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Commission approves EUR 900 million German scheme to support investments in production of renewable hydrogen

12/21/2021

Press Release - European Commission

The European Commission has approved, under EU State aid rules, a EUR 900 million German scheme to support investments in the production of renewable hydrogen in non-EU countries, which will be then imported and sold in the EU. The scheme, called ‘H2Global', aims at meeting the EU demand for renewable hydrogen that is expected to significantly increase in the coming years, by supporting the development of the unexploited renewable resource potential outside the EU. It will contribute to the EU environmental objectives, in line with the European Green Deal, without unduly distorting competition in the Single Market.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “This EUR 900 million German scheme will support projects leading to substantial reductions in greenhouse emissions, in line the EU's environmental and climate objectives set out in the Green Deal. It will contribute to addressing the increasing demand for renewable hydrogen in the Union, by supporting the development of this important energy source in areas of the world where it is currently not exploited with a view to importing it and selling it in the EU. The design of the scheme will enable only the most cost effective projects to be supported, reducing costs for taxpayers and minimising possible distortions of competition.”

The German scheme

Germany notified the Commission of its plans to introduce a new scheme, ‘H2Global', to support the production of renewable hydrogen in non-EU countries, to be imported and sold in the EU. The scheme, which has an estimated budget of EUR 900 million, will run for 10 years starting from the award of the first contract under the scheme.

Renewable hydrogen can be produced through the electrolysis of water with the electricity stemming from renewable sources. Since almost no greenhouse gas is emitted in the production of renewable hydrogen, large reductions in greenhouse gas emissions can occur when renewable hydrogen displaces a fossil fuel or fossil-based chemical.

The scheme will be managed and implemented by a special-purpose entity named HINT.CO. This intermediary will conclude long-term purchase contracts on the supply side (green hydrogen production) and short-term resale contracts on the demand side (green hydrogen usage).

The aid will be awarded through competitive tenders. Prices will be determined on the buying and selling side via a double auction model, where the lowest bid price for hydrogen production and the highest selling price for hydrogen consumption will each be awarded a contract.

The producers of renewable hydrogen and hydrogen derivatives such as green ammonia, green methanol, and e-Kerosene wishing to participate in the tenders will have to strictly comply with the sustainability criteria for renewable hydrogen and hydrogen derivatives production, set by the revised Renewable Energy Directive (RED II). They will also have to contribute to the deployment or financing of the additional renewable electricity needed to supply the electrolysers producing hydrogen under the scheme.

Should part of the EU regulatory framework for renewable hydrogen under the Renewable Energy Directive not be in force at the time of the auctions, the German authorities will define interim criteria to be used in those auctions, on the basis of consultations with the Commission.

The Commission's assessment

The Commission assessed the scheme under EU State aid rules, in particular the 2014 Guidelines on State aid for environmental protection and energy.

The Commission found that the aid is necessary and has an incentive effect, as the projects would not take place in the absence of the public support. This is because carbon prices and other regulatory requirements do not fully internalise the costs of pollution. This is because renewable hydrogen is significantly more expensive to produce and use than fossil-based hydrogen. Furthermore, the Commission found that aid is proportionate and limited to the minimum necessary, as the level of aid will be set through competitive auctions. Finally, it found that the positive effects of the measure, in particular on the environment, outweigh any possible negative effects in terms of distortions to competition, given the existence of competitive bidding processes in which a large number of potential firms can participate.

On this basis, the Commission concluded that H2Global is in line with EU State aid rules, as it supports projects that will reduce greenhouse gas emissions, in line with the European Green Deal, without unduly distorting competition.