European green hydrogen projects are being delayed due to torturously slow EU subsidy processes, say developers

But developers are disgruntled by the long, arduous process of accessing these subsidies, which they say holds them back from taking final investment decision (FID) on projects.

“In Europe, the process is too long, it is not really clear,” Valerie Ruiz-Domingo, vice president of hydrogen at French utility Engie, told the Connecting Hydrogen Europe conference in Madrid on Wednesday.

While billions of euros in state aid have supposedly been unlocked by the two IPCEIs announced to date, some member states have been slow to hand out subsidies promised months ago to projects.

“We have to wait for months until the response comes, so we don’t know what the response is going to be, and even if it’s positive, we know it’s not going to be enough,” said Ana Quelhas, managing director of hydrogen at Portuguese utility EDP.

The company received IPCEI status for three Spanish hydrogen projects in September 2022, but has still not received any finance from the national government. Quelhas added that the upcoming elections and a potential change in administration present “another question mark” on when and how these projects will get funding.

“It’s really difficult for us as a renewables developer and as a developer in green hydrogen to come to final investment decision,” Quelhas said. “If you asked me a year ago where we would be today, I would have answered that we are much more advanced than we are now when it comes to the development of projects.”

She added that this has led to greater interest in developing projects in Latin America because “because you know the renewable sourcing is more affordable” and “you don’t have a lot of overregulation”.

Ruiz-Domingo praised the clean hydrogen production tax credit in the US as “simple” compared to what is on offer in Europe, since it automatically kicks in once a project application is approved.

“We don’t need to prepare all those hundreds of pages… we just need to have a project that makes sense,” agreed Quelhas, noting that tax credits are “cheaper” for developers to process and “much better understood by the financial community”.

However, she added that the US is currently undergoing a “heated debate” on what criteria projects will have to meet to receive the full $3/kg tax credit, and may ultimately implement similar rules to Europe on only allowing the use of “additional” renewables projects, rather than pre-existing ones.

But despite calls from industry, an EU-wide fiscal instrument such as the US production tax credit may be impossible to put in place.

“We’re not the United States, we don’t have a federal government that can make a tax plan that applies a different tax threshold and a different tax regime to the whole of Europe,” said Alan Haigh, policy advisor at the European Commission’s directorate-general for research and innovation.

“Tax is not a competence of the EU, tax is a member state competence,” he added, noting that a tax credit similar to what is offered in the US would need to be organised by a coalition of member states.

However, although Haigh argued that “the European Union is not giving nothing in terms of moving projects from research to innovation to deployment”, he also conceded that the funding instruments for large-scale projects, such as the Innovation Fund, are necessarily much more time-intensive.

It also only gives 40% of an awarded grant before the plant is up and running, with the remaining payments only unlocked once the project proves it has successfully abated emissions.

“It is public funding, and it’s not something that the auditor is just going to let go when we’re [spending]… taxpayer’s money,” Haigh noted.

Meanwhile, the EU’s lending arm, the European Investment Bank, is “eager to support projects”, according to Ana-Maria Vidaurre, head of renewable hydrogen structuring and strategic partnerships at Spanish oil company Cepsa.

But “these projects need to be bankable because they can only support part of the financing and the rest must… come from commercial banks”.

Opex support

While a production tax credit may not be feasible in the EU, the industry is calling for more subsidies to support projects once they are up and running.

While this focus on capex [capital expenditure] is “great for innovation”, he anticipates that the EU will have to adopt “an opex-style [operational expenditure] support mechanism” similar to the feed-in-tariff for renewables in order to accelerate projects.

But delegates at the conference are cautious about pinning too much hope on this set-up.

The biggest problem is that the rules for the auction have not yet been published and the first one is not due to be held until December.

The H2Global scheme was recently adopted by the Netherlands, and the EU would like to roll it out across the bloc.

‘Laws can be changed’

The matter of whether a regulatory framework has even been set in stone, and therefore provide developers with enough certainty to take FID, is also contested by the industry.

“Laws can be changed, regulation can be changed. And if you look at the lead times of the project, and then the construction time, and then the payback time, you have to have security and certainty of regulation before you take FID until the end of the project,” said Gabriel Clemens, CEO of utility EON’s green gas division.

While the panel’s moderator, Samuel Ogunlaja, a partner at law firm Gisbon, Dunn & Crutcher, pointed out that potential for legal frameworks to change after FID is taken is the case for any project in any sector, Clemens argued that even in newer energy sectors such as liquefied natural gas, “we already have players in the market, some kind of liquidity, some kind of experience”, while hydrogen is still “at the beginning”.

“It’s not about not having regulation, but balancing and putting enough regulation to make sure things are not going completely wrong, that kickstart the projects and the market,” said Tomas Malango, director of renewable fuels at Spanish oil firm Repsol, while criticising the additionality principle in the Delegated Acts.

He added that this kind of soft regulation was seen in the renewable energy market 25 years ago, which enabled a rapid scale-up.

“If the policy of Europe… is to push one sector, then regulation needs to help or move [it] forward, and not interrogate every single defect of things that we say we support,” agreed Antón Martínez, CEO of Spain’s Enagás Renovable.

The European Commission is required to submit a report to the European Parliament and Council on the impact of the Delegated Acts by 1 July 2028 — which could prompt a redrafting of these regulations, although that could take a further two years.

“The disadvantage of regulating in detail is it takes too long,” noted Clemens.

Assuming development takes two or three years and construction another two, “that means in the coming two to three years, all these projects need to be under development”, Galjee said.

“If you want to have really a market, liquidity of the market, we need to have guarantees of origin or certification to be able to trade renewable hydrogen,” Ruiz-Domingo pointed out.