EU third hydrogen bank awards Eur1.1 bil for 1.1-GW electrolysis

The European Commission has awarded Eur1.09 billion ($1.28 billion) in funding under the third hydrogen bank auction for almost 1.1 gigawatts of electrolyzer capacity, the EC said in a statement May 7.

A total of 439 megawatts was awarded in the renewable fuel of non-biological origin category, clearing at 57-98 euro cent/kg.

"The latest subsidies will go further to bridge the cost differential between RFNBO and unabated hydrogen," S&P Global Energy Horizons senior principal analyst Matthew Hodgkinson said. "However, winners in this auction will still require a significant premium from offtakers."

Platts, part of S&P Global Energy, assessed the cost of EU-compliant green hydrogen production via alkaline electrolysis in Germany, backed by renewable power purchase agreements, at Eur10.14/kg on May 6.

620 MW of capacity was awarded in the RFNBO and low-carbon category, at Eur0.44-1.10/kg across two projects, while a further two were awarded in the maritime and aviation category, totaling 24.5 MW at Eur3.48-3.49/kg.

The combined projects are expected to produce over 1.3 million metric tons of hydrogen over the first 10 years of production, the EC said.

The auction results represent an improvement from the second auction, which secured just 380 MW of electrolysis capacity, compared with the 2.3 GW initially awarded, and the final grant from the European Commission's Innovation Fund amounted to less than a quarter of the original budget.

And subsidy levels are higher.

"The weighted subsidy level in the General RFNBO topic is twice as high as the first two rounds of the European Hydrogen Bank," Hodgkinson said.

The Commission revised the auction criteria for the third round to address industry concerns.

"The European Commission imposed stricter requirements for projects to apply for funding," following the failure of the second auction to secure the initial capacity, Hodgkinson said.

These included strengthened financial criteria, requesting letters of intent from equity providers to demonstrate project maturity.

Geographical spread

Five projects received awards under the general category, with two each for the low-carbon and maritime and aviation categories.

Projects in Denmark dominated the general category, accounting for 400 MW of the 429 MW awarded.

Trafigura subsidiary MorGen's 300-MW Njordkraft project at Esbjerg was the largest, with a bid price of 95 euro cent/kg.

The project, due to start in 2030, is targeting demand in the steel, refining and energy-intensive manufacturing sectors across Europe, delivered via pipeline, MorGen said in a statement on May 7.

"Alongside pipeline access, the project will benefit from competitively priced renewable power from the Danish power grid," the company said.

MorGen said the grand award marked a step towards a final investment decision, and that it had already invested "significantly" in project development, including land, permitting, front-end engineering design, grid connection and financing preparation. It could expand to 1 GW in a future phase.

Vetyalfa's 500-MW Cloudberry project in Finland was the largest of the two low-carbon category awards, with two Norwegian projects successful in the maritime and aviation pot.

"The high subsidy levels awarded to the maritime-aviation topic are unsurprising, given the high cost of clean hydrogen-based fuels relative to low-sulfur fuel oil or jet fuel," Hodgkinson said.

Industry association Hydrogen Europe said national adoption of EU laws on the updated Renewable Energy Directive, RED III, had helped support projects in Finland and Germany.

Winning projects will receive a fixed premium subsidy over 10 years per kilogram of hydrogen produced.

Successful projects must reach financial close within two-and-a-half years of signing a grant agreement, with production starting within five years.

Grant agreements are expected to be signed in the fourth quarter of 2026.

Projects that withdrew from the second auction said strict rules requiring operations to begin within five years of signing a grant agreement left companies with little flexibility to accommodate changes to development schedules.

Auctions-as-a-service

Spain and Germany have made available a further Eur1.7 billion in national funds under the Hydrogen Bank's "auctions-as-a-service" mechanism to allocate to national projects that were not successful at the EU level.

Germany will support RFNBO hydrogen production with up to Eur1.3 billion, and Spain will contribute up to Eur440 million.

National funding will be offered to three projects in Spain and three in Denmark, the EC said. The German funding was also made available to Danish projects delivering to Germany via a planned hydrogen pipeline.

European Hydrogen Bank 3rd auction winners

*For RFNBO H2 volumes, calculated based on the 2021-2025 ETS benchmark of 6.84 mtCO2e/mtH2, excluding additional carbon abatement due to substitution effects in the H2 end-use application. Electrolytic low-carbon hydrogen production is assumed to avoid minimum 70% of emissions vs fossil fuel comparator.

Source: European Commission