The first auction to support the production of green hydrogen in Europe will help understand supply and demand in the developing EU market when it takes place at the end of the year, according to the European Commission. It outlined plans to create a Hydrogen Bank in March 2023, with the aim of bridging the cost gap between clean hydrogen and current hydrogen production based on carbon-emitting fossil fuels.

– This is the first time we are holding such an auction and we really hope that it will also give a clear insight into the market and the market price – said Aleksandr Pakvot from the European Commission’s climate department.

Renewable hydrogen produced by electrolysis of water is considered a possible low-carbon feedstock for industry, a fuel for industrial sectors that are difficult to electrify, and an energy storage solution.

The EU aims to reach 20 million tons of hydrogen production from renewable sources by 2030, half of which should be covered by domestic supplies. But production still costs more than the process of producing hydrogen from fossil fuels, and only 40 gigawatts of electrolyser capacity is currently in the pipeline, compared to the 160 gigawatts needed across the EU.

– Support is needed and that’s why we very clearly came to this Hydrogen Bank – Pakvot said and added that there is further support from EU countries for this, including state aid and money from the EU fund for recovery from covid.

The details have yet to be decided

The auction aims to effectively redistribute funds in order to increase the European industry and reduce the cost of hydrogen production from renewable sources for a maximum period of 10 years. The hydrogen industry has welcomed the scheme, particularly as it focuses on operating costs, which account for 70% of the levelized cost of hydrogen production. The commission will announce the terms of the auction at the end of the summer.

According to Pakvot, the EU executive wants a transparent auction without a fixed limit to see “where the market will end up”. This competitive bidding mechanism will help increase profitability, he added.

The hydrogen industry wants to expand the auctions to attract all industries considering the use of green hydrogen to achieve decarbonization.

– If the Hydrogen Bank says: “It’s only for the steel producers in the next round”, what if the steel producers are not ready for it? What if they can’t bid at that point? Or what if they want to make a small investment first, and then increase it?” – asked Daniel Frayl, director of the industrial group Hydrogen Europe.

Others are asking the EU to ensure that its money is not wasted, as public funds are needed to support the introduction of renewables and energy-saving technologies.

– If we only have a certain amount of money to spend, then we need to be really clear and efficient about how we spend that money – said Riana Johnston, an officer who works on the EU’s energy transition at the climate research center E3G.

She added that hydrogen will remain relatively expensive and in short supply in the next decade, so the EU needs to be smart about its use.

The European Commission says that it is aware that there is not enough hydrogen and that it must therefore be directed towards the industries that need it the most and that cannot be easily electrified.

– When we look at the long-term decarbonization of our economy, we clearly see that some sectors will need more of this hydrogen than others – noted Pakvot.

Hydrogen Europe proposed sectoral auction calls to improve fair competition between traders, insisting that the bank should not be targeted only at certain sectors.

Not enough money

The first trial auction will be based on EUR 800 million from the EU Innovation Fund. However, it is common knowledge that this will not be enough to spur the growth needed in green hydrogen production, as the sum barely covers one project, says Patrik Demski of Tauron, a Polish power company.

Similarly, Greek MEP Maria Spiraki (of the European People’s Party) said that the EU must match US subsidies to be competitive.

– We need to send a clear message to the global market that Europe is the place to invest in clean hydrogen – she said.

The Commission knows that EUR 800 million is insufficient and insists that this sum is only for the first round. But Pakvot also warned against starting a subsidy race with the US.

– If we compare this with the Inflation Reduction Act and what they are offering for tax cuts, this is a lot of money and I’m not sure we want to enter that level of competition – he said.

– We want to allow markets with the most profitable way of hydrogen production, and we will support the best projects with the auction – he added.

E2 portal (Euractive)

Source: E2 Portal by www.e2.rs.

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