Today, the Commission published the Terms and Conditions (T&C) for its pilot auction dedicated to European renewable hydrogen production. It is an important step towards scaling up production of renewable hydrogen in the EU.
The auction, funded by the Innovation Fund under the umbrella of the EU Hydrogen Bank, is intended to open on 23 November 2023. Following stakeholder consultations ongoing since March 2023, today’s publication of the T&C gives potential bidders advance information about the final economic design of the auction and helps them start preparing their bids.
The auction will award up to €800 million to renewable hydrogen producers in the European Economic Area (EEA). The support will take the form of a fixed premium in €/kg of renewable hydrogen produced over ten years of operation, therefore targeting the gap between the production costs and the demand’s willingness to pay.
The auction is designed to achieve four objectives:
- Reducing the cost gap between renewable and fossil hydrogen in the EU as effectively and efficiently as possible by allocating public support. Auctions have proved to be a success in the renewable power sector, bringing down the required funding for renewable power generation through competition on price while mobilising private investments.
- Allowing for price discovery and renewable hydrogen market formation. Competitive auctions with a simple and transparent set-up reveal production costs and create valuable and comparable price points that can serve to kick-start a European hydrogen market.
- De-risking European hydrogen projects, connecting domestic renewable hydrogen supply and demand, bringing capital costs down and leveraging private capital. Given the size of the investment needed, support from the Innovation Fund should be seen as the seed funding for increased private and corporate investments.
- Reducing administrative burdens and costs thanks to short, lean, and transparent procedures.
The new auction mechanism will expand the portfolio of support mechanisms that the Innovation Fund currently provides through grants, project development assistance, and other blended financial instruments. If the level of participation in the pilot auction is high, it will be followed by annual auction rounds and could be expanded to clean products beyond renewable hydrogen. This awarding mechanism is expected to enable a faster rollout of innovative technologies needed for the green transition, especially in hard-to-abate sectors.
Background
The Innovation Fund is one of the world’s largest funding programmes for commercialising and deploying net-zero and innovative technologies. It is one of the key tools of the Green Deal Industrial Plan. Financed by revenues from the auctioning of allowances from the EU Emissions Trading System (ETS), it aims to help businesses invest in clean energy and bring to market technologies that can decarbonise European industry while fostering competitiveness.
In March 2023, the Commission presented a new plan to stimulate and support investments in renewable hydrogen production through the European Hydrogen Bank (EHB). This initiative aims to accelerate investment and bridge the investment gap for the EU to reach its ambitious REPowerEU targets.
The EHB is organised around four pillars:
- supporting the creation of a domestic market of renewable hydrogen
- supporting international imports into the EU
- promoting transparency and coordination on market developments
- streamlining existing financial instruments.
