QAZAQ GREEN.  The European Union is set to conduct its inaugural auction for the production of green hydrogen on November 23, 2023. The financing for this auction will be provided by the EU Hydrogen Bank's Innovation Fund. The terms and conditions for the auction were made public after a stakeholder consultation that commenced in March 2023, offering prospective bidders insights into the auction's economic organization and enabling them to prepare their bids.

The auction is set to allocate up to €800 million to renewable hydrogen producers within the European Economic Area (EEA). This financial support will be structured as a fixed premium per kilogram of renewable hydrogen produced over a ten-year operational period. The objective is to bridge the cost gap between renewable and fossil hydrogen production, aligning it with market demand.

This auction is designed with four key objectives in mind:

Reducing the cost disparity between renewable and fossil hydrogen production in the EU by efficiently allocating public support. Auctions have previously proven successful in the renewable power sector, promoting cost competitiveness while attracting private investments.

Facilitating price discovery and the establishment of a robust renewable hydrogen market. Competitive auctions with transparent rules will reveal production costs and establish reference prices, nurturing a European hydrogen market.

Mitigating risks associated with European hydrogen projects, connecting domestic renewable hydrogen supply and demand, lowering capital costs, and leveraging private investments. The Innovation Fund's support is envisioned as the initial capital for increased private and corporate investments, given the substantial scale of required funding.

Reducing administrative complexity and costs through streamlined, efficient, and transparent procedures.

This innovative auction mechanism will expand the range of support mechanisms offered by the Innovation Fund, which already includes grants, project development assistance, and other blended financial instruments. It is anticipated to accelerate the deployment of innovative technologies crucial for the green transition, particularly in challenging-to-decarbonize sectors.

Background:

The Innovation Fund is one of the world's largest funding programs dedicated to advancing net-zero and innovative technologies. As a pivotal component of the Green Deal Industrial Plan, it is financed by revenues from the auctioning of allowances from the EU Emissions Trading System (ETS), aiming to facilitate investments in clean energy and the development of technologies that can decarbonize European industries while enhancing competitiveness.

In March 2023, the Commission introduced a new plan to stimulate and support investments in renewable hydrogen production through the European Hydrogen Bank (EHB). This initiative seeks to expedite investments and bridge the financial gap to help the EU achieve its ambitious REPowerEU targets.

The EHB is structured around four core pillars:

Encouraging the establishment of a domestic market for renewable hydrogen.

Supporting international imports of renewable hydrogen into the EU.

Promoting transparency and coordination regarding market developments.

Streamlining existing financial instruments.