, the EC told S&P Global Commodity Insights June 13.

"We are glad to see the next auction moving forward with a higher budget than the pilot, though it is still short of the Eur3 billion budget announced back in September 2022," Hydrogen Europe CEO Jorgo Chatzimarkakis said in a statement. "We expect the remaining Eur1 billion to be allocated to the next auction to ensure projects continue to receive this much-needed support to be operational by 2030 and help reach the 2030 climate and energy targets."

An EC official confirmed the budget announcement on June 13 and said the Eur3 billion announced by Commission President Ursula von der Leyen in November also covers the international leg of the hydrogen bank, for which an announcement will be coming "in due course."

The first round awarded a total of Eur720 million to fund 1.5 GW of electrolysis across seven projects at 37-48 euro cent/kg at the end of April.

All of the successful bidders have projects in Nordics or Iberia, with access to low-cost renewable power.

Platts, part of Commodity Insights, last assessed the cost of green hydrogen production via alkaline electrolysis in Spain, backed by renewable power purchase agreements, at Eur7.12/kg ($7.70/kg) on June 12, up from Eur5.60/kg a month before.

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

Fixed premium subsidy

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.

The first auction cleared below expectations and well below the ceiling price of Eur4.50/kg.

EC data showed bid prices ramping up steadily, with over 2 million mt more green hydrogen over 10 years bid at below Eur1/kg. The vast majority of bids came in below Eur2.50/kg.

The EC has indicated it plans to lower the price ceiling to Eur3.50/kg and reduced the time frame 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.

Hydrogen Europe said the EC should keep a five-year commissioning period from the first auction and should become "more flexible on aid cumulation to speed up the decarbonization of the economy."

Analysts at Commodity Insights noted that projects that bid under the first round on average had a commissioning time of 2.9 years, showing a commitment from developers to commission. Support at the same level from the first round in the second auction would fund 2.5 GW of electrolysis over 10 years, they said.

The budget for the second auction comes from the EU Innovation Fund's 2024 budget, accounting for 25% of expenditure, Hydrogen Europe said.

The remainder is going to batteries (Eur1 billion) and conventional grants (Eur2.6 billion), which also support hydrogen projects, it said.