Better conditions for the production of and investments in clean technologies are the goal of a legislative package by the EU Commission on the way to the targeted climate neutrality. The Net Zero Industry Act (NZIA), presented on Thursday, aims to create the conditions for the industrial sectors that are crucial for achieving the net zero goal by 2050. As part of the initiative, the Brussels government institution also presented its ideas about the design and functions of a European hydrogen bank, with which it intends to subsidize the production of renewable hydrogen.
“A Chicken and Egg Problem”
In principle, the Commission has already announced the special financial instrument with its industrial plan for the “Green Deal”. From autumn 2023, the first pilot auctions for the production of climate-neutral hydrogen are to be held as part of an innovation fund. According to the plan, selected projects will receive a subsidy in the form of a fixed premium per kilogram of hydrogen produced for a maximum of 10 years of operation.
“We need to build hydrogen value chains and close the investment gap”, reasoned Frans Timmermans, the Commission Vice-President responsible for climate protection, the project. Currently, only 10 percent of hydrogen projects have made a final investment decision. “It’s mainly a chicken and egg problem,” said the Dutchman. Potential users of renewable hydrogen are holding off on their investments because they don’t know if producers can make the specific gas available when they need it. The manufacturers, on the other hand, are reluctant because their investments have to be worthwhile.
Hydrogen bank – risk mitigation
“So we have to mitigate the risk,” said Timmermans. The hydrogen bank will help “close this gap”. For renewable hydrogen produced in the EU, she will “take over the environmental premium”. This is the difference between the cost of producing green hydrogen and “the price that the market is willing to pay”. The exact amount of the compensation will be determined as part of a tendering process.
“The renewable hydrogen producers who need the lowest support in euros per kilo of hydrogen produced will win the auction,” the commissioner said. A first auction worth 800 million euros will be financed from the innovation fund. It’s supposed to start in the fall. The Commission wants to create a separate procedure for renewable hydrogen imported from outside the EU.
Turning point or “drop in a leaking bucket”?
The relevant solutions used in industry up to now are often anything but clean. Operators of chemical factories alone use almost two million tons of so-called gray hydrogen in Germany every year. This is produced from fossil fuels. Most of the time, natural gas is converted into hydrogen and CO₂ in refineries with heat using “steam reforming”. In the long term, the federal government only considers green hydrogen to be sustainable if it is produced on the basis of renewable energies. The focus is on electrolysis, in which water is broken down into hydrogen and oxygen with the help of electricity, for example from wind and solar power.
Jorgo Chatzimarkakis, Managing Director of the Hydrogen Europe lobby group, spoke in view of the advance of a Turning point for the ramp-up of the European hydrogen economy. The proposed bank is the “icing on the cake” among other clean technology initiatives. Andreas Graf, from the Berlin think tank Agora Energiewende, on the other hand, rated the initiative as a “drop in a leaky bucket”. The production of green hydrogen is very expensive. In order to get larger quantities here, there is a significantly higher financing requirement.