Navigating the New Horizon of Renewable Hydrogen: The Innovation Fund Auction

The European Union, aligning with its Green Deal Industrial Plan, positioned itself at the forefront of the global green revolution. The bloc’s commitment to environmental sustainability is evident in its policies, strategies, and funding mechanisms such as the European Hydrogen Bank. One of the pivotal initiatives in this trajectory is the 2023 Innovation Fund Auction, which has a budget of €800 million specifically earmarked for renewable hydrogen production. This initiative starts on 23 November 2023 and accepts proposals until 8 February 2024. In partnership with industry stakeholders, the Fund aims to support large-scale projects that promote low-carbon technologies and drive Europe closer to its green goals. Building on this, Petar Murginski’s analysis offers valuable insights into these strategic developments and their potential. For those seeking expert advice on how to leverage EU funding opportunities related to hydrogen technologies and more, Dimitar Ganev, Deloitte’s Gi3 Director in Bulgaria, is a valuable contact.

The Overview
The Innovation Fund Auction is based on three primary objectives:

1. Technology Neutrality
The Fund’s primary approach is to adopt diverse technological solutions rather than endorse a specific set. The idea is to encourage innovation in a range of areas, from energy-intensive industries to renewable energies, and carbon capture to energy storage. By leaving the door open to multiple technological pathways, the EU is ensuring a comprehensive approach to reducing carbon emissions.

2. Large-Scale Impact
Projects under this Fund are expected to have a significant scalable impact. The criteria are clear – projects should demonstrate not just a high degree of innovation but also substantial potential for scalable commercial application and deployment across the EU.

3. Operational Timeline
A five-year window has been set for the operation to commence post the grant agreement signature. This is a clear indicator of the EU’s urgency in achieving its sustainability targets.

As for the grant agreement’s timing, the standard maximum time projected is nine months post-auction clearance. Nevertheless, indications suggest that this process might conclude much faster, a hint at the EU’s commitment to expedited green project realization.

Competitive Bidding: The New Paradigm

The revised Emission Trading System Directive (2023/959/EU) has opened the doors to competitive bidding mechanisms, such as auctions, transforming the way funds are awarded. These auctions are not just transactions – they herald multiple benefits:

• Efficiency in Allocation: The auctions promise a cost-effective distribution of financial support, ensuring that every euro is judiciously spent.
• Transparent Pricing: By facilitating price determination and market formation, the auctions shine a light on genuine costs, setting the stage for the evolution of new markets.
• Risk Mitigation: Projects no longer stand alone in facing risks. The auction framework aids in risk mitigation, creating a conducive environment for attracting private investments.
• Streamlined Administration: Bureaucratic hurdles often slow down progress. Recognizing this challenge, the auctions are designed to minimize administrative burdens for all stakeholders, from projects to contracting authorities.

Financial Mechanisms: Payments and Implementation

Financial stability is critical to the success of any large-scale project. The Innovation Fund Auction marks a key episode in the bloc’s green journey, supported by thoroughly crafted financial mechanisms. At its core:

1. Awarding of Funds
Funding will be awarded as a fixed premium in €/kg of verified hydrogen production. Ceiling price for the bids is set at 4.50 €/kg of hydrogen produced. Qualifying proposals will be ranked from lowest to highest bid price. Awards will be granted in that order until the available budget—€800 million—is exhausted.

2. Biannual Payments
The Fund assures beneficiaries of consistent financial support, dispersing payments every six months after the commencement of operations.

3. Accountability and Transparency
Payments are inextricably linked to the verification of Renewable Fuel of Non-Biological Origin (RFNBO) production volumes, ensuring that each beneficiary adheres to the stipulated green objectives.

4. The ‘Completion Guarantee’
An essential financial instrument, it mandates projects to activate within five years post the grant agreement, emphasizing the urgency of green project realization.

Hydrogen: The Future of Clean Energy

With the increasing demand for sustainable energy solutions, hydrogen is emerging as a leading contender in the field of renewable energy. Hydrogen has been globally acclaimed as a clean energy vector with the potential to revolutionize sectors from transportation to heavy industries. The Innovation Fund acknowledges this potential with a focus on certified and verified RFNBO for hydrogen production.

However, a significant challenge is the initial stage of RFNBO certification. As of 2023, the European Commission has not yet approved any official schemes. In the interim, the “Voluntary Schemes” have come to the rescue. These are third-party international entities, experienced in the certification of biofuels, biomass, and similar products. Three such schemes are currently seeking recognition by the Commission, reflecting the rapid development of the certification landscape.

Moreover, there is increased interest in hydrogen production from grid-supplied electricity. The use of Guaranteed of Origin (GoO) certificates will authenticate the renewable source of electricity. It is important to note that GoOs alone are not sufficient to fulfill RFNBO mandates. The environmental performance of electricity used in hydrogen production needs a broader validation framework, highlighting the need for third-party certification systems.

Diving Deep: The RFNBO Framework

The term RFNBO might sound technical, but it is key in ensuring green compliance. The framework around RFNBO is based on the Renewable Energy Directive (2018/2001/EU) and its Delegated Acts C(2023) 1086 and 1087. One significant aspect is the “Additionality Principle”, ensuring that the electricity used in the production of renewable fuels and bioenergy is over and above what is already being generated or provided.

However, this principle is flexible. For instance, if the electricity supply emerges during a grid imbalance settlement period, the principle can be waived, showcasing the EU’s pragmatic approach.

Closing Thoughts

The Innovation Fund Auction is an ambitious stride in Europe’s green journey. But ambition, without financial prudence, remains unfulfilled. The meticulously designed financial mechanisms ensure that environmental ambitions are translated into tangible, sustainable results. The future is carbon-neutral, and the path, albeit challenging, is clear and actionable. The Innovation Fund Auction is but a chapter in this grand green narrative, and what an impactful chapter it promises to be!

For more insight and guidance on hydrogen technologies and EU funding, feel free to reach out to Deloitte’s Gi3 team in Bulgaria. We stand ready to assist innovators, visionaries, and business leaders in optimizing your green transition.

Together, let’s navigate a path towards a sustainable, carbon-neutral future.

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