The European Union (EU) will organize its first auction for subsidies on green hydrogen in December

The European Commission has confirmed that financial support will not be provided for blue hydrogen, but it acknowledges that the industry desires more flexible regulations regarding state aid and construction timelines. The pilot auction, with a budget of €800 million ($865 million), was initially announced to be launched in autumn 2023, but industry expectations shifted towards the fourth quarter of this year. This information was shared during a stakeholder consultation workshop held by the European Commission in Brussels. The workshop presented the initial responses of the Commission to the feedback received during the public consultation, which recently concluded. While the final terms and conditions for the auction will be published in mid-summer, some aspects have already been effectively decided

Despite industry requests to include all forms of low-carbon hydrogen, including blue hydrogen produced from fossil gas with carbon capture and storage, the European Commission has confirmed that only renewable hydrogen will be supported. The green hydrogen must still meet the criteria outlined in the Delegated Acts, which stipulate that electrolysers must be powered by newly constructed renewable energy projects. Producers are required to demonstrate the use of 100% green electricity on an hourly basis starting from 2030, but on a monthly basis until then. Although these Delegated Acts have not yet been officially approved by the European Parliament or the European Council, the industry argues that the rules are excessively stringent and will increase the cost of renewable hydrogen production within the EU.

The European Commission has committed to using a ten-year fixed-premium support mechanism for the pilot auction, which was announced in April and can provide up to €4 per kilogram of hydrogen. The Commission clarified that bids should only cover the expected cost difference between production and off-take prices. However, in response to industry concerns that annual payments of the fixed premium would pose challenges for developers, the Commission stated that it will consider increasing the frequency of payments to two or four times a year. The industry is also raising objections to the proposed timeframe for project initiation.

According to the draft terms and conditions, winning bidders must commence their projects within three and a half years after signing the grant agreement. Failure to do so by autumn 2027 would result in a reduction of the support period by six months. If the project does not commence commercial operation by spring 2028, the contract will be canceled entirely. Support may also be adjusted if the facility produces more hydrogen per year than initially bid. However, industry responses to the consultation propose a five- or six-year period for project construction due to uncertainties regarding electrolyzer waiting times and the potential occurrence of force majeure events.

There are mixed opinions from the industry regarding the proposed minimum project size threshold of 5 MW. Some argue that the threshold should be increased to five tonnes of daily output, while others claim that such a limit disadvantages smaller projects. The cap of allocating a maximum of 33% of the €800 million budget to a single project, implemented to prevent a "winner takes all" scenario, has also faced criticism for limiting larger projects. Nevertheless, the Commission suggests that future auctions could address this issue, especially if they allow large projects to apply in multiple capacity stages.

Terms and conditions related to power purchase agreements (PPAs) and hydrogen purchase agreements (HPAs) have also sparked controversy within the industry. Currently, the Commission requires developers to have memoranda of understanding (MoUs) in place for ten-year PPAs and fixed-price five-year HPAs, covering 100% of the project's volumes. Additionally, developers are expected to have advanced discussions with environmental authorities, banks, and equipment suppliers. However, both PPAs and HPAs at the MoU stage are relatively uncommon.