How does the European Hydrogen Bank work?

10 January, 2024

The European Hydrogen Bank is a Brussels initiative created to promote the renewable hydrogen market in the European Union. Its main objectives are: to incentivise EU production of this type of energy through auctions that cover the cost difference between renewable hydrogen and the fossil fuels it is set to replace, to efficiently connect supply with demand and to facilitate imports from third countries.

When European Commission President Ursula Von der Leyen announced the creation of the European hydrogen bank in September 2022, she clearly outlined the role of hydrogen in the plans for decarbonisation. “Hydrogen can be a game changer for Europe. We need to move our hydrogen economy from niche to scale”, she explained at the time.

The European Union has set a target to reduce greenhouse gas emissions by at least 55% by 2030

A little over a year after those words were spoken, the bank is now up and running. And one of its first operations has been the launch of a pilot auction worth 800 million euros aimed at those projects capable of innovating hydrogen production at a competitive cost. The intention is that such funding will serve to reduce the potential gap between the price of the production of hydrogen and the market rate. A second round of auctions is planned for the spring of 2024 to reach a total value of three billion euros in investment.

Goals of the European Hydrogen Bank

The European Union has a target to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and to achieve climate neutrality by 2050, i.e. net zero greenhouse gas emissions. To achieve this, renewable hydrogen will be key, as the EU aims to have 20 million tonnes per year by 2030, of which 10 million tonnes will be produced and 10 million tonnes will be imported.

Although the EU is the leading region in terms of electrolysis equipment manufacturing and installed capacity, it needs to scale up its hydrogen production model to reduce fossil fuel energy consumption, increase energy independence and meet the needs of sectors that are difficult to electrify, such as industry and heavy transport, for example.

Therefore, the creation and implementation of the European Hydrogen Bank is crucial to incentivise private investment in the different renewable hydrogen value chains, as well as to solve potential teething problems in the market, such as matching supply and demand. In this respect, the approved “Decarbonisation Package for Gas and Hydrogen Markets” foresees a five-year pilot project to reconcile hydrogen supply and demand and create market transparency, linked to the European Hydrogen Bank.

The 4 pillars of the European Hydrogen Bank:

  • Create a domestic market in the EU.
  • Facilitate the import of renewable hydrogen.
  • Provide coordination and transparency on transactions, prices, flows and information on H2.

How will the European Hydrogen Bank’s first auction work?

Those companies and projects that are interested in accessing funds from the bank’s auctions can apply via the EU’s funding and tenders portal. In the case of the first auction, bids must be submitted in the form of a fixed premium per kilogram of hydrogen produced, with a maximum limit of EUR 4.5 per kilogram.

A second round of auctions is planned for the spring of 2024 to reach a total value of three billion euros in investment

The bids accepted will be ranked according to price, from lowest to highest, in order to award them financial aid until the funds available at the auction are exhausted. Once funding is granted, projects will have five years to start producing renewable hydrogen. The fixed premium will be paid for a maximum period of 10 years together with the revenues generated by the sale of the hydrogen on the market.

It is worth noting that the rules for subsequent auctions may be adjusted in light of this first experience.

As such, the European Hydrogen Bank is expected to contribute to the promotion and consolidation of the hydrogen producing industry and, consequently, to a more sustainable European economy that brings the region closer to its climate neutrality goals