March 23, 2023 • Paul Rodden • Season: 2023 • Episode: 199
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In episode 199, What is the European hydrogen bank? And how is the EU going to use it to respond to the US incentives for green hydrogen? I go over this on today's hydrogen podcast.
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What is the European hydrogen bank? And how is the EU going to use it to respond to the US incentives for green hydrogen? I go over this on today's hydrogen podcast.
So the big questions in the energy industry today are, how is hydrogen the primary driving force behind the evolution of energy? Where is capital being deployed for hydrogen projects globally? And where are the best investment opportunities for early adopters who recognize the importance of hydrogen? I will address the critical issues and give you the information you need to deploy capital. Those are the questions that will unlock the potential of hydrogen, and this podcast will give you the answers. My name is Paul Rodden, and welcome to the hydrogen podcast.
In an article from Tamarindo.global, Richard Heap writes is the European hydrogen bank, a game changer, Richard writes Europe's green hydrogen industry is under pressure. The Biden administration in the US came out with its $369 billion inflation Reduction Act last August, including generous incentives that Goldman Sachs said makes utility scale green hydrogen profitable in the seven months since the European Union has been scrambling to respond. We've seen a lot coming out of the EU in the last two months.
On February 1, it unveiled the EU Green Deal industrial plan, through which it aims to strengthen European incentives to support the rollout of low carbon technologies including green fuel production. Its plan includes the net zero industry act and critical raw materials act. While the EU does not have the same ability to shape national policies as the White House in the US, it can still provide a supportive framework for its 27 EU member states. The European Commission followed that announcement on the 10th of February by finally adopting additionality rules that specify the terms under which hydrogen and other related fuels can be classed as green.
These are set to come into force in 2028. To ensure that green hydrogen projects use electricity from new renewable generation, which is meant to ensure that they are not harming the green electrification of grids by taking up existing capacity. And last week, the EU and US announced new measures to improve cooperation in areas including raw materials for low carbon projects and ensure that incentives for low carbon projects between the regions are mutually reinforcing. But there is one part of the puzzle where information is still emerging. The EU's plan for a European hydrogen Bank, which was announced last September with a goal to invest 3 billion euros to help green hydrogen projects in the EU reach financial close. The goal is to make green hydrogen bankable and help Europe respond to the IRA. The European hydrogen bank isn't really a bank. Rather, it is an EU financial support mechanism, where a first bidding round is due this autumn. Johanna Schiele Policy Officer at the European Commission's Innovation Fund shared more information at a webinar run by the renewable hydrogen coalition last week.
This happened before the commission outlined further information last Thursday, which was the 16th of March, she said green hydrogen is quote the only viable pathway at this point to decarbonisation, and sectors including steelmaking, fertilizer production and heavy transport. She said it was vital to accelerate growth in green hydrogen. Now, to ensure that, for example, new steel factories can be built as environmentally friendly as possible. She also says that, if you build a new steel plant, this thing lives for 50 to 60 years, so we really have a long lock in effect. That's the only reason why we are even considering bridging that cost gap which is in effect a subsidy. We're also very aware we can't subsidize sectors forever. She also added the EU needs to see green hydrogen technology costs fall significantly.
Also, the European Commission is due to hold a consultation with the private sector on the proposed design of the first auction in May ahead of building in the autumn of 2023. The bank is looking to support two types of projects, those inside the EU and those outside of that supply the EU, the first tender is set to focus on those based in the EU. Schiele said that the EU plans to hold a fixed premium auctions similar to the use of Contracts for Difference in renewables, where developers can bid for a fixed subsidy for green hydrogen created over 10 years. She said cost would be the main factor in its decisions between projects. But as she expected firms with off taker interest in their fuel will be able to bid lower as they would have more clarity on their costs. The first auction will be a good indicator for how much interest there is from different industrial sectors in Europe to buy green hydrogen, and how much they're willing to pay. Schiele expected a few dozen projects to be at a stage where they could bid in this auction and said the EU wanted to be the best accelerator possible. Other speakers in the webinar applauded the EU's goal to quickly set up a tender under the European hydrogen Bank initiative and to make sure developers find it simple to bid. But they also express concern that would be bitters should have to meet pre qualification criteria to show they have viable projects near financial close.
Rasmus Matthiessen, manager of regulatory affairs for power-to-X at Ørsted said he backed the simple fixed price mechanism, but said, there are some criteria that the EU could use to prioritize projects that will be able to secure support. He said These include financial guarantees in the form of performance bonds, so the bidders are financially liable if they fail to meet the terms of the subsidy contract. He also said bidders should be able to show a memorandum of understanding with off takers for their fuel, including discussion of volume and price to ensure that they are able to sell the fuel created and the developers should be able to show that they have permission to use the sites with vital utilities in place including water and electricity. If the project requires hydrogen pipelines, they could also show that they are confident those pipelines will be in place at the project completion.
Matthiessen also said we want it to be relatively strict. So it is solid projects that will bid in, but not so strict that we limit competition because that competitive pressure is really important to make sure there is an effective award of funding here. European hydrogen bank has the potential to help some developers in the EU to bridge financial gaps at their developments. But those in the industry need greater clarity over the rules. The EU's contortions over the meaning of additionality shows how fraught these discussions can become. Developers also need clarity over what timescale that $3 billion investment is due to be deployed. But the bank looks like an important initiative that could spark final investment decisions at a crucial time for Europe's green hydrogen sector. Okay, so a really good overview of the European hydrogen Bank initiative from Tamarindo.
And as convoluted as everything seems to be right now in the EU, around green hydrogen and their conditions and additionality requirements, it seems to be the overlapping theme is the same as in the US. And that is for the importance of these projects to really come in as the shape of hydrogen hubs, and that these projects will most likely be awarded when they have feedstock. In this case, green it's going to be water, electricity, off taker agreements, transportation, and really what could be the most important is the actual technology that they're going to use to make the hydrogen. And you might say, well, these are green, they're going to be using electrolysis. But even that gets broken up several different ways with different technologies and different companies making electrolyzers. But not only that, they also talked about the importance of using memorandums of understanding to firm up those agreements between feedstock technology, and off taker agreements. But what this also talks about is something that I talked about in the last podcast, and that's investments and where they are currently and where they could be in the next few months to next few years. And that's really being able to secure that last round of funding to get the project actually launched. Now, I realized was so much cash still in flux, the 3 billion euros in Europe, and the 8 billion or so dollars here in the United States for these projects and hubs.
It's hard to really get a sense of project development location, and different technologies that are going to be used in those projects until those funds actually get deployed. Projects are chosen, fid decisions are made, and construction dates announced. But it does seem like we are getting very, very close to that actually happening. I'm hoping later this year.
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I'll talk to you later. Hey, this is Paul. I hope you liked this podcast. If you did and want to hear more. I'd appreciate it if you would either subscribe to this channel on YouTube, or connect with your favorite platform through my website at www.thehydrogenpodcast.com Thanks for listening. I very much appreciate it. Have a great day