EU To Simplify Hydrogen Investments

    European Union To Establish European Hydrogen Bank

    The European Commission (EC) has set out new plans to stimulate and support investment in hydrogen production through a European Hydrogen Bank (EHB). Hydrogen can make a major contribution to the Europe’s ambitions to end imports of Russian fossil fuels and to achieve climate neutrality by 2050. The EHB is designed to address initial financial challenges to create an emerging renewable hydrogen market. It will also have an international dimension to facilitate renewable hydrogen imports to the European Union (EU). According to the EC, this initiative is aimed at accelerating investment and bridging the investment gap for the EU to reach its REPowerEU targets of domestically producing 11 million tons (10 million tonnes) of renewable hydrogen by 2030, coupled with 11 million tons of imports.

    The main aim of the EHB is to unlock private investments in hydrogen value chains in the EU and in third countries by addressing the initial investment challenges and needs. By doing so, it will support an emerging European hydrogen market and offer new growth opportunities and job creation.

    The EHB will play a coordinating role to increase transparency on hydrogen flows, transactions, and prices; gather demand and supply information; provide transparent price information; and develop price benchmarks. It will also facilitate blending with the existing financial instruments to support hydrogen projects. It will support infrastructure planning and provide visibility on hydrogen infrastructure needs.

    Expected to be operational this fall, the EC has outlined four components of the EHB. Two are financing mechanisms for creating the EU domestic market and for international imports into the EU. The third is linked to transparency and coordination — assessing demand, infrastructure needs, hydrogen flows, and cost data. The final component is streamlining existing financial instruments — coordinating and blending these with new public and private funding, both in the EU and internationally.

    The EHB is intended to cover and lower the cost gap between renewable hydrogen and fossil fuels for early projects. This will be achieved through an auction system for renewable hydrogen production to support producers through a fixed price payment per kg of hydrogen produced for a maximum of 10 years of operation. The first pilot auctions are currently being designed and they are due to be launched this fall, backed by US$861 million from the Innovation Fund, a funding program for the demonstration of innovative low-carbon technologies. The EHB will create an EU auction platform offering “auctions-as-a-service” for member states, using both Innovation Fund and member state resources to fund renewable hydrogen projects.

    To achieve the 11 million tons of domestic renewable hydrogen production foreseen in the REPowerEU plan, total investment needs are estimated at US$360 billion to US$507 billion including, US$215 billion to US$322 billion needed for additional renewable energy production. The vast majority of this will come from private funding, but public funding (through the EU financial instruments and state aid) can play an important role in leveraging private investment, especially in the early days of establishing the hydrogen market

    The EU cohesion policy funding, especially through the European Regional Development Fund and the Just Transition Fund, as well as the InvestEU Fund with the European Investment Bank as the main implementing partner, also provide significant support to member states and regions for their investments across the whole hydrogen supply chain. The EHB will help streamline access to these and other financial instruments for member states and project developers.

    From an international perspective, the EHB will support EU partner countries in their green transition efforts and renewable energy investments, as well as stand by member states and companies in coordinating the cooperation with third countries, supporting the development of reliable supply chains and rules-based international hydrogen markets. For example, the EC proposes to offer a green premium for renewable hydrogen imports via a similar auction system as used for the domestic market.

    The Big Picture

    Data Source: The European Commission

    The EHB is part of the EC’s March 2023 legislative proposal for a Net-Zero Industry Act, which aims to boost EU manufacturing of clean technologies. The latest option in the EU’s legislative playbook, the EC has already proposed a legislative framework for the production, consumption, infrastructure development, and market design for hydrogen, including binding targets for renewable hydrogen consumption in industry and transport under the revised Renewable Energy Directive. Initially introduced in 2009 and updated in 2021, the Renewable Energy Directive sets the overarching European renewable energy target of 32% and includes rules to ensure the uptake of renewables in the transport sector and in heating and cooling, as well as common principles and rules for renewables support schemes, the rights to produce and consume renewable energy and to establish renewable energy communities, and sustainability criteria for biomass. It also establishes rules to remove barriers, stimulate investments, and drive cost reductions in renewable energy technologies.

    More recently, in February 2023 the EC set out rules defining what renewable hydrogen is for the EU. This is a follow up on from the European Hydrogen Strategy from 2020, which set out the initial aims for increasing renewable hydrogen in the EU. Most of these policy proposals are still under negotiation between the European Parliament and the council.

    “As part of the Net-Zero Industry Act, the EC adopted a plan to set up the European Hydrogen Bank. The EU is a powerhouse for research and innovation, and we want to keep it that way,” said Kadri Simson, commissioner for Energy. “Renewable hydrogen will also play an important role in the EU’s transition to climate neutrality by 2050. The EHB will establish a full hydrogen value chain in the EU, alongside the Net-Zero Industry Act. Those industries making early decisions to redirect or focus on clean tech deployment will benefit.”

    In parallel to the legislative progress, Europe has developed a strong pipeline of hydrogen projects. The European Clean Hydrogen Alliance identified 840 hydrogen projects across all parts of the value chain. Europe is also home to the world’s first hydrogen-based steel production projects. Sixteen EU member states have adopted national hydrogen strategies, which collectively amount to 40 GW of electrolyzer capacity targeted for 2030, or 6.1 million tons (5.6 million tonnes) of renewable hydrogen.

    “We need to move our hydrogen economy from niche to scale,” said EU President Ursula von de Leyen in her State of the Union address. “With REPowerEU, we have doubled our 2030 target to produce 11 million tons of renewable hydrogen in the EU each year. To achieve this, we must create a market maker for hydrogen to bridge the investment gap and connect future supply and demand. The new EHB will help guarantee the purchase of hydrogen, notably by using resources from the Innovation Fund. It will be able to invest billions to help build the future market for hydrogen. This is how we power the economy of the future.”