The first hydrogen auction under the Innovation Fund is scheduled to start on 23 November 2023

published on 30th November 2023

While the first auction under the H2Global scheme was aimed at hydrogen imports from outside the EU or the European Economic Area (EEA), the current auction round initiated by the European Hydrogen Bank and financed from the Innovation Fund (IF23Auction) starting now is addressed towards hydrogen production projects located in the EEA. The production of green hydrogen is funded in the form of fixed premium payments.

By publishing the Terms and Conditions on 30 August 2023, the European Commission gave the starting signal for the implementation of bid-based auctions under which fixed premium payments are awarded to hydrogen producers in the EU. They constitute the so-called “domestic leg” of the European Hydrogen Bank. In future, it will be supplemented with an “international leg” in order to ensure diversification of hydrogen imports or its derivatives from outside the EU.

Goals & Objectives

The F23Auction aims to support the expansion of domestic hydrogen production in the European Union. A total of 800 million euros has been earmarked for premium payments made in Euro per kilogram of generated hydrogen.

The object of funding is green hydrogen, classified as renewable fuel of non-biological origin – RFNBO. It has to be consistent with the requirements specified in the Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (recast) and the final versions of Delegated Regulations C(2023) 1086 and C(2023) 1087.

Bid components and procedure

An application for a share in the 800 million euros budget should include the following components:

Fixed premium (bid price) in EUR/kg of RFNBO hydrogen (basis for the ranking of bids), specified to two decimals.
Expected average annual volume of RFNBO hydrogen production in kg per year over a production period of 10 years.
The new electrolyser capacity in MWe that will be installed and verifiably operable at the time of commissioning.

The technically required minimum capacity, which is a criterion for eligibility, is a minimum of 5 MWe of newly installed electrolyser capacity. It must be installed at one site; virtual combination of capacities is not admissible. Moreover, in order to be eligible for funding, hydrogen should be generated using new production capacities (i.e. capacities the installation of which had not yet started at the time when the application was submitted).

Upon successful application, funding is granted in the form of a fixed premium in the amount corresponding to the bid price and is ensured in addition to market revenues for up to 10 years (from the date of commissioning).

The admissible maximum price in the first auction round has been determined at 4.50 EUR/kg of generated hydrogen. A verification of the maximum price will take place during later auction rounds. In order to avoid concentration of funding among individual large producers, a maximum amount of not more than one third of the available funds has been established per individual project. For the planned auction round, this amount is therefore 266.7 million euros. Consequently, bids for legally distinct projects at different sites with own cost and revenue structure must be submitted.

The bid price may include infrastructural costs for hydrogen transportation but they are not taken into consideration for a comparison with the bid prices for projects for which, due to their concept, there is no need to budget in transportation costs.

The auction terms and conditions include a further requirement relating to securing sales. According to this, during the project implementation period – i.e. for a period of 10 months assumed for the calculation – a MOU, LOL or similar forms of pre-contractual documents concluded with one or several offtakers must be submitted for at least 60 % of the hydrogen production volume. But direct consumption of generated hydrogen by the producer (self-consumption) is also allowed. An example for that can be offtaking hydrogen and its subsequent processing to make ammonia.

The end of the first auction round has been scheduled for 8 February 2024.

For successful projects, grant agreements are concluded with the European Climate, Infastructure and Environment Executive Agency (CINEA) being the authority implementing the auction model. Before the agreement is concluded, a performance bond in case of delayed commissioning amounting to 4 % of the maximum amount of the grant is to be furnished. The maximum allowable period until commissioning is five years from signing the grant agreement.

This auction mechanism might be of particular interest for already planned PV projects in Spain which, so far, have not been implemented due to lacking grid connections.

Ranking of bids

If the offered hydrogen volumes or prices exceed the available budget, bids will be ranked according to the following scheme:

Bid price
If bid prices are the same, projects with lower production volumes will be prioritised.
If this is still not sufficient, projects from countries which have received less funding from the Innovation Fund so far will be prioritised.
The last criterion is the time of commissioning, i.e., projects with sooner commissioning dates will be prioritised.

Further auction details will be available upon start of the procedure scheduled for 23 November 2023.

Auctions-as-a-Service

According to current planning, in the future, the auction model developed as part of the IF23 Auction will be available to countries in the EEA for auctions to be carried out in their respective territory and financed from national budget funds – Auctions-as-a-Service (AaaS).

If you have any questions regarding the auction procedure or are planning to participate in an auction, please feel free to contact us.