A €900m ($1bn) plan to subsidise green hydrogen production in non-EU countries for import into Germany has been approved under EU state aid rules by the European Commission.

Hydrogen: hype, hope and the hard truths around its role in the energy transition
Will hydrogen be the skeleton key to unlock a carbon-neutral world? Subscribe to Accelerate Hydrogen, powered by Recharge and Upstream, and get the market insight you need for this rapidly evolving global market.

Berlin launched the H2Global scheme earlier this year because it believes that Germany will not be able to produce enough affordable green hydrogen from renewable energy inside its own borders.

The green light from Brussels will be great news for green hydrogen project developers from around the world, as the German scheme offers a route to market for their H2, which is generally more expensive than standard grey hydrogen derived from unabated fossil fuels. But the €900m is only expected to cover about 500MW of electrolyser projects, meaning that competition is likely to be fierce.

Germany has already signed partnerships with Canada, Chile, Japan, Morocco, Saudi Arabia, the United Arab Emirates to co-operate on green hydrogen.

Countries with high solar irradiation and strong winds, or excess hydropower, are expected to be able to produce the lowest-cost green hydrogen, as the more hours per day an electrolyser is in operation, the cheaper the H2 will be. However, the high cost of shipping hydrogen to the EU could eliminate savings made from lower-cost production.

Last month, German think tank Agora Energiewende found that it would be cheaper to produce hydrogen in Europe than import it, but that the opposite would be true for ammonia derived from green H2.

The European Commission ruled on Monday (20 December) that the state aid provided by Germany is “necessary and has an incentive effect, as the projects would not take place in the absence of public support”.

“This €900m German scheme will support projects leading to substantial reductions in greenhouse gas emissions, in line [with] the EU’s environmental and climate objectives set out in the Green Deal,” said competition commissioner Margrethe Vestager.

“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.”

Under the H2Global scheme, a new Hydrogen Intermediary Network Company (to be known as Hint.Co) would buy and sell the imported green hydrogen. It would issue requests for proposals for the production of renewable H2, or derivatives such as green ammonia, green methanol and e-kerosene, with individual projects outside the EU then bidding into tenders, with Hint.Co awarding ten-year hydrogen purchase agreements (HPAs) to the winners. All the bidders would need to contribute to the construction of new renewables projects, as H2 made from existing energy supplies are not allowed under the scheme.

The state-owned company would then tender one-year hydrogen service agreements (HSAs) to potential off-takers in Germany such as steel, chemicals or transport companies.

Hint.Co would offset the added cost of using green hydrogen ­— compared to cheaper grey H2 made from unabated natural gas — in a similar way to Contracts for Difference. In other words, the intermediary would pay the difference between the lowest bid price for H2 production and the highest selling price for hydrogen consumption.

The company would also act as a guarantor for both the supply and demand of green hydrogen, to help enable cheap finance for the projects.

The European Commission’s Hydrogen Strategy, announced this summer, says it wants to see 40GW of renewables-powered electrolysers installed in the EU by 2030, with a further 40GW in the bloc’s “neighbourhood” — ie, nearby non-EU countries such as Ukraine — by the same date.