Fuelling Europe’s green transition: The role of the European Hydrogen Bank
In a significant development aimed at bolstering sustainable energy production in the EU, Ursula von der Leyen, President of the European Commission, announced the creation of the European Hydrogen Bank (EHB) in September 2022. In March 2023, the European Commission gave more detail on the initiative in Communication COM/2023/156. The EHB will support the objectives of the EU Green Deal Industrial Plan, which promotes and facilitates investments in the production of sustainable hydrogen.
The EHB is seen as a key financing instrument, operated internally by the European Commission services. It’s based on four pillars of action at EU level.
The first is the domestic pillar, designed to accelerate the growth of the hydrogen production market in the European Economic Area (EEA). It seeks to minimize the cost disparity between renewable and fossil-based hydrogen and to connect EU domestic renewable hydrogen supply and demand. In November 2023, the Commission launched the first pilot auction under the EHB. It had an EUR800 million budget allocated from the Innovation Fund – one of the globe’s largest funding programs for demonstrating innovative low-carbon technologies. The subsidy offered to projects is in the form of a fixed premium per kilogram of hydrogen produced, up to a ceiling of EUR4.5/kg. This financial incentive is designed to complement the market revenue generated from hydrogen sales, with the support extending for up to a decade. Successful projects are expected to start hydrogen production within five years after signing the grant agreements.
As of 19 February 2024, the pilot auction has drawn considerable engagement, receiving 132 bids from projects in 17 European countries. The auction’s total requested support significantly surpasses the available EUR800 million budget provided by the Innovation Fund. This highlights the readiness of the European hydrogen industry to scale up significantly, underpinning the renewable hydrogen’s role in achieving climate neutrality by 2050. The bids collectively propose an electrolyser capacity of 8.5 gigawatts (GWe), aiming to produce 8.8 million tonnes of renewable hydrogen over ten years. This capacity is poised to fulfil nearly 10% of the EU’s REPowerEU goal for domestic renewable hydrogen production by 2030. The European Climate, Infrastructure and Environment Executive Agency (CINEA) is currently assessing the bids, with applicants expected to receive outcomes by May 2024. Successful projects will proceed to the grant agreement phase.
The second pillar is the international pillar. The REPowerEU Communication plans to supplement the goal of the European Hydrogen Strategy by importing another 10 million tonnes of renewable hydrogen by 2030, in addition to the 10 million tonnes of renewable hydrogen production in the EU, positioning the EU as the potential largest market for renewable hydrogen globally. Many EU Member States, with Germany at the forefront, are developing and implementing strategies to facilitate hydrogen imports from non-EU countries, including Germany’s innovative double-auction system, H2Global. The European Commission is considering ways to extend the EHB’s international efforts to ensure a coordinated EU approach towards renewable hydrogen imports. This includes incentivizing renewable hydrogen imports through a green premium, employing a bidding system similar to that used domestically.
Transparency and coordination form the third pillar. It focuses on analysing demand, infrastructure requirements, hydrogen flows, and cost insights. This approach will enable the European Commission to gather accurate data on the EU’s renewable hydrogen initiatives, the competitive landscape for support, the production costs of renewable hydrogen, and its market price, enhancing transparency. The European Commission aims to build trust in the emerging hydrogen market and, by using information from European and international off-take agreements, offer clear pricing information and establish price benchmarks.
The fourth and final pillar emphasises the need for synergy between existing financial mechanisms by coordinating and integrating them with new funding sources, both public and private, in the EU and globally. This effort aims to improve the coordination of support mechanisms across the EU, including technical and investment support inside and outside the EU.
In light of the above, we should wait to see if the EHB achieves its objective to promote the establishment of a comprehensive hydrogen value chain across Europe, provide investment certainty and create business prospects for both European and international producers of renewable hydrogen. It seems that by bridging the investment gap and facilitating the connection between the future supply of renewable hydrogen and its end-users, the EHB is going to play a pivotal role in advancing Europe’s commitment to a sustainable energy landscape. Through its four strategic pillars, the EHB is not just a key financing instrument, but also a key driver of innovation and partnership in the hydrogen industry across the EU and globally.
