Europe is making significant strides toward clean energy, particularly focusing on hydrogen and biogas initiatives as part of its ambitious goals to combat climate change. Recently, the European Commission (EC) launched its second Renewable Hydrogen Auction with nearly €2 billion at stake, forming part of the EU's larger €4.6 billion initiative aimed at enhancing net-zero technologies. This auction is not merely procedural; it emphasizes the EU's commitment to renewable hydrogen as a pillar of its clean energy transition.
The auction's funding, derived from the EU's Emissions Trading System, is particularly geared toward the production of Renewable Fuel of Non-Biological Origin (RFNBO) hydrogen within the European Economic Area (EEA). The financial backing includes €1.2 billion sourced from the Innovation Fund along with an extra €700 million contributed by member countries like Spain, Lithuania, and Austria. The aim is to cut down greenhouse gas emissions significantly, especially within high-impact industries such as steel and maritime transport.
This Renewable Hydrogen Auction marks a pivotal moment for green hydrogen as it positions itself at the heart of Europe’s decarbonization efforts. Notably, this auction diverges from previous calls under the Innovation Fund by not requiring innovation mandates, allowing broader access for various participants and simplifying entry.
Funding Breakdown and Focus Areas
The funding allocation is categorized to support two distinct areas. First, €1 billion is designated for RFNBO production projects without specific restrictions on the sectors or end-users involved. Secondly, €200 million is earmarked for promoting renewable hydrogen applications especially within the maritime sector, such as vessel bunkering.
The EC stated, “With a budget increased by €400 million compared to the first IF23 Auction, the new IF24 Auction will fund renewable hydrogen production projects regardless of their consumption sector, alongside supporting hydrogen production specific to maritime applications.”
Adding to the innovative nature of this auction is the introduction of the "Auctions-as-a-Service" mechanism, which allows Member States to inject national funding for projects deemed high-potential yet not selected due to budget constraints. This approach not only streamlines administrative processes but also provides supplementary support for hydrogen projects across the continent.
Eligibility and Selection Criteria
To maintain consistency with the EU's climate objectives, participants must comply with strict technical, operational, and financial criteria. Key requirements include:
- Geographic Location: Projects need to operate within the EEA.
- Technical Specifications: They must have at least 5 MW electrolyzer capacity at a single site.
- Resilience Standards: Reliance on Chinese-manufactured electrolyzer stacks is capped at 25%, bolstering supply chain security.
- Timelines: Projects are expected to reach financial closure within 2.5 years and become operational by 2030.
The auction process encompasses several phases starting with the release of terms and conditions in September 2024. Participants will submit funding requests through fixed premium bids, capped at €4 per kilogram of hydrogen produced, evaluated based on bid pricing and readiness to meet specified milestones.
Learning from Past Auctions
This second auction builds upon the lessons learned from the first Renewable Hydrogen Auction, completed just earlier this year. The initial auction attracted 132 proposals, awarding funding to projects from Spain, Finland, Norway, and Portugal, reflecting impressive cost reductions — hydrogen was produced at rates between €0.37 and €0.48 per kilogram.
Winning projects from the previous auction aim to produce 1.58 million tonnes of renewable hydrogen over the next decade, preventing approximately 10 million tonnes of CO2 emissions. This outcome has been pivotal, as funding from the first auction mitigated the gap between the higher production costs of renewable hydrogen and market prices dominated by non-renewable sources.
Hydrogen's Role in EU Climate Goals
The significance of hydrogen cannot be overstated when it regards the EU reaching its 2050 net-zero targets. Transitioning to electrification and incorporating green hydrogen are fundamental to eradicicating fossil fuel reliance. A recent analysis by BloombergNEF revealed Europe requires extensive infrastructure ready for hydrogen, including facilities for its transportation, storage, and utilization.
To realize this vision, Europe must ramp up its renewable energy capacity dramatically — requiring around 1.2 to 1.5 terawatts of new wind and solar energy sources, which will, in turn, power over 1 terawatt of electrolyzers by 2050.
Such ambitious plans are supported by the European Hydrogen Bank’s auctions, aimed at surmounting economic barriers challenging large-scale hydrogen adoption. Recently, concerns were raised when steel giant ArcelorMittal delayed its green steel investment plans, heavily reliant on green hydrogen. These moves were primarily due to ambiguities within the EU's hydrogen policy framework.
Biogas Growth and Output
Shifting gears, another focus area within the EU’s energy strategy is the impressive growth of biogas. The European Biogas Association recently reported biogas and biomethane production hit 22 billion cubic meters (bcm) in 2023. To contextualize, this figure surpasses the total inland natural gas demands of Belgium, Denmark, and Ireland combined and accounts for 7% of the EU's overall natural gas consumption.
These biogas production rates suggest Europe could potentially cut down 106 million tons of CO2 emissions annually, provide renewable energy access to 19 million European households, and fuel around 533,000 LNG trucks each year. The growth of the biogas sector is pivotal for both cleanup efforts and enhancing the EU's energy independence.
Despite these positive statistics, the EU still imports approximately 98% of its natural gas demand, highlighting the urgent need to diversify energy sources through increased biogas production. The optimization of the market and regulatory frameworks governing biomethane is necessary for sustained growth; this includes improving strategies for planning biomethane potential and streamlining permitting procedures.
Harmen Dekker, CEO of the European Biogas Association, noted, "Europe's greatest resource for reducing dependence on external energy sources involves leveraging all renewable energy types, biogases being integral. Their flexibility, storage capacity, and ability to deliver dispatchable power make biogases invaluable."
Future Expectations
With biomethane production alone increasing to 4.9 bcm and the installed capacity reaching 6.4 bcm annually, the sector is on the cusp of its most significant expansion yet. By 2030, experts predict upwards of 500,000 jobs could surface within the biogas sector, generating estimated annual benefits of €12 billion to the European bioeconomy. A predicted investment of at least €25 billion will fuel these developments.
This entire bio-industrial evolution highlights the necessity for clear policies, strategic point of focus on optimizing market conditions, and the rapid execution of innovative projects to achieve Europe's decarbonization goals and energy independence comfortably.
Undoubtedly, as the European Union enhances its push for hydrogen and biogas, the ripple effects will extend across various sectors — fueling industry innovations, facilitating green solutions, and driving down emissions.