The European Commission Published the T&Cs for the Innovative Fund H2 Auction

Recently, the European Commission published the terms and conditions (“T&Cs”) for its pilot auction, focused on scaling up the production of renewable hydrogen in the European Economic Area (“EEA”). The pilot auction is funded by the Innovation Fund, through the EU Hydrogen Bank, with a €800 million budget. The release of the T&Cs is an important milestone in the hydrogen industry, providing potential bidders with information to begin preparing their bids, and giving other regions of the world a preview of how hydrogen financing can develop in the future.

The pilot auction is designed to achieve several objectives

The main goal of the pilot auction is to support the scale-up of production of renewable fuel of non-biological origin (“RFNBO”) hydrogen within the EEA. In addition, this competitive bidding mechanism is used with four objectives:

• Distributing financial support in a cost-efficient way;
• Discovering the real price of renewable hydrogen production and boosting market formation;
• De-risking projects and leveraging private capital to support them; and
• Reducing administrative burdens for projects and contracting authorities.

Bidders need to fulfill qualification requirements

The T&Cs set forth the qualification requirements that bidders must meet in order to have their bids evaluated. The qualification requirements, comprising admissibility, eligibility, and relevance and quality requirements, are designed to ensure that bidders have the capacity to implement the project, that the project is sufficiently advanced, and that participation in the pilot auction will not be used for speculative bidding.

• Admissibility requirements include, among others, adherence to deadlines, use of forms, and compliance with all required mandatory and supporting documentation.
• Eligibility requirements include, among others, that bids must relate to projects located in the EEA, with a specified budget (the maximum grant amount for each bid is one-third of the total available budget, i.e., one-third of €800 million or around €265 million), and project size (at least 5 MWe of newly installed electrolyzer capacity at a single site).
• Relevance and quality requirements include an assessment of relevance, technical, financial, and operational maturity.

The above qualification requirements will be assessed on a pass/fail basis.

Funding will be awarded for up to ten years of operation in the form of a fixed premium

Funding will be granted in the form of a fixed premium in €/kg of RFNBO hydrogen produced, and guaranteed for up to ten years after the entry into operation of the project. Awarded projects will enter into a grant agreement with the European Climate, Infrastructure and Environment Executive Agency (“CINEA”), the scheme’s implementing authority.

The Innovative Fund is financed by the EU ETS

The Innovative Fund is one of the world’s largest funding programs for the demonstration of innovative low-carbon technologies. It is financed by the EU Emissions Trading System (“EU ETS”), which collects revenue from EEA polluters who must pay for their greenhouse gas emissions. The Innovative Fund’s support in renewable hydrogen projects should be seen as the seed funding that allows for increased private and corporate investments.

Please note that the pilot auction is scheduled to start on November 23, 2023 and close on February 8, 2024 (estimated).