The European Commission’s first green hydrogen auction, which was opened today, should very much be seen as a pilot project designed to test the market, create a price signal, and to learn lessons from, according to the senior EU official in charge of the programme.
Kurt Vandenberghe, director-general of the Commission’s directorate-general for Climate Action (DG-Clima), told delegates at European Hydrogen Week that the auction is a “litmus test of how ready the market is and how [ready] the operators, the companies, are to move from pilot projects to commercialisation”.
“We have to see it in this way. It’s a pilot auction. We will also learn the lessons from this [for future auctions],” he added.
European Commission President Ursula von der Leyen announced at the conference on Monday that the EU would host a second €2.2bn ($2.4bn) green hydrogen auction in the spring.
Vandenberghe also described the €800m funding pot for the first auction as “peanuts” compared to what the clean H2 sector needs, and explained that the total investment needed to meet the EU’s stated goal of producing 10 million tonnes of green hydrogen per year by 2030 was between $350bn and $500bn.
“Never think that the European budget can muster this,” he said.
Vandenberghe added the Commission was “excited” about today’s auction and believed that because the process had been “co-created” with the hydrogen industry “there will be quite a healthy dose of competition”.
“We hope that this auction will show that the market is ready and that we can also learn what the right price is at this moment. The process of price discovery will be very important.”
Despite the fact that the auction process had been developed during “very deep exchanges with stakeholders”, the director-general acknowledged that there were still “some worries” about it, such as the rule that producers bidding in the auction cannot have also applied for state aid on the project’s capital or operating expenditure (capex or opex).
“I do know that there is quite some worry about the rule on non-combination of state aid. And that has been a conscious choice. It has been discussed at length with the stakeholders. We have gone for this rule of non-combination with national state aid, because this is a first auction and we want it to be a fresh start in the new market. We really want to create a level playing field at European level,” he explained.
“So what we want is a competition on the best price, on the best economics, not necessarily on the best support systems that exist in member states. If we had allowed for the combination of aid, then it may have been made easier for some companies from some member states, but maybe harder for others from other member states.
“And we would not have had the right mechanism for price discovery. On top of that, we would also possibly have complicated the administration a lot, because we would have had to check the cost items in each bid to make sure that there is no subsidisation above 100% of the funding.
“I know, and we know there are projects that are funded nationally that still need a bit of a push, but there we would refer to the normal Innovation Fund grants, the Modernisation Fund, but also many national funds that are still available to help with these projects.”
Considerations for the second auction
Vandenburghe also gave some hints on potential changes the Commission was considering for the second auction.
“We are no longer a bystander and a simple regulator,” he told the audience. “We really are putting our own stakes in the development of this market, which will mean that we will also look at… the whole ecosystem of rules and investments that are needed to make sure that this market develops in the right way, with the right speed and with the right framework, including infrastructure investment, for example.
“As you know, the bids that will win will have five years to enter into operation. That gives us a sufficient amount of time to make sure that we look at everything we have put in place in terms of the regulatory framework... looking at how we can anticipate, advance the obligations on off-takers to move towards clean solutions like green hydrogen. We now have in the Renewable Energy Directive a few mandates binding targets for industry and transport.
“I understand that some of these sectors are probably waiting until the very last moment in order to make these decisions to jump, to dive into the cold water [in order to meet their targets]. Maybe what we need to do is to see how we can make that earlier than what otherwise would be the case.
“And I think there is also the hard-to-abate sectors, indeed, where we will have to see, based on the lessons learned from this first auction, what does it mean for the next auctions.
“Should we have a more sectoral approach? We are open. Nothing is decided on this. I think we will have to move very fast with the second auction. You’ve seen our president, Ursula von der Leyen is extremely impatient, which doesn’t make it always easy for us.
“So we will want to move very quickly because there is no time to lose. At the same time, we also will have to make sure that we draw the right lessons, and that we have, again, a co-creation stakeholder process with everyone involved, so that we get it right.
“Where I'm very interested in going to the next auction is the question of sectoral approach, the question of scale. How can we make the scale work?”