Preparing for the European Hydrogen Bank II

Thanks to these projects, it is expected that 1.5 GW of electrolysis capacity and 1.54 million tonnes of RFNBO hydrogen will be produced over the next ten years, equivalent to 158 kt/year.

The success of the first auction has laid the groundwork for the second, which the Innovation Fund will launch on December 3, 2024.

Do you want to submit a project to the European Hydrogen Bank? How do you prepare a project for the European Hydrogen Bank?

At AtlantHy, as a company specialized in this type of funding, we’ll tell you all about it!

Second Auction of the European Hydrogen Bank in 2024

The Innovation Fund (INNOVFUND) is one of the world’s most prominent funding programs for innovative low-carbon technologies. Funded by the EU Emissions Trading System (ETS), its aim is to demonstrate and commercialize industrial solutions that facilitate the decarbonization of Europe and support the transition toward climate neutrality.

Image 2 Pillars of the Innovation Fund (Commission, 2024)

The ETS Directive, revised in 2023, has enabled the adoption of competitive auctions to distribute these funds, with particular focus on the maritime sector, now included under the ETS as of 2024.

Due to the overwhelming demand in the 2023 pilot auction, the European Commission announced the launch of a second auction in 2024, aimed at supporting producers of RFNBO (Renewable Fuels of Non-Biological Origin) hydrogen.

The Innovation Fund’s support will remain in the form of a fixed premium payment per kilogram of hydrogen produced, verified, and certified, for a maximum of 10 years. The objective is to bridge the economic gap between the production cost and the market price of RFNBOs, thereby ensuring profitable and competitive operations.

The announced budget for this second European Hydrogen Bank auction is €1.2 billion, of which €200 million will be allocated to the “maritime basket", reflecting the special attention the Innovation Fund gives to this sector.

Among the main differences compared to the pilot auction are:

• The introduction of a dedicated basket for the maritime sector.
• A reduction in the maximum price of hydrogen produced, from €4.5/kg to €4/kg.
• The inclusion of a sub-criterion that limits the sourcing of electrolyzers manufactured in China to a maximum of 25% (in MWe).
• An increase in the required completion guarantee amount, from 4% to 8% of the total requested grant.
• Eligibility criteria now require more detailed information, particularly regarding the purchase of electrolyzers and the hydrogen value chain.
• A certain level of flexibility is introduced in the accumulation of aid from other funding sources.

Participation requirements

Applicants must meet certain admissibility and eligibility requirements to participate in this second call of the European Hydrogen Bank. Below is a summary of the most relevant ones.

Admissibility

According to the Terms and Conditions document, projects wishing to participate in the second auction of the European Hydrogen Bank must include, in addition to the application forms and other mandatory documentation:

• Financial Information File (FIF) including the bid price (€/kg of RFNBO), the expected average annual volume of RFNBO hydrogen production over the 10-year period, and the capacity of the electrolyzer to be installed.
• Renewable electricity procurement strategy demonstrating that agreements (Heads of Terms (HoT) or other pre-contractual agreements) have been established to ensure that the volume and time profile match at least 60% of the RFNBO hydrogen volumes indicated in the proposal. This strategy must address the key principles of RFNBO hydrogen production: additionality, geographic correlation, and temporal correlation.
• Hydrogen offtake strategy that must demonstrate, through Heads of Terms (HoT) or other pre-contractual agreements, that the purchase of at least 60% of the RFNBO hydrogen production volumes has been secured for the project implementation period.

To be eligible under the maritime budget category, Heads of Terms (HoT) or other pre-contractual agreements must be submitted demonstrating that at least 60% of the RFNBO hydrogen production will be supplied over the project's implementation period.

The buyer from the maritime sector must use the hydrogen or its derivatives in bunkering activities at ports under the jurisdiction of the European Economic Area (EEA).

• Electrolyzer procurement strategy: Memoranda of Understanding (MoUs), Letters of Intent, or other pre-contractual agreements signed with the electrolyzer manufacturer must be included. Additionally, any information regarding grants or subsidies received for the production of the electrolyzer must be provided.
• Environmental permitting assessment: This must include evidence demonstrating the initiation of the process with the relevant authority.
• Grid connection permitting assessment: Evidence must be provided showing that the procedure has been initiated with the relevant authority.
• Letter of intent for completion guarantee: A letter from a bank or financial institution confirming their intention to issue a completion guarantee linked to the project’s entry into operation. This must be issued no later than two months after receiving the letter of positive evaluation results.
• Feasibility study: A viability analysis must be included to assess the maturity of the project.

Eligibility

For a project to be eligible, it must meet at least the following requirements:

• Proposals must include projects located within the European Economic Area.
• The newly installed capacity must reach a minimum of 5 MWe in a single location, as virtual aggregation is not allowed.
• The project budget must fall within the limits established in the call. According to the Terms & Conditions:
  • For projects submitted under the general budget, the maximum grant request may not exceed 250 million euros.
  • For projects submitted under the maritime budget, the maximum grant request may not exceed 200 million euros.
• The maximum hydrogen production price cannot exceed the limit of 4 euros/kg, both for the general and the maritime baskets.
• The RFNBO hydrogen must be produced in accordance with the Renewable Energy Directive and its Delegated Acts. It should be noted that:
  • Producers of RFNBO hydrogen that enter into operation before January 1, 2028, will not be required to apply the additionality requirement.
  • Producers entering into operation after January 1, 2028, may be exempt from applying the additionality principle if the grid has low emissions (<18gCO₂/MJ) or a high share of renewable energy (>90%).
• Beneficiaries must certify that the total volume of hydrogen produced achieves at least a 70% reduction in greenhouse gas (GHG) emissions.
• Regarding compatibility of funding from the European Hydrogen Bank and other public funding mechanisms, in general, double funding is not permitted for the CAPEX or OPEX of the RFNBO hydrogen production plant. However, it is allowed for energy infrastructure connected to the project (e.g., through the Connecting Europe Facility (CEF)), provided that such infrastructure is not exclusively dedicated to the project.

Image 3 Rules for the accumulation of public funding through the EHB and other mechanisms (Commission, 2024)

Therefore, projects submitted to this second auction of the European Hydrogen Bank will be evaluated and subsequently ranked based on the results obtained. This second auction includes a reserve list, which will feature those projects that do not receive funding initially but may be awarded funding if a selected proposal is withdrawn or if the new “flexibility rule” is applied, allowing an additional 20% to be added to the budget.

Image 4 Decision tree for project classification (European Commission, 2024)

Conclusions on the European Hydrogen Bank

The successful outcomes of the 2023 pilot auction have set a precedent for future auctions of the European Hydrogen Bank, aiming to encourage the development of innovative and sustainable technologies through a cost-efficient economic approach.

The second auction of the European Hydrogen Bank presents a promising opportunity to advance the energy transition in Europe. With the previously mentioned success of the first call, expectations for this second round are very high.

This auction will not only expand production capacities but also establish a stronger framework for collaboration between the various players in the renewable hydrogen and derivatives sector.

In this context, the second auction could become a decisive milestone on the road to a renewable hydrogen economy in Europe.

Are you thinking of participating? Below we share some recommendations to maximise your chances of success!

Recommendations for participation

1. Develop your Financial Information File with a clear and precise estimate of your costs and renewable hydrogen production capacity. Remember that your bid must not only be below the established maximum price, but also competitive.
2. Include a detailed plan for the RFNBO hydrogen production capacity of your project over the 10-year period, along with the verification methods you will use.
3. Consider a risk management plan that outlines the necessary measures to mitigate risks, especially those related to electricity price variability and market conditions.
4. Ensure a financing strategy that includes completion guarantees and documentation demonstrating the economic viability of your project.
5. Establish strategic partnerships with various actors across the hydrogen value chain, thus diversifying and strengthening your project.
6. Secure all required documents on time, such as the renewable electricity supply strategy, environmental permits, etc.
7. Stay alert for the final publication of the auction, and make sure you are ready to submit a competitive proposal.

Don’t forget that at AtlantHy, we are highly successful in securing funding for renewable fuel projects, with a success rate of over 80%.

Don't hesitate to contact us to launch your project with the support of the European Hydrogen Bank!

If you enjoyed this article... follow us on AtlantHy Academy!

Bibliography

Comission, E. (2024). Draft T&Cs - 2024 Innovation Fund RFNBO Hydrogen Auction. Retrieved from https://climate.ec.europa.eu/document/download/c48bfb57-971b-47b4-878f-d15d717a5c8a_en?filename=event_20240612_if24_auction_draft_t%26c_en.pdf

Comission, E. (April 30, 2024). Innovation Fund IF24 Auction - Draft Terms and Conditions . Retrieved from https://climate.ec.europa.eu/document/download/482b186d-fec0-4ee6-82d0-06eafa0b1f75_en?filename=event_20240612_tc_en_0.pdf

European Hydrogen Observatory. (June 12, 2024). Commission announces €1.2 billion for second Hydrogen Bank auction budget. Retrieved from https://observatory.clean-hydrogen.europa.eu/media/news/commission-announces-eu12-billion-second-hydrogen-bank-auction-budget