Denmark has launched its DKK 1.25bn ($183m) tender for green hydrogen production, that will see projects awarded a fixed subsidy for each unit of H2 produced — up to the equivalent of $2.11/kg.

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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.

But the fear is that, on its own, the official ceiling of DKK 120/GJ (the equivalent of DKK 14.40 or $2.11/kg) could see the entire budget swallowed up on higher subsidies for fewer units of H2 production.

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.

The scheme was signed off under EU state aid rules by the European Commission in February, on the understanding that all production resulting from the tender would adhere to the EU’s strict additionality and temporal correlation rules, as outlined in the recently published Delegated Act.

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.

The country currently has around 7-9GW of electrolysis projects in the pipeline, and earlier this year Danish developer GreenGo energy unveiled an €8bn ($8.7bn) project to install 2GW of electrolysers in the western province of Ringkøbing-Skjern.