The European Commission has unveiled new draft terms and conditions for the second European Hydrogen Bank (EHB) subsidy auction, due later this year, which make significant changes to the rules of the first green H2 tender.
The new document, published by the Commission’s Directorate-General for Climate Action, reduces the ceiling price for subsidies from €4.50 to €3.50 per kilogram ($4.82 to $3.75), while reducing the time that developers will have to put their projects into full operation after signing the grant agreement — from the current five years to just three.
It also introduces a new dedicated pot of funding, or “budget basket”, for projects with offtakers in the maritime industry — with all other projects going into a “general basket” (more details below).
The EHB auction provides ten-year fixed-price per-kilogram premiums for RFNBOs — renewable fuels of non-biological origin (the EU term for green hydrogen and its derivatives) — that are designed to bridge the cost gap between cheap, but highly polluting fossil-based hydrogen and pricier renewable H2.
However, according to the new terms and conditions document, the budgets have not yet been decided. This could be due to the fact that member states can add extra funding to the budgets under the EU’s Auction as a Service scheme, which would be allocated to projects in that particular country once the general EU budget has run out.
The paper does, however, suggest that the next EHB budget will not be set in stone.
“The European Commission may decide to make use of a budget flexibility rule of up to an additional 20% of the total budget available, based on the pipeline of the projects received,” it says.
Another noteworthy change to the proposed terms and conditions is the size of developers’ “completion guarantee”.
The first auction called for a guarantee — issued by a bank or financial institution — to cover 4% of the maximum grant amount of each project.
The European Commission is now calling on this completion guarantee to be increased to 10% — which “must be able to be called by the granting authority if the project does not reach approved energy into operation within 3 years after signing the grant agreement”.
Maritime basket
The new maritime funding basket is being introduced because the shipping industry has been subject to carbon pricing under the EU Emissions Trading System since the start of this year, and the ETS directive that brought that in had called for “special attention” for support from the EU Innovation Fund.
The EHB gets its money from the Innovation Fund, which is funded by revenue from the ETS. The second EHB auction is officially known as the “Innovation Fund IF24 Auction”.
Importantly, vessels will be able to double-count their emissions savings when using RFNBOs such as green ammonia or methanol, up to the end of 2033, in order to encourage their use.
Projects awarded under the maritime basket “will have to demonstrate during implementation that at least 60% of the total volume of hydrogen production as stated in the bid will be directed to a maritime off-taker”, the document states.
“If the project is not able to demonstrate signed contracts for 60%of the production volumes with a maritime off-taker at the moment of reaching Financial Close, it will be terminated.”
Budget allocation
The exact budgets for the maritime and general baskets have not yet been decided, but the draft terms and conditions state that the maximum grant amount requested by each proposal must be equal to or less than half of the basket’s total available budget.
For the general basket, the maximum bid must be less than or equal to one third of its total available budget.
The proposals with the lowest bids (subject to quality criteria) will be awarded funding until the total budget is used up.
Projects that do not win grants will be added to a reserve list, which would come into play if any grant winners pull out, or if the European Commission decided to make use of its new flexibility rule that could add up to 20% to the total budget.
Under the proposed rules, the maritime basket will be cleared first because if any budget remains unawarded, that amount would then be transferred to the general basket.
Likewise, if a portion of the general-basket budget remains unawarded, it can be transferred to the maritime basket. And if there are still any remaining funds, the unused money will be transferred to the next EHB auction.
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