European Hydrogen Bank proposed to boost renewable hydrogen

The European Commission has set out new plans to stimulate and support investment in sustainable hydrogen production through a European Hydrogen Bank (EHB), which has a mandate to invest EUR 3 billion to kick start the European hydrogen market. The initiative was announced on 16 March 2023 and is aimed at accelerating investment and bridging the investment gap for the EU to reach its ambitious REPowerEU Plan targets of producing domestically 10 million tonnes of renewable hydrogen by 2030, coupled with 10 million tonnes of imports.

The proposal is for the bank to operate with two “pillars,” a domestic pillar and an international pillar. The domestic pillar would support EU production of hydrogen and carriers via:

• Funding of EUR 3 billion from the Innovation Fund;
• Supply side auctions;
• Supplier responsibility for offtakers; and
• A focus on renewable H2.
  

The international pillar would support EU imports of hydrogen carriers produced outside of the EU via:

• Contributions to national budgets;
• Supply side auctions and short-term offtaker contracts;
• A market maker platform; and
• A focus on renewable H2 carriers (ammonia, methanol, etc.).

Green hydrogen producers would be able to bid for a “fixed premium” subsidy of up to EUR 4 (USD 4.36) per kilogram (kg) of H2 in the EU’s first competitive auction, making Europe’s support regime potentially more generous than the US hydrogen tax credit scheme, which offers producers up to USD 3/kg. As the Hydrogen Bank supports the objectives of the Green Deal Industrial Plan 10 and the Net-Zero Industry Act, the goal is to increase the investment attractiveness of the EU compared to other jurisdictions offering incentives, including Australia (“Powering Australia”), Japan (“GX transition bonds”), and the US (hydrogen tax credit measures included in the Inflation Reduction Act).

The EHB is intended to complement EU funding opportunities for the decarbonisation of the industry, such as the LIFE Programme, Innovation Fund, Connecting Europe Facility (CEF), and Important Projects of Common European Interest (IPCEIs) in the hydrogen sector.

Proposed auction design

The first EUR 800 million pilot auction is foreseen by end of 2023. Bidders are expected to have a project of at least five megawatts of installed electrolyser capacity of any technology, and may bid for support of a maximum of 33% of the total EUR 800 million budget.

The initial auction has been described as “players only” with a fixed price premium on offer. In light of this, the following are likely to be required:

• A financial guarantee (e.g., performance bond);
• Evidence of a firm commitment from the offtaker such as a signed memorandum of understanding. This does not need to be legally binding but it should evidence a clear intent to conclude the deal;
• Evidence of a secured site for the project;
• Agreements in place for electricity connection and water supply;
• If the project intends to use a pipeline, evidence that there will be a pipeline in place by completion date; and
• A front end engineering design (FEED) to be completed after a feasibility study but before the engineering, procurement, and construction (EPC) phase, and submitted as part of pre-qualification.

How can Deloitte Belgium help?

Deloitte Belgium has significant experience in providing assistance to key players in applying for funding under EU programmes including the Innovation Fund, LIFE, IPCEI, and CEF. We have also been following closely the REPowerEU Plan and the incentive strategy that will follow from the legislation introduced under the plan. As such, we are well positioned to assist potential bidders with applications to the EHB.