On 16 March, the Commission published a roadmap to establish the European Hydrogen Bank (EHB) in order to stimulate and support investment in sustainable hydrogen production.
The communication presents four pillars for the scale up of a European hydrogen market, addressing.
- the domestic market,
- hydrogen imports
- transparency and coordination of infrastructure, hydrogen flows, costs and data and
- a plan for how to cope with existing financing instruments.
Summarized, the Commission is intending for the EHB to cover and lower the cost gap between renewable hydrogen and fossil fuels for early projects. The EHB will work with fixed premium auctions and will offer "auctions-as-a-service" for Member States, relying on funding from the Innovation Fund 2023 and national governments. The Commission intends also to launch a public consultation on the terms and conditions for the domestic leg, and the first pilot auctions are to be launched in the autumn of 2023.
Which design options for the European Hydrogen Bank can be considered?
On 13 February, EPICO published drawbacks and advantages of potential design options of the European Hydrogen Bank, in cooperation with the Konrad-Adenauer-Foundation and Guidehouse. We pointed out how to kick-start the green hydrogen market uptake as well how to bridge the substantial funding gaps between the costs of green hydrogen production and offtakers’ willingness to pay, and to address the significant investment uncertainties in the absence of a liquid market and an extensive transport infrastructure.
Policy instruments will aim at helping first movers by addressing the cost gap between green hydrogen and fossil-based alternatives, hence the nonexistence of a liquid hydrogen market impeding a market- driven ramp-up of green hydrogen and its derivatives.
Inherently, European Commissions and public support should focus on designing measures that:
- are cost-effective,
- ensure investment security globally,
- incentivise a sustainable market that can operate without public support in the mid and long-term, and
- entail a degree of complexity that is limited and proportionate to a level necessary for the achievement of its goals.
To this aim, our Report assesses three measures:
- Double-sided auctions for supply and demand contracts.
- Supply- or demand-side auctions determining market premium.
- Default guarantees for hydrogen producers.
After careful reading of the European Commission’s plans to stimulate and support investment in sustainable hydrogen production through a European Hydrogen Bank, we would like to propose:
- Supply-side auctions determining market premiums (e.g. fixed premiums) should be considered for the domestic pillar.
- When importing hydrogen, auctions for both supply and demand contracts could be a successful tool, but only under specific conditions.
- In most cases, supply-side auctions determining market premiums should be considered for the imports pillar.
- Default guarantees should be considered as a risk-hedging instrument under the imports pillar to cover difficult to estimate default and delay risks for private purchase contracts involving hydrogen (derivative) imports.
- Independent of potential support auctions organized under the European Hydrogen Bank, default guarantees can also serve as a parallel, stand-alone support instrument for hydrogen producers without funding needs.