European Hydrogen Bank publishes terms and conditions of renewable hydrogen auction

On 25 April 2024, the European Commission published draft terms and conditions for its Innovation Fund 2024 (IF24) auction for the production of renewable fuel of non biological origin (RFNBO) hydrogen, with the aim of gathering structured feedback from primary stakeholders. The auction is expected to be launched before the end of 2024 following the success of the first auction in 2023 (IF23 auction) and will also focus on local hydrogen production. Full details are available from the Innovation Fund, Competitive bidding page on the European Commission’s website.

While there are some minor administrative changes proposed in the IF24 auction, the biggest highlights are the entry into operation in three years (compared to five years under the IF23 auction), the focus on the origin and value chain of the electrolyser, and the specific allocation of budget for the use of hydrogen in maritime applications. The exact timing and budget for the IF24 auction is still to be determined.

Background

With the RePowerEU plan to reduce dependencies on Russian fossil fuels, the European Commission has identified renewable hydrogen uptake in industrial processes as a central measure in reducing fossil fuel consumption in certain hard-to-abate industrial sectors. The RePowerEU plan aims to make 10 million tonnes of domestically produced hydrogen, and 10 million tonnes of imported renewable hydrogen, available annually in Europe by 2030.

Despite the focus on imports and local production, in November 2023 a pilot auction was launched to support RFNBO hydrogen producers located in the European Economic Area (EEA). The first (pilot) European Hydrogen Bank subsidy auction, with a budget of EUR 800 million, closed on 8 February 2024 and attracted 132 proposals from 17 European jurisdictions. The result of the pilot auction was published on 30 April 2024; seven green hydrogen projects with total electrolysis capacity of 1.5 gigawatts (GW) were awarded a total of EUR 720 million. Each successful applicant will receive between EUR 8 million and EUR 245 million, depending on the bid volume and winning bid per kilogram of hydrogen produced.

Other key highlights of the first auction include:

• The last pre-selected bid cleared at EUR 0.48 per kilogram of hydrogen produced;

• The pre-selected projects are expected to produce 1.6 million tonnes of hydrogen over 10 years from 1.5 GWe (gigawatt electrical) of electrolyser capacity; and

• The seven projects selected will prevent the emission of at least 10.9 million tonnes of carbon dioxide over 10 years.
  

The median expected time to entry into operation is 2.9 years.

Key proposed terms and conditions for the IF24 auction

Several administrative changes from the pilot auction are proposed in the draft terms and conditions for the IF24 auction.

Admissibility, eligibility, and quality criteria

• New electrolyser capacity of a minimum of 5 MWe (megawatt electrical) must be installed;

• Projects must have a very strong technical, financial, and operational maturity;

• Projects must be linked with production located in the EEA, which in practice means the EU member states, Iceland, or Norway;

• The auctioned good is RFNBO hydrogen;

• RFNBO delegated acts must be complied with, mainly in terms of the used renewable electricity;

• A ceiling price for the bids of EUR 3.5 per kilogram of hydrogen produced (note the IF23 auction selected projects with a premium of between EUR 0.37 and EUR 0.48 per kilogram of RFNBO hydrogen produced);

• The latest entry into operation is no more than three years after signature of the grant agreement;

• A completion guarantee is required of 10% of the requested grant amount;

• Detailed information, particularly on the electrolyser’s origin and value chain, must be provided as part of the electrolyser procurement strategy. This additional information would support decision-making related to the Net-Zero Industry Act; and

• Projects must have off-take secured for at least 60% of the proposed hydrogen production volume, with a specific allocation of the budget to be ring fenced for maritime applications.

Project ranking

As with the IF23 auction, qualifying proposals will have to meet the following criteria and will then be ranked from the lowest to the highest bid price:

• Renewable electricity sourcing strategy;

• Hydrogen off-take and price hedging strategy;

• Electrolyser procurement strategy;

• Environmental permits;

• Grid connection permits;

• Completion guarantee; and

• Technical, financial, and operational maturity.
  

Funds will be awarded in that order until the available budget is exhausted.

Payments

Payments will only be made in the case of verified and certified RFNBO hydrogen production, and are scheduled every six months from the start of operations.

Next steps

All interested parties are invited to send their structured written feedback to the European Climate, Infrastructure and Environment Executive Agency by 6 June 2024. On 12 June 2024, a stakeholder consultation event will be held to discuss the draft terms and conditions, in which Deloitte Belgium will participate. The final terms and conditions will take both written stakeholder feedback and insights from the June consultation event into account.

How can Deloitte's Gi3 team assist?

If you are looking for opportunities to fund your project, the European Funding Centre of Excellence of Deloitte's Gi3 team can provide:

• A compliance assessment of projects against (proposed) auction requirements;

• Assistance with a levelised cost calculation and analysis of hydrogen and strategic options for bidding price points; and

• Full support in project outline creation, detailed viability analysis, and drafting the application itself.