The European Hydrogen Bank from the perspective of the German process industry

The EU Commission is funding the expansion of the European hydrogen sector with 800 million €.

The first auction of the European Hydrogen Bank (EHB) will take place on 23 November 2023. The conditions for participation were already announced on 29 August by the Climate Division of the European Commission. The background to the auction is the tendering of € 800 million in funding from the EU Innovation Fund to benefit green hydrogen producers within the European Economic Area (EEA). The declared goal, based on the Paris Agreement, is to both accelerate the expansion of the European hydrogen sector and to financially support the international import of hydrogen.

The "Hydrogen Package" contributes to the achievement of the "Climate Target Plan for 2030" and thus becomes an important milestone of the Green Deal

What opportunities does this advance bring for German mechanical and plant engineering?
A thematic overview and an outlook on its broad development potential.

First auction: What are the concrete conditions for participation and which projects are eligible for funding?

According to the financing agreement with a term of ten years, manufacturers must first guarantee the commissioning of their H2 production plants within five years. In addition, they must then provide mandatory proof of their bid performance. Moreover, according to the auction conditions, the maximum price of € 4.50 per kilogram of hydrogen produced in the EEA must not be exceeded in order to benefit from the subsidies.

In order to receive financial support from the EU Innovation Fund, there are no requirements regarding upper or lower limits for potential annual production (cf. point 1.9, section 2: Criteria for potential funding candidates). However, these are linked to two conditions: Firstly, the installed production capacity of each new plant must be at least 5 MW. Secondly, the funding amount per candidate is a maximum of about € 266.67 million, which is one third of the total funding volume available (cf. point 2.3 of the auction conditions).

"The green hydrogen producers that require the least support in euros per kilo of hydrogen produced will be awarded the contract in the auction", said Frans Timmermans, former EU Commission President and Commissioner for Climate Action, in March 2023.

What other goals are being pursued with the funding in addition to an accelerated hydrogen ramp-up?

The subsidies granted are intended to accelerate the emergence of a European market for hydrogen at the same time as an accelerated hydrogen ramp-up. This is to be achieved, among other things, through the reduction of the price difference between grey and green hydrogen associated with the subsidy and the long-term elimination of grey hydrogen from the market. A 10-year guarantee for the fixed premium per kilogramme of hydrogen is also planned. Further positive effects of the subsidies are expected to be the reduction of administrative costs and the risk for further new projects.

Project funding by the Hydrogen Bank is intended at the same time to promote power generation from renewable sources

Green hydrogen production: EU delegated acts concretise criteria

The EU's delegated acts on renewable hydrogen, due in February 2023, place the € 800 million in funding on a firm footing: for example, against the background of the high electricity consumption in electrolysis, every hydrogen production plant must be connected to a "new plant for the generation of electricity from renewable sources". The European Commission hopes that this will not only have a noticeable effect on the climate and relieve the burden on the electricity grids, but in particular wants to ensure that the expansion of the green hydrogen sector also accelerates the expansion of renewable energies.

In order to reach the production target of 10 million tonnes of green hydrogen by 2030, the European Commission calculates that 500 TWh of electricity will be needed - which corresponds to 14% of the European Union's total demand.

Until the two legal acts were passed, it was unclear for a long time which concrete process criteria were to be applied to the production of green hydrogen. One of the criticisms was that electrolysis was also possible with electricity from fossil sources and that this was greenwashing.

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Hydrogen bank: development potential for the entire process industry

Growth opportunities in mechanical and plant engineering
According to a September 2022 VDMA study on the potential of hydrogen in the process industry, there are "significant growth opportunities" for a large number of companies in emerging supply chains. In its 2021 study, economic consultant Oliver Wyman puts the potential of the hydrogen equipment market at up to € 350 billion by 2030 - of which € 200 billion alone could be accounted for by "traditional mechanical and plant engineering". Further plans by the EU to increase the production of electrolysers and fuel cells (at least
40 % of the technologies required annually by 2030) within the European Union will also have a favourable effect on the economic development of the industry.

High energy density and falling prices in the long term for green hydrogen

According to a study published by Aurora Energy, green hydrogen could cost between € 3 and € 5 per kilogram in 2030. The exact pricing depends on the respective production location (inside or outside the EU) and the transport route (by ship or pipeline). Regionally, even a price of € 2.50 would be feasible. Due to its high energy density, (subsidised) hydrogen would thus be particularly interesting for the process industry in a few years - such as metallurgy, where it is needed for steel refining and processing.

Defossilisation: Small to medium-sized enterprises also benefit from hydrogen ramp-up

Subsidised hydrogen production should also be able to contribute to defossilisation processes of small and medium-sized enterprises, as enough cheap hydrogen should be available to supply not only large consumers - such as the steel industry - with it. In addition, the delegated acts could ensure more electricity from renewable energies, which would also benefit the process industry in the event of overproduction.

Increase local supply security and reduce global dependencies

The domestic production of green hydrogen could also increase local supply security and at the same time reduce dependence on imports from politically questionable regions of the world.

Conclusion: With the entry into the subsidised hydrogen economy and the associated production of H2 technologies, a variety of opportunities can thus be identified for the process industry - provided that its players react to the emerging developments in good time by taking appropriate precautions. Not only should their means of production be H2-ready, but the product portfolio should also be adapted to the new market conditions as far as possible.

According to the financing agreement, subsidised H2 producers must first guarantee the commissioning of their production facilities within five years

Background to the development of a European hydrogen strategy and emergence of the European Hydrogen Bank

European Green Deal 2019

With the European Green Deal of December 2019, the EU Commission is pursuing the ambitious goal of making Europe the first climate-neutral region in the world by 2050. Green hydrogen plays a key role in the paradigm shift, the Commission said in July 2020, adding that the energy system must become more integrated and thus more sustainable (75 % of greenhouse gases are caused by it).

European Hydrogen Strategy and European Clean Hydrogen Alliance 2020

According to the hydrogen strategy "A hydrogen strategy for a climate-neutral Europe", an electrolysis capacity of 40 GW with an annual production capacity of around 10 million tonnes of green hydrogen is to be installed between 2025 and 2030. The foundation of the "European Clean Hydrogen Alliance", an alliance of politics and industry, was a first attempt to coordinate investments in the hydrogen ramp-up.

"Climate target plan for 2030" issued in September 2020

The "Climate Target Plan for 2030" as an important milestone of the Green Deal envisages reducing European greenhouse gas emissions by 55 % by the end of the 2020s compared to 1990 levels. The plans were concretised with a legislative package in July 2021, with which the EU Commission issued the declared goal of promoting the demand for and production of hydrogen. The "hydrogen package" that followed in December focuses on the development of a hydrogen infrastructure.

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The "REPowerEU" decision of March 2022 marked a turnaround under the impression of the Russian attack on Ukraine: Security of supply and energy independence came to the fore. This was followed by plans to diversify energy imports, including LNG.

Establishing a hydrogen bank as a solution to the chicken-and-egg problem

With increasing focus on hydrogen, the industrial and energy sectors in particular are confronted with the question of rewarding and secure investment opportunities. investment opportunities: When potential manufacturers and grid operators invest in the production, storage or transport of hydrogen, it remains open whether there is any demand at all for their supply in the end - and if so, whether it is sufficient. In addition, there is uncertainty with regard to unresolved legal issues, especially in the transmission grid sector.

Producers and grid operators fear losing a lot of money with such stranded assets. Many companies and municipalities are also reluctant to invest in the corresponding technologies and infrastructure - even though they would like to use hydrogen. This is because it is impossible to predict whether there will be enough hydrogen available in the long term. The process industry in particular is struggling with this dilemma, the chicken-and-egg problem.

For the process industry, the European Hydrogen Bank offers diverse growth opportunities

In 2022, EU Commission President Ursula von der Leyen surprisingly came up with a solution: the idea of a European Hydrogen Bank.

This would subsidise the players on both sides of the hydrogen economy with a financial endowment of up to € 3 billion; European hydrogen production on the one hand, and the import of another 10 million tonnes of hydrogen per year on the other. In October of the same year, Frans Timmermans, former EU Climate Commissioner, reiterated von der Leyen's push in his keynote speech at the "European Hydrogen Week", calling the project a "jumpstart" for the hydrogen economy.

As announced in September 2023, the first auction of the European Hydrogen Bank is to take place on 23 November. One can be curious.