The German government has kicked off its first-of-a-kind green hydrogen subsidy scheme H2Global, with the launch of a tender to import green H2-derived ammonia from international producers.

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But in order to comply with the EU’s state aid rules, Germany’s Ministry for Economic Affairs and Climate Action (BMWK) has imposed strict additionality criteria on green ammonia produced for the scheme.

In fact the rules are marginally more stringent than those the EU has proposed for domestic producers.

The launch of the first €900m ($947m) tranche of the H2Global auction scheme marks a major milestone for Europe’s current and prospective hydrogen users, including chemicals companies, refiners and steel producers, as well as for international green hydrogen producers hoping to sell into the European market.

Deliveries of green ammonia are expected to begin in 2024 under ten-year contracts, according to documents released as part of the tender.

Under the unique double-auction scheme a special purpose company owned by the German government, Hydrogen Intermediary Network Company (HintCo), will buy green hydrogen or its derivatives from international producers via ten year Hydrogen Purchase Agreements (HPAs), before selling it on to European customers, who will bid for short-term supply contracts via a separate tenders.

Deliveries can be made to ports in Germany, Belgium or the Netherlands to unspecified “EU-based” customers — which could mean subsidiaries of German companies with operations in other EU countries.

HintCo intends to complete the HPA auctions by mid-2023, launching the supply auctions in 2024/2025.

The supply contracts will be awarded to the highest bidders but in the event that they fall short of the cost of the HPA, the difference will be made up by HintCo using funds from the German government.

By putting the commercial risk of H2 trading onto HintCo, H2Global aims to provide international green hydrogen producers with long-term price and demand certainty the need to develop their projects, while also securing a supply for European customers. The EU is targeting 10 million tonnes of green hydrogen imports by 2030.

The tender specifies no set amounts of green ammonia, but it is also set to launch auctions for purchases of green methanol — made from renewable hydrogen, oxygen and carbon (CH3OH) — and sustainable aviation fuels imminently.

H2Global is expected to deliver around 500MW of associated electrolyser capacity around the world, but this could grow if the German government furnishes the scheme with more funds.

German chancellor Olaf Scholz wants to quadruple the cash available to H2Global to €4bn, but the EU is yet to give this expansion the green light under its State Aid regulations. If the scheme is expanded, it could be expected to support a total of 2GW of electrolyser capacity.

However, international producers will be expected to comply with strict additionality regulations set by the EU — a stipulation that the German government agreed to when the Brussels granted the €900m tranche State Aid clearance.

Under the rules, green hydrogen producers in the ammonia value chain will need to prove the provenance of their electricity supply.

They can either show that their electricity supply came from dedicated renewables capacity, that they have used grid-sourced electricity in an area where renewable generation accounts for at least 90% of grid capacity, or that they have sourced renewable energy from the grid using a power purchase agreement (PPA).

In the event that they have used grid electricity with a PPA, the will be required to prove that hydrogen production took place within the same hour as renewable energy generation under the PPA — even stricter rules than those for EU-based producers, who are likely to be expected to balance renewable power and electrolyser operation on a quarterly basis, rather than hourly, until April 2028.

Grid electricity sourced under a PPA must also be generated within the same electricity bidding zone as the hydrogen plant, or within 500km if a bidding zone does not exist in the country, the HPA contract states.

Hydrogen projects coming on line after 2026 will also have to show that any PPA-sourced renewable energy generation they use comes from installations no more than three years’ older than the hydrogen plant, and that the installation has not received any other state funding.

“We acknowledge and appreciate this major step for the ramp-up of importing green hydrogen,” said Axel Wietfeld, chief executive of German utility Uniper. “The H2Global Foundation has made fantastic progress.”