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Finance

Supporting investment in sustainable hydrogen: the European Hydrogen Bank explained

The European Commission has set out new plans to stimulate and support investment in sustainable hydrogen production through the European Hydrogen Bank (EHB). This initiative is aimed at accelerating investment and bridging the investment gap for the EU to reach its ambitious REPowerEU targets of producing domestically 10 million tonnes (mt) of renewable hydrogen by 2030, coupled with 10 mt of imports.

As the first final investment decisions were only taken last year and the vast majority of projects are still in the planning stage, the EHB will help address the initial financial challenges in order to create an emerging renewable hydrogen market.

“As part of the Net-Zero Industry Act, the Commission adopted a plan to set up the European Hydrogen Bank,” said Kadri Simson, Commissioner for Energy. “The European Union is a powerhouse for research and innovation and we want to keep it that way! Renewable hydrogen will also play an important role in the EU’s transition to climate neutrality by 2050. The European Hydrogen Bank will establish a full hydrogen value chain in the EU, alongside the Net-Zero Industry Act. Those industries that make early decisions to redirect or focus on cleantech deployment will benefit.”

The four pillars of the European Hydrogen Bank

The EHB will be based on four pillars: the first one aims to coordinate producers and consumers in a transparent way, assessing demand, infrastructure needs, hydrogen flows and cost data; the second aspect will look at existing financing instruments and explore possibilities to make them more efficient; the remaining two pillars are financing mechanisms, to stimulate the EU domestic market and for international imports into the EU.

Regarding the first two pillars, the Commission has recognised that there are already a lot of players in place, like the Hydrogen Council, the Clean Hydrogen Alliance and so on. But are they enough? The Hydrogen Bank aims at strengthening these institutions and prioritising the ongoing projects giving more clarity to the producers. At the same time, it will increase the leverage of the existing financing instruments making them more efficient and effective.

However, what is raising interest the most are the financing mechanisms themselves. First of all the international one, through which the Hydrogen Bank will be able to provide a green premium to those outside the EU that find off-takers within the EU. Concretely, the bank will fill the gap between the production costs and the price that the offtaker can pay. This model will be fast but it will still entail risks for the producers and the off-takers. Another business model taken into consideration foresees the creation of an intermediary entity which will take off some risks, by signing agreements with both the international producers and the European off-takers, but it will take some more time to be set up.

Finally, the domestic branch of the hydrogen bank will lower the cost gap between renewable hydrogen and fossil fuels for early projects, through an auction system for renewable hydrogen production that will support producers through a fixed price payment per kilogram of hydrogen for a maximum of 10 years of operation. The first pilot auctions are currently being designed and they are due to be launched in autumn 2023, backed by 800 million euros from the Innovation Fund. The Bank will create an EU auction platform offering “auctions-as-a-service” for Member States, using both Innovation Fund and Member State resources, to fund renewable hydrogen projects without prejudice to EU state aid rules.

Overall, in order to achieve the 10 mt of domestic renewable hydrogen production foreseen in the REPowerEU plan, total investment needs are estimated at 335-471 billion euros including 200-300 euros billion needed for additional renewable energy production. The vast majority of this will come from private funding, but public funding (through the EU financial instruments and state aid) can play an important role in leveraging private investment, especially in the early days of establishing the hydrogen market.

EU cohesion policy funding, especially through the European Regional Development Fund (ERDF) and the Just Transition Fund (JTF), as well as the InvestEU Fund with the EIB as the main implementing partner, also provide significant support to Member States and regions for their investments across the whole hydrogen supply chain. The EHB will help streamline access to these and other instruments for Member States and project developers.

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