H2Global mechanism to be further extended

During talks on 31 May 2023, EU Commissioner for Energy Kadri Simson and German Federal Minister for Economic Affairs and Climate Action Robert Habeck announced the linking of the new European Hydrogen Bank with the German H2Global instrument to foster the common goal of driving the global market ramp-up of hydrogen.

H2Global is intended to serve both as a vehicle and as a model for other funding programmes. The first tenders for imports of zero emission hydrogen derivatives within the framework of H2Global have already started backed by the Federal Ministry of Economics and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz, BMWK) with a funding amount of EUR 900 million. At the moment, the BMWK and the Federal Ministry of Digital Affairs and Transport (Bundesministerium für Digitales und Verkehr, BMDV) are preparing further public funding schemes with a volume of up to EUR 5 billion, to be awarded through tenders via H2Global (Link).

H2Global is an innovative instrument to promote an effective technology and market ramp-up of derivatives of hydrogen produced from renewable energy (so-called green hydrogen). The programme is implemented and further developed by the non-profit foundation H2Global through its subsidiary HINT.CO GmbH (Hintco). Within the framework of the H2Global programme, Hintco is provided with funding, procures green hydrogen derivatives on the world market from the bidders with the lowest price and sellst them in the EU to the highest bidders. In doing so, Hintco acts as an intermediary between the original supplier and the final buyer. Since it can be assumed that the purchase prices will initially exceed the sales prices, the corresponding difference is made up by Hint-co with the subsidies. For more information on how the mechanism works, see our Client Briefing of 21 December 2022 (Link).

H2Global’s double auction model shall be accessible in future to all EU governments intending to conduct tenders for the procurement of hydrogen derivates as a part of the “Team Europe” approach. The European Commission (Commission) has labelled this approach “Auction as a Service”. In addition, the H2Global Foundation will join forces with the European Hydrogen Bank to implement a joint European tendering mechanism in which all member states can participate to increase hydrogen imports. To this end, the dual action model and H2Global are to integrated into the European Hydrogen Bank.

The European Hydrogen Bank is an initiative of the Commission to facilitate both the production of renewable hydrogen in the EU and the import of hydrogen into the EU. The aim is to close the investment gap and match the future supply of renewable hydrogen with European hydrogen demand. The Commission presented its concept for the European Hydrogen Bank in more detail in its communication of March 2023 (Link).

In its 2022 REPowerEU strategy, the Commission expects a total demand of 20 million tonnes of green hydrogen by 2030. 10 million tonnes are expected to be produced in the EU itself and 10 million tonnes are to be imported. To expand domestic production, the Commissionwill hold a first pilot auction for hydrogen production in the EU in December 2023 with a volume of EUR 800 million. The auction is funded by the Innovation Fund, which relies on revenues from the auctioning of EU emission allowances. The pilot auction aims to use the (initially limited) funds for the development of the European hydrogen economy as effectively as possible. The production of renewable hydrogen is therefore to be subsidised with a fixed premium per kilogramme produced for a maximum of 10 years. In March 2023, the Commission published draft economic terms and conditions and held public consultations on the draft in May 2023. The final terms and conditions for the pilot auction are expected to be published in this summer.

According to Commission estimates, the European Hydrogen Bank will have a total of EUR 3 billion at its disposal. Since the European Hydrogen Bank is based on the Innovation Fund, the final budget also depends on the price development of EU emission allowances. In addition to that figure, member states have also announced that they will make available funds to promote the production and import of green hydrogen and its derivatives.

We will keep you up to date about the start of further tender procedures in connection with H2Global and the European Hydrogen Bank.

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We would like to thank Leonhard Nagl for his valuable support in the compilation of this article.