Policy

EU clarifies subsidy stacking rules for upcoming hydrogen pilot auction

The European Commission sets out timelines as companies gear up to start bidding from the end of November

European Commission President Ursula von der Leyen.
European Commission President Ursula von der Leyen.Photo: Frederick Florin/AFP via Getty Images

The EU’s €800m ($842m) pilot auction for hydrogen subsidies under the European Hydrogen Bank will close for bids on 8 February next year, according to an FAQ (frequently asked questions) document released by the European Commission this week.

Stay ahead on hydrogen with our free newsletter

Keep up with the latest developments in the international hydrogen industry with the free Accelerate Hydrogen newsletter. Sign up now for an unbiased, clear-sighted view of the fast-growing hydrogen sector.
Sign up now
But as companies gear up to bid for up to €4.50/kg in fixed payments from 23 November, the Commission may have suggested a loophole on rules against stacking state aid to further reduce the price of H2 volumes.

The terms and conditions released in August explained that producers bidding in the auction cannot have also applied for state aid on the project’s capex or opex — although aid for early development, including front-end engineering design studies, would be allowed.

Similarly, developers cannot sign offtake agreements with firms that are benefitting from government opex support for the use of renewable hydrogen or its derivatives.

However, as clarified by the Commission in the latest document, this does not exclude capex support for offtakers to switch from using fossil fuels to green hydrogen — such as shipping companies using government grants to cover the cost of new methanol- or ammonia-fuelled vessels.

But the Commission has been flooded with questions around how rules against stacking state aid would work for projects that would only be compliant with the EU’s rules for renewable fuels of non-biological origin (RFNBOs), ie, green H2 and its derivatives, for part of the time.

For example, an electrolyser could produce what the EU classes as RFNBOs 80% of the time, by using renewable generation matched to electrolyser usage (on a monthly basis up to 2030 and hourly basis thereafter), but not the other 20% of the time when the electrolysers would use get their electricity from the grid due to a lull in wind and/or solar power.

The H2 produced in these non-RFNBO-compliant times would not be eligible for subsidies, nor count towards hydrogen consumers’ targets to use these fuels — but could allow for continued utilisation of the electrolyser rather than a stop-start operation.
These volumes can also still be sold elsewhere as a low-carbon alternative to H2 made from fossil gas, albeit at a higher and likely unsubsidised price.

However, this loophole has prompted companies seeking to bid into the upcoming auction to test the waters on whether it would be possible to stack subsidies for a project, as long as they only counted towards non-RFNBO volumes of hydrogen.

While the auction would allow a project’s total electrolyser capacity to be split based on the expected proportion of time it will produce RFNBOs and non-compliant H2 volumes, with the bid only covering the former, the Commission clarifies that only the share of capacity applying for subsidies would have to follow rules against stacking subsidies.

“To respect the cumulation rules, the fraction of capacity producing RFNBO volumes (in the example 80%) claimed in the bid must not receive any aid,” the FAQ states.

However, it is unclear how this will apply to plants seeking grants towards capex — which some developers, such as Uniper, say are crucial in getting large hydrogen projects off the ground.

And while there may be some leeway for split volumes, the Commission takes a harder line against subsidies for producers that are also the offtaker.

The rules do allow for companies to claim a fixed payment on volumes of hydrogen they both produce and consume.

However, the Commission warns that “RFNBO hydrogen producers supported through the auction cannot be part of integrated projects or have off-take contracts with consumers that benefit from aid for the same, already supported, hydrogen volumes”, which would prevent companies using H2 across multiple sites from shuffling EU-supported hydrogen to be consumed by another portfolio project benefitting from state aid.
(Copyright)
EUGreen H2
Published 6 October 2023, 08:03Updated 6 October 2023, 12:55