Bidding on the first tranche of the EU’s landmark €3bn ($3.27bn) green hydrogen subsidy auction begins today, finally opening the door for European developers to make large-scale electrolyser capacity in the bloc a reality.

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The €800m European Hydrogen Bank (EHB) pilot auction will see developers compete for ten-year fixed-price green hydrogen premiums of up to €4.5/kg, marking the first time producers will have access to production subsidies.

Once the bids close on 8 February, participants will have to wait until April for the results — after which the winners can start building the economic case for their projects, apply for financing and at last progress s towards final investment decision (FID).

Successful bidders will sign contracts with the EHB within nine months of the close of the auction, and will then have five years to bring their projects to maximum capacity, although subsidies will be paid from the moment green hydrogen is produced and brought to market.

In total, analysts have speculated that the first auction will be enough to support around 200MW.

The second, €2.2bn tranche is set to be launched in spring 2024, although it is not yet clear whether the same terms or fixed premium offer will apply.

The EU is targeting 10 million tonnes of domestic certainty by 2030, which trade association Hydrogen Europe believes will require 100GW of electrolyser capacity installed by that date.

But European electrolyser capacity is currently dwindling at around 228MW, according to Hydrogen Europe’s analysis. Progress on GWs of green hydrogen projects has stalled over the past two years, while developers wait for clarity on regulation, which finally came earlier this year, and subsidies.

Even though the EHB was launched a year ago with €3bn of capitalisation from the EU’s Innovation Fund, it has taken some months for details of the subsidy mechanism, and the auction terms, to be hashed out.

Apparently inspired by the German government’s pioneering H2 Global auction mechanism for hydrogen imports, European Commission president Ursula von der Leyen has promised that the EHB will take H2 production in the bloc from “niche to scale”.

The up-to €4.5/kg ($4.89/kg) fixed premiums — which will be paid on top of the market price for hydrogen — are designed to bridge the gap between fossil-based hydrogen and renewable H2.

They are on paper more generous than the maximum $3/kg production tax credits on offer in the US’s Inflation Reduction Act (IRA), but in reality most projects are unlikely to ever receive the full €4.5/kg, as developers in the two-stage “pay-as-bid” auction will be incentivised to bid as low as possible.

The EHB has been given an enthusiastic welcome from the bloc’s hydrogen industry, amid growing concern that Europe will be left behind by the IRA.

Ola Hansén, head of external affairs at Sweden’s H2 Green Steel, which is currently building what is set to become the world’s first commercial hydrogen-based green steel plant, said the EHB is a more sensible approach than the IRA, and might even mitigate the dominance of some of the bloc’s biggest economies.

“We think [the EHB] is a really good idea,” Hansén told Hydrogen Insight recently. “We would like to see much more of that. In the current subsidy race in Europe we have two member states, France and Germany, who really are pushing [subsidies] and it risks the internal market in the EU.”

He added: “These EU-wide schemes are based on performance [which] creates a level playing field in the EU and it also minimises the need for subsidies. You really make sure you support the most effective plants in the transition.

“Compared to the IRA, well, we’ll see how it works out in practice but in theory you have a guaranteed income regardless, which is a waste of taxpayers’ money. EU common support schemes where the support goes to the most efficient installations, whether it’s green hydrogen or green steel or some other desired transition or outcome — that’s a really good way forward for the EU.”

H2 Green Steel is not bidding the auction, Hansén noted, as the firm has already been awarded grant funding from the Innovation Fund.

UPDATED: to correct end of the auction date to 8 February, not 4 February as previously stated, and to include information from the EU on when the contracts will be awarded