Innovation Fund: EU-wide auction for renewable hydrogen production

+++ Innovation Fund blog series (part 1) +++ Hydrogen plays a key role in achieving Europe's planned climate targets. However, in order to maximise the potential of hydrogen to decarbonise industry and transport, the EU must invest massively in hydrogen infrastructure in Europe in the coming years. Specific targets for the development of European production capacities for renewable hydrogen are clearly anchored and communicated in the RePowerEU plan, the European Green Deal and the communication from the European Hydrogen Bank, among others.

European producers of RFNBO hydrogen are currently still facing a considerable financing gap between production costs and the prices that can be realised on the market. Competitive tenders (auctions), for example as part of the Innovation Fund, can be a means of reducing or even closing this gap.

Auctions as a new funding mechanism in the Innovation Fund

On 23 November 2023, the European Commission presented the new work programme for the Innovation Fund. The Innovation Fund is one of the world's largest funding programmes for the demonstration of innovative low-carbon technologies (see blog article Overview of the EU Innovation Fund). For the first time, the Innovation Fund will be supplemented next year by auctions in addition to the traditional grant calls.

While the usual Innovation Fund calls focus on financing before projects enter into operation, the Innovation Fund auctions will enable grants to be paid out for projects after entry into operation.

First pilot auction closes on 8 February 2024

The first pilot auction has a budget of EUR 800 million. The aim of the auction is to increase production capacities for green hydrogen within the European Economic Area (EU and Iceland, Liechtenstein, Norway). This will be achieved by installing new electrolysers with a minimum size of 5 MWe (megawatts electrical). This installation must take place at one location per project – a virtual pooling of several electrolysers is not eligible for funding. The project must not have been started at the time of application.

Interested parties can submit their bids until 8 February 2024 at 17:00 (CET). The auction is a static auction, i.e. each bidder must submit one bid by the end of the auction period.

What is supported in the hydrogen auction and how?

The auction focuses on advanced projects that want to produce green hydrogen at a site over a period of at least 10 years. A maximum of five years may pass before the electrolyser (with a minimum capacity of 5 MWe) is entering into operation after the grant notification has been issued. The investment in the electrolyser and its construction do not fall within the scope of the Innovation Fund auction. This focusses entirely on the subsequent production. For a period of ten years from entry into operation, successful applicants receive a premium on the quantity they produce.

To determine the amount of funding, applicants must state a bid price (EUR/kg) and an expected average annual production volume (kg/year) in their application.

The maximum funding per project is calculated as follows:

[Bid price in  EUR/kg] * [expected average yearly volume of production in  kg/year] * 10

Projects may request a maximum of one third of the total budget (EUR 800 million) as funding.

The projects submitted are assessed solely on the basis of the bid price. The projects are consistently sorted from the lowest to the highest bid price. The bid price is therefore of central importance in the selection of projects. It is calculated as follows:

[Bid price per Unit] = [expected revenues from the sale of one unit] – [one units levelized costs]

The bid price per unit therefore covers the premium demanded by the producer and ultimately represents the subsidy. On the cost side, all elements of production, sales, transport and storage can be priced into the bid.

The upper limit for the bid price is set at EUR 4.50 per kilogramme of hydrogen within the auction.

Important: The RFNBO hydrogen produced does not necessarily have to be sold. It can be consumed, stored or sold to any customer.

 How are the projects selected?

All submitted projects are first sorted from the lowest to the highest bid price per unit (to two digits after the comma).

The projects whose maximum requested funding fits into the overall budget of the auction (EUR 800 million) as well as into the possibly available funding opportunities of various Member States will then be evaluated in terms of their "relevance" and "quality" and declared eligible/non-eligible for funding. Projects that are not preselected due to a bid price that is too high will be rejected directly and will not be evaluated on the basis of the award criteria "relevance" and "quality".

If two or more projects call for the same bid price, selection will be based on the following priorities:

1. Projects with the lower overall funding requirement have higher priority.
2. If the priority cannot be determined in this way, projects located in an eligible country that has received less funding from previous Innovation Fund calls at the time of publication of the call will be prioritised.
3. If the priority cannot be determined in this way either, the project with the shorter time to entry into operation will be given higher priority.

How can I apply for the hydrogen auction?

The auction is aimed at legal entities (public or private organisations). They can be based in any country in the world. However, the construction and operation of the plant must take place in an eligible country (European Economic Area).

Both individual applicants and small consortia are eligible to participate.

To participate in the auction, all application documents must be submitted by the deadline of 8 February 2024 at 17:00 (CET).

The application documents consist of a 50-page project description (Part B), detailed budget tables and a concrete timetable for implementation. In addition, several strategic elements must be presented in a concrete and plausible manner, including

• Purchasing/procurement strategy (for renewable energies and electrolysers)
• Hydrogen off-take and price hedging strategy,
• Proof of the initiation of a procedure with the competent authority to obtain an environmental permit for commissioning,
• Proof of strategy to obtain a grid connection within the maximum commissioning period (only for projects that intend to procure electricity from the grid),
• Declaration of intent for the completion guarantee.

The application documents are rounded off by several administrative documents.

Only complete application documents will be reviewed.

What is the timeline for the hydrogen auction?

The call for proposals was published on 23 November 2023. The deadline for submitting the complete application documents is 8 February 2024. The results of the evaluation are expected by April 2024 and the grant notifications for the selected projects should be issued by November 2024 at the latest.

 How can EurA support me with an Innovation Fund application?

At EurA, we have more than 20 years of experience in applying for public funding for innovation projects. In the past, we have already acquired more than 150 million Euros in EU funding in various programmes (including the Innovation Fund) for over 80 of our clients. You benefit from our many years of experience and expertise in all steps of your application. You concentrate on your project, and we make sure that your application fulfils the expectations of the evaluators. We support you from the very beginning: from the conception of your innovation project to the preparation of the application documents, to project support during the implementation - and beyond. We accompany you throughout the entire innovation process.

Are you planning to set up production capacities for green hydrogen in Europe in the near future? Dare to submit an offer to the pilot auction. This will strengthen your position in this new and rapidly growing market in Europe right from the start.

Text: Stefan Durm