Green hydrogen producers could bag over $2/kg in new Danish subsidy auction — but 'safety mechanism' aims to push support lower
Denmark hopes auction design will maximise H2 production and limit ten-year fixed premiums to $1.23/kg
Hydrogen: hype, hope and the hard truths around its role in the energy transition
But the Danish Energy Authority (DEA), which is managing the auctions on behalf of the Danish state, has engineered a budget-control mechanism into the tender design, that aims to limit the ten-year premiums to the equivalent of $1.23/kg.
The scheme hopes to subsidise around 100-200MW of electrolysis capacity.
So, to maximise the amount of hydrogen produced under the scheme the auctions will contain a second, lower bid ceiling of DKK 70/GJ (equivalent to DKK 8.4 or $1.23/kg) to encourage participants to lower their offers further.
Applicants can now submit their bids through the auction portal until the end of August 2023, when the lowest bids will be in line to be selected on a “pay-as-bid” basis until the budget is exhausted.
But there’s a catch: the auction will only close if all bids come in under the lower ceiling of $1.23/kg. If they don’t, the auction and its total budget will be split up into two separate rounds of auctions of up to DKK 750m ($110.3m) and DKK 500m ($73m).
“A safety mechanism is introduced to ensure that the tender does not result in very modest hydrogen production and capacity due to high bid prices,” the Danish Energy Agency said on its website. “In addition to a general bid ceiling, which must create security against very high bid prices, a lower, budget-controlling bid ceiling will be set, which is the prerequisite for the entire budget to be allocated, if sufficiently attractive bids are received. Alternatively, two bidding rounds are held.”
The tender documents do not stipulate when these would be held.
Wind energy-rich Denmark hopes the auctions will help it reach its ambitious goal of having 4-6GW of electrolysis capacity in place by 2030 — with a strong emphasis on producing green hydrogen derivatives such as green ammonia, methanol and e-fuels for use in shipping and aviation.