Plug Power calls on the European Union to take inspiration from the tremendous success of the first Hydrogen Bank Auction to take a bolder step in supporting the hydrogen sector.
Because Plug Power operates in the U.S. and Europe, people often ask us about the difference between the hydrogen support schemes in these regions. The recent draft regulations on the 45V Production Tax Credit (PTC) have sparked additional conversations on hydrogen in the U.S. and, in response, has generated lots of questions on this side of the Atlantic. The U.S. and European Union (EU) models are quite different.
In the U.S., there are legislative “carrots” and tax benefits for companies producing clean hydrogen (note – the value of the PTC depends on the outcome of current discussions). In contrast, the EU uses a combination of legislative “carrots” (i.e., EU subsidies, national schemes, etc.) and “sticks” (i.e., Renewable Energy Directives II and III, Emission Trading System, etc.) to promote the green hydrogen sector. Despite the differences, exciting things are happening in both, such as the first round of Europe’s Hydrogen Bank auction.
Building on the tremendous success of the first hydrogen bank auction
The first auction of the European Hydrogen Bank, which closed on 8th February 2024, was a significant success. With some 132 total bids totalling 8.5 Gigawatts (GW), it could cover close to 10% of the EU’s ambition for domestic renewable hydrogen production by 2030 under REPowerEU. All those projects could (in theory, at least) find 60% offtake, as requested by the Commission. This reflects the sector’s dynamism and encourages the Commission to continue with this concept and renew the experience, already including another auction scheduled this year.
The Commission is currently assessing the bids and will announce results in the second quarter of 2024. The price of the proposals will be the only criteria used to rank those. Concurrent with the conclusion of the evaluation process, the Commission will extract insights from the pilot auction and will engage with industry stakeholders regarding the draft Terms & Conditions for the second round of the hydrogen auction, aiming to initiate the second round before the year ends.
While Germany opened first €4bn bidding round for Carbon Contracts for Difference inviting Industrial users to bid for subsidies to switch to green H2 or other low-emissions technology, to accelerate hydrogen even more, the Commission should take a brave step further in 2024, build upon the current momentum, and open two auctions. The first action would, of course, be the European-wide auction on hydrogen production that has already been announced – this auction should come as soon as possible to be most beneficial.
The second auction should then focus on hydrogen demand to meet supply. In the future, the Hydrogen Bank should follow this dual pillar approach (demand/offer) to give project developers more visibility.
Opening to demand support
Only a fraction of the 8.2Mt (1) of hydrogen consumed in Europe throughout 2022 (EU27, United Kingdom, Iceland, Liechtenstein, Norway, and Switzerland) was green hydrogen. Project developers face difficulty finding enough demand for their project to make a Final Investment Decision. So far, the EU has dedicated its support to hydrogen production with a critical distinction between domestic and international sources. While a crucial first step, this approach fails to generate sufficient demand, risking support for projects lacking solid fundamentals.
Substituting the current international leg of the Hydrogen Bank with a focus on demand would better suit the sector. This would enable the Bank to support the hydrogen ecosystem on a much broader scale. It could still fund hydrogen imports, allowing generation projects to compete on their own merits without subsidy bias.
Auctions should remain agnostic in terms of sectors to offtake the hydrogen, since “high-priority sectors” (hard-to-abate) are already subject to the above-mentioned legislative “stick” of the EU, whether through the mandatory target in the REDIII framework or other regulation. Specificities of the Terms & Conditions of the demand auction should be subject to an open discussion between the Commission and the key stakeholders in the hydrogen sector.
Going further in terms of flexibility and budget
A more agile no-cumulation rule
The no-cumulation rule includes specific exemptions from certain taxes and levies, a point that has been a significant headache for the pilot auction applicants. These provisions excluded de facto projects from the auction whereby national supporting schemes are deemed non-cumulable with the Hydrogen Bank. We see that the most advanced and competitive hydrogen projects in the pipeline have already received some form of support, for instance, through the Important Project of Common European Interest (IPCEI).
While allowing some level of combination with other EU funds or state aid is advisable, particularly in the initial auctions, the initial solicitations from the Hydrogen Bank should also incorporate a degree of flexibility concerning the aggregation of various forms of public support.
Opening the door to the low-carbon hydrogen sector
Establishing an inciting framework for low-carbon hydrogen is vital as it will incentivise businesses to fight climate change and ensure Europe’s energy security. At the same time, current incentives are both unexplicit and scarce compared to RFNBO. In parallel with evaluating the first 132 bids, the Commission is working on a proposal for the Delegated Act to define “low-carbon hydrogen”.
On 16th February 2024, Commissioner Kadri Simson announced that she aims to present the Delegated Act by the end of her mandate. (2) To ensure fair competition among all hydrogen producers in Europe, the Hydrogen Bank auctions should open to bids with low-carbon hydrogen. This approach ensures the maximum funding gap coverage necessary to build Europe’s hydrogen industry while awaiting a solid definition of low-carbon hydrogen from the Commission, which again is anticipated by the end of this Commission’s mandate.
Scaling up the Hydrogen Bank
The EU has made hydrogen one of the key pillars to help its decarbonisation and energy sovereignty. The establishment of a hydrogen market has, thus, become a priority in the EU and abroad. Despite its strategic importance, cumulative funding of €3 billion for the first two auctions is not substantial enough. Therefore, the European Commission should look into complementary resources from the ETS and/or unspent envelop from the 2021-2027 programming period.
References
- European Hydrogen Observatory
- https://ec.europa.eu/commission/presscorner/detail/en/speech_24_883
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