In December 2024, the second round of the European Hydrogen Bank Auction opens its entry for submission. What can we learn from the first auction, and what are the most important things you need to know to submit a successful project proposal? We have listed them in this article!
The European Hydrogen Bank (EHB) is helping Europe move towards using more hydrogen energy. It's set up to encourage investment in sustainable hydrogen and lessen dependence on Russian fossil fuels, supporting Europe's goal of being climate-neutral by 2050. By 2030, Europe aims to produce 10 million tons of renewable hydrogen and import another 10 million tons.
After the success of the first hydrogen auction, a second round is expected by the end of 2024. This auction will focus on increasing renewable hydrogen production in Europe, backed by a 1.2 billion euro investment, with special attention to maritime use. The goal is to make renewable hydrogen more affordable compared to fossil-based options.
1. Understanding the European Hydrogen Bank
The European Hydrogen Bank is not a conventional financial institution but a strategic financing instrument of the European Commission. Its primary goal is to support and accelerate the renewable hydrogen industry in Europe by securing and stimulating investments. It's funded through the European Emission Trading System, meaning that greenhouse gas emission taxes collected in Europe support this initiative to promote a greener future.
2. Key Objectives of the Second Hydrogen Auction
The auction aims to bridge the price gap between renewable hydrogen (green hydrogen) and conventional grey hydrogen. By doing this, it strives to make green hydrogen more competitive and accessible. The auction also focuses on accelerating the development of the hydrogen industry across Europe by targeting different stakeholders, from hydrogen producers to electrolyser manufacturers and off-takers of hydrogen derivatives.
3. Eligibility and Timeline for the Second Auction
Only hydrogen production projects within the European Economic Area (EEA) are eligible for the auction. The total budget for this second round is €1.2 billion, with a special allocation of €200 million reserved for maritime off-takers.
The timeline is crucial: final terms and conditions should be released soon, with the auction opening expected in December 2024 and closing in February 2025. Project developers should be ready to sign contracts by September 2025, aiming to have their projects operational by 2028.
4. Selection Criteria for the Auction
Projects will first undergo an initial pass/no-go selection based on factors like project maturity, commitment to bid price limits, environmental permitting requests, and adherence to RFNBO (Renewable Fuels of Non-Biological Origin) compliance. Projects that meet these criteria then enter a ranking process, where they are evaluated based on their bid price. The lower the bid, the more likely the project will be selected.
5. The Importance of the Bid Price
A critical aspect of preparing for this auction is understanding the bid price. This is the difference between your production costs and the price an off-taker is willing to pay for your hydrogen. The smaller the subsidy you ask for, the more competitive your bid will be. Successful bidders in the first auction had bids below €0.5 per kilogram, highlighting the need to aim for a very competitive price.
6. Project Maturity Requirements
Projects need to demonstrate a certain level of maturity and commitment. This includes having pre-contractual agreements for at least 60% of energy consumption and 60% of the hydrogen to be produced with an off-taker. Additionally, developers must provide proof of initiated environmental permitting requests and show that they have secured necessary grid connections.
7. Technical Aspects and Compliance
Only projects using new electrolyser equipment with at least 5 megawatts of installed power are eligible. A pre-contractual agreement with the electrolyser manufacturer is required, along with documentation proving the environmental assessment of the equipment. Compliance with RFNBO regulations is also essential to ensure the hydrogen produced is considered renewable.
8. Subsidy Limitations and Payments
The maximum subsidy per project is capped at €3.5 per kilogram of hydrogen, but to be competitive, bids should be much lower. The subsidy is only applicable for the first 10 years of the project's operation, even though projects may continue beyond that period. Payments will be made biannually based on verified hydrogen production.
9. Key Takeaways from the First Auction
The first auction saw over 130 bids, but only the most competitive bids, all below €0.5 per kilogram, won. This underlines the importance of being as cost-effective as possible. It's crucial to understand that competitiveness is the key to success, and projects must aim for efficiency in every aspect of their operations to submit a winning bid.
10. How Southern Lights Can Help
Southern Lights offers a software solution that helps hydrogen project developers simulate, design, and assess project feasibility. The software assists in preparing for auctions by identifying early-stage costs and metrics, optimizing energy strategies, and helping reduce the levelized cost of hydrogen (LCOH) to make your bid more competitive.
