This week witnessed the launch of the EU’s second renewable hydrogen auction. Building on the first auction in 2023, this important milestone will see up to €1.2 billion made available to support the development of a green hydrogen economy in Europe.
Background
The second renewable hydrogen auction (the "Second Auction") is being run under the auspices of the European Union’s Innovation Fund, which is financed by revenues from the EU Emissions Trading System. The Innovation Fund aims to support the deployment of net-zero and innovative technologies across the European Economic Area ("EEA").
The Second Auction builds on the first auction launched in November 2023 under which a total of €720 million was awarded to seven green hydrogen projects in Spain, Portugal, Norway and Finland, representing almost 1.5 MWe of capacity in total. Ultimately, six of these went on to sign grant agreements in October 2024.
Key points for bidders & Auction design
The European Commission published the Terms and Conditions for the Second Auction on 27 September 2024 (available on the EC website here along with Q&A guidance here).
Bids should be submitted by 17:00 on 20 February 2025 in accordance with the Terms and Conditions as well as the Auction Call document released this week on 3 December 2024 and accessible here.
The Second Auction is divided between a general allocation of funds and an allocation of funds for hydrogen to be used in the maritime sector (see below for further details). The forms and submission portal can be found here for the general allocation and here for the maritime allocation.
General admissibility and eligibility requirements include strict compliance with submission deadlines, use of the forms provided through the European Funding and Tenders Portal (as linked to above), and submission of all required documentation complying with the minimum requirements set out in the Auction Call, including, among other things, heads of terms with an offtaker, a hydrogen-price hedging strategy and an electrolyzer procurement strategy.
Like the previous auction, successful bidders will receive a fixed premium of €/kg of green hydrogen produced over a maximum of ten years of operation. This premium is designed to cover the gap between production costs and the achievable offtake price.
The bid format remains consistent with the first auction and bid components will comprise:
- Price: price in EUR/kg of green hydrogen production. This is the sole criteria for ranking bids.
- Production volume: expected average yearly volume of green hydrogen production over a ten-year period. This will be used to determine the maximum grant amount as a product of bid price and average production volume over ten years.
- Electrolyser capacity: new electrolyser capacity to be installed and operational as at the operation date. The minimum project size remains unchanged since the first auction at 5 MWe.
Other general eligibility conditions include a requirement that hydrogen produced must qualify as a Renewable Fuel of Non-Biological Origin within the meaning of the RED II/III legislation, and production sites, operational control, and data storage must remain in the EEA.
Updates since the first auction
Key changes in terms include:
- New supply chain resilience criteria: To address concerns about dependency on Chinese electrolyser manufacturing, a 25% limit on Chinese-sourced electrolyser capacity at the stack level is being applied to projects. Additionally, new compliance requirements for ISO safety standards and cybersecurity have been introduced.
- More funds and dedicated maritime: The Second Auction increases available funds to €1.2 billion, compared to €800 million in the first auction. An additional €80 million not allocated during the first auction has been rolled into the Second Auction. Notably, €200 million is earmarked for green hydrogen production for the maritime sector. Austria, Lithuania, and Spain are participating in the Auctions-as-a-Service scheme, through which they will make national funds available for projects in their own countries, bringing the total available funding closer to €2 billion.
- Lower price ceiling: The price ceiling has been revised downwards to €4/kg from €4.5/kg in the first auction. It is noteworthy that the seven successful bidders in the first auction priced their bids at around 10% of the ceiling, with a range of €0.37 to €0.48/kg.
- Higher project maturity requirements: Projects must now reach financial close within 2.5 years of signing the grant agreement and enter operation within 5 years. Previously, projects only needed to enter operation within 5 years of signing the grant agreement.
Awards
In case of bids with the same bid price, priority will be given to: (i) proposals with the overall smaller support requirement; (ii) if this is not sufficient to determine the priority, proposals located in a country which had less funds awarded in previous Innovation Fund calls; and (iii) if this is not sufficient to determine the priority, proposals with a shorter time until entry into operation.
Successful bidders will receive an invitation to sign a grant agreement to receive funding, prior to which they must offer a completion guarantee covering 8% of the maximum grant amount, up from 4% in the first auction. The granting authority can terminate the grant agreement prematurely if certain milestones are not reached and will be able to call the completion guarantee.
What's next?
The launch of the Second Auction is a critical moment in realizing European industrial, energy and climate policy, and those with an interest in these areas will be watching the course of this auction closely.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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