Hamburg (energate) - With a pilot call for tender for the production of green hydrogen, the EU Commission wants to speed up the development of the hydrogen economy. In an interview with energate, Maximilian Boemke, partner at law firm Watson, Farley & Williams, assesses the plans in terms of their significance for market development and the expected market response.
energate: How do you see the plans against the backdrop of the H2 market ramp-up?
Boemke: This announcement is certainly helpful for the market ramp-up. We currently see a chicken-and-egg problem in the market: because the regulatory incentives to make CO2 emissions more expensive are not yet in place, there is no demand for long-term purchase contracts for the significantly more expensive green hydrogen. Such contracts, however, are crucial for the external financing of generation capacities. The EU subsidy addresses this problem by compensating for the price difference between grey and green hydrogen. Producers can therefore offer green hydrogen at competitive prices, making it much easier to conclude long-term purchase contracts. Provided that the rules for participation, implementation and surcharge are relatively straightforward, this approach can significantly accelerate the market ramp-up.
energate: How do you assess the auctioning instrument in this context?
Boemke: In our opinion, government support without an auction would have been even better, because an auction only has the desired effect when demand exceeds supply. In the German wind power market, for example, we have seen that this is not always the case. Moreover, in an auction, some bidders will naturally walk away empty-handed, which would be a major setback for the projects concerned. If individual market participants believe that their chances of receiving funding are too low, they may not even enter into project development in order to avoid unnecessary costs.
Unconditional support along the lines of the US Inflation Reduction Act would therefore probably be more effective in getting the market off the ground in the short term. On the other hand, the instrument of auctioning is not only advantageous in terms of protecting competition; in the long term, it also reduces the risk of projects being realised that cannot survive in the market after the ten-year support period has expired.
energate: How do you think this tender will be received by the market? What do you think the field of bidders will be like?
Boemke: We expect a strong response because the market is hungry for hydrogen projects and the funding significantly reduces one of the biggest obstacles, namely the question of long-term procurement. We therefore believe that many project developers will take a close look at the instrument. For it to be successful, it is extremely important that the EU defines and adheres to the conditions for participation, the criteria for awarding grants and the details of payment as early as possible. The funding will only have the desired effect if the regulatory framework is straightforward and does not create additional barriers. In addition, the extent to which different funding programmes can be combined needs to be clarified at an early stage.
We see potential bidders in particular as suppliers who want to sell their green hydrogen on the market - i.e. less the large, integrated companies and more smaller companies from the renewable energy and hydrogen economy sectors.
The questions were asked by Rouben Bathke.
