How easy will it be for green hydrogen projects in developing nations to export to Europe? Part 2: Auction hurdles

One case study would be Germany’s flagship import programme, H2Global.

This initiative is currently running a first tender to purchase volumes of green ammonia, methanol and synthetic aviation fuels from outside the EU (and the European Free Trade Association) on ten-year contracts at the lowest possible price. These hydrogen derivatives will then be auctioned off to buyers within the country for the highest possible price on short-term agreements. First deliveries are due to take place from late 2024.

But public procurement and trade law specialists Blomstein, which is working with two companies in a consortium that bid into H2Global, revealed at last Friday’s Investing in Green Hydrogen conference in London that taking part in this auction is a document-heavy process that may end up excluding companies with limited German-language operations or access to translators.

H2Global has to be conducted under the EU’s public procurement laws, as well as state aid regulations due to the government subsidy.

Ramona Ader, a senior associate at Blomstein, pointed out that this effectively puts companies “that do not regularly participate” in such procedures at a major disadvantage.

“On the one hand, there were very detailed formal requirements, so there was a really long list of documents that had to be handed in: several self-declarations on sanctions, compliance with paying taxes, and criminal offences,” she said.

“All these self-declarations were only available in German and they also had to be filed in German, so that makes it hard to participate for companies that do not have employees [able to write] in German.

“Furthermore, there were additional documents that had to be handed in, for example, an excerpt of commercial register or power of attorney, and unless these documents were available in German or English in the original, there had to be a sworn translation to be handed in. So that was additional effort that took additional time.”

Unlike private auctions, which can have some leeway for extension or discussions around requirements, the criteria set out under public auctions in the EU are mandatory and will automatically lead to disqualification if they are not correctly managed.

Ader also pointed out that there were also a number of company references or requirements to prove their experience in similar sectors, “for example, production of [fossil-based] hydrogen in large-scale, production of green energy, transports of comparable hazardous goods” that required smaller, newer firms to partner up, form consortia, or hire subcontractors to tick these boxes.

But this made the process even more complicated.

“There was much more paperwork, because all the self-declarations and documents to be handed in were not only to be provided for the company that placed the bid, but also for consortium partners and for subcontractors, even if the subcontractors were subsidiaries — and you had to hand in all the documents and all the self-declarations in German,” Ader explained.

She added that if H2Global, or a similar initiative, was rolled out on EU-wide or to other member states — as planned — “we assume that the requirements will be similar, because there are government funds involved”.

And the sheer amount of paperwork is also swamping the auctioneers.

“[H2Global] are taking — if you ask me — forever to finish the first tender. They are still analysing documents to this day,” said Bruno Galvão, special counsel for public procurement, international trade law and ESG at Blomstein, although he added that this reflects the fact that it is still a very new process.

While the next EU import auctions are likely to be more streamlined, with lessons learned from the first German tenders, the hurdles for export-oriented projects may mean that their volumes are directed to markets with looser regulations on low-carbon hydrogen.

The structure of import auctions, wherein producers have to commit to ten-year fixed-price contracts, could also disadvantage developing nations seeking to sell to markets at the highest possible price, according to Marco Raffinetti, CEO of Hyphen Hydrogen Energy, which is currently developing a $10bn project in Namibia.

Assuming a rising pressure on corporates to decarbonise, with stricter penalties on emissions for both European and exporting nations, and limited supplies of green hydrogen, “there’s going to be a gross mismatch between demand and supply, [and] prices are going to be quite elevated,” he added.

“There’s a large probability that if you enter today a fixed price contract, under Contracts-for-Difference structures, you will have the southern hemisphere financially subsidising the northern hemisphere’s energy transition. That’s not going to be sustainable in developing nations,” Raffinetti argued.

However, because accessing finance is contingent on developers convincing banks of revenue certainty over the period of debt payback, it is likely that most projects — regardless of location — will need to commit to long-term offtake agreements, or else have little chance of getting the capital to start construction.