ANALYSIS | Winners of the first European Hydrogen Bank subsidies have been revealed — but will it be enough to kickstart the sector?
With a ceiling price of €4.50 ($4.81) per kilogram, it offered the promise of subsidies that were even more generous than the Inflation Reduction Act’s maximum $3/kg production tax credit — funding that would close the price gap between green hydrogen made with renewable energy and grey H2 produced from unabated fossil gas — while building a business case for developers and kickstarting a swathe of final investment decisions across the continent.
More than half of the 8.5GW capacity was bidding for less than €1/kg, the EC’s data shows, with around two thirds bidding in at below €2/kg.
Perhaps unsurprisingly, the larger-scale projects dominated the very lowest bid prices, and the two 500MW projects (one each in Spain and Portugal) announced as winners today appear to be the biggest projects that placed bids.
Bids from Spanish green hydrogen producers dominated the proceedings, with 46 projects adding up to 2.8GW, nearly three times the number and capacity (20 and 1GW) placed by the next most prolific country, Germany.
Companies from Norway and Finland placed 14 and five bids respectively, while those from Portugal and the Netherlands seven each.
Almost all the projects that placed bids envisaged using alkaline or proton exchange membrane (PEM) electrolysers or a combination of both, with a single project classified as using “other” technology, most likely solid-oxide.
Three Spanish companies were triumphant, followed closely by two from Portugal, as well as one each from Norway and Finland.
“The supremacy of Iberian and Nordic projects is not surprising though, and these regions are emerging as the natural hydrogen hubs of Europe,” Flis added in his LinkedIn post.
Their success might suggest that Spanish and Portuguese producers are able to deliver hydrogen at a lower cost than everyone else, due to sunnier climates, and are thus better positioned to make a business case with a sub-€0.50/kg subsidy.
But data released by the EC today suggests that this may not be the case.
The costs of green hydrogen production by country
While Spain can deliver a levelised cost of hydrogen (LCOH) of €5.80/kg, the third-cheapest in the bloc, Portuguese hydrogen would require an LCOH of €8.77/kg.
This suggests that the subsidies offered to the two winning developers in Portugal will make up just 4-6% of the total levelised cost of production.
By comparison, the subsidies collected by the three Spanish winners will be equivalent to 6-8% of Spain’s LCOH.
Greece and Sweden both emerged as the cheapest places to produce green hydrogen, with an LCOH of €5.30/kg and €5.56/kg respectively, according to the EC figures, however it costs €7.61 to produce in Norway, which like Sweden has an abundance of hydropower, and €7.57 in Finland.
But bids from the cheapest countries were minimal, with companies in Greece and Sweden placing two each.
The most expensive place to produce renewable H2 in the EU is coal-dependent Poland, with an LCOH of €13.50/kg, while Germany, which saw the second highest number of bids, has the fourth-highest LCOH, at €11.39/kg, the EC stated.
Will the subsidies make a difference?
The price gap may not have been bridged, but is the EHB accelerating the process at all? According to the EC, most of the projects bidding for top-ups expect to bring their projects on line well before the mandated five years, with the median time expected to enter into operation at around 2.9 years.
But this, of course, depends on the successful projects reaching final investment decision (FID), which is still an open question given the paucity of the final EHB subsidies on offer.
Did those projects bid so low because they were confident they could make a business case to project financiers without them? If so, this would undermine the arguments made by the hydrogen industry over the past few years that subsidy instruments are one of the puzzle pieces needed to make the EU’s H2 sector take off.
The alternative is that offtakers are willing to swallow some of the extra costs of buying green hydrogen rather than grey.
The data does suggest that offtakers — from sectors such as steel, ammonia, methanol, fertiliser and chemicals — can be expected to pay an average of €5.67/kg for green hydrogen across the bloc, while mobility customers in the road, maritime and aviation sectors are expected to pay even more: €8.34/kg on average.
If those median EU prices were to apply in Spain, for example, and if the three successful Spanish projects were selling into the industrial sectors, they would be able to add the €0.39-0.48/kg EHB subsidy to their revenue take, bumping it to €6.06-6.54/kg.
This would leave a gross profit of €0.74-0.87/kg and a gross profit margin of around 12-15% on each kg of hydrogen produced, according to Hydrogen Insight’s simple calculations (not accounting for taxes, variable contract terms or unexpected costs).
However, the EU’s data is aggregated across the entire bloc, so it is unclear whether the winning projects specifically will be able to sell their subsidised hydrogen for more than it costs to make in their host country.
Moreover, it is not clear whether the expected offtake prices are based on real-time data, or if they are provided by the bidders themselves and, if so, what evidence was used to collect it.
The median subsidy bid for projects with planned industrial offtakers was €1.80/kg, and €2/kg for mobility — suggesting that those with their sights on providing H2 for transport are expecting the customer to shoulder a significantly higher green premium.
And most participants are planning to sell their products at a fixed price rather than on a variable contract, the data shows.
