Lessons from the European Union’s inaugural Hydrogen Bank auction

Summary:

Millions of tonnes of fossil hydrogen are produced in the European Union (EU) using natural gas as a feedstock, resulting in roughly 12 tonnes of carbon dioxide emissions for every tonne of hydrogen. Production of hydrogen using water and renewable electricity can eliminate those emissions, but currently costs substantially more. To bridge some of that cost gap, or ‘green premium’, the EU has developed the European Hydrogen Bank (EHB), a subsidy mechanism to support the production of renewable hydrogen, aiming to increase private investment within the EU and globally.

The EHB is a ‘pay-as-bid’ auction mechanism, with prospective hydrogen producers bidding for a fixed subsidy per kilogramme of renewable hydrogen produced. Importantly, all bids must include credible evidence of preliminary contractual agreements with buyers. The first auction closed on 30 April 2024 and allocated €720 million to seven renewable hydrogen projects, with an additional €2.2 billion reserved for a second auction.

Winning bids were lower than expected. This means the EHB pot can support greater volumes than anticipated, though these volumes remain very small in the context of political targets. The low bids also imply some buyers are willing to pay a large share of the ‘green premium’ for renewable hydrogen over fossil hydrogen. Notably, winning bids all originated from the Iberian Peninsula or the Nordics, areas with competitive renewable energy resources. This suggests a strong investment pull effect from renewable availability.