A Bank to Boost Renewable Hydrogen (cepInput)
Climate-friendly hydrogen can make an important contribution to reducing carbon dioxide. At present, however, the new technology is hardly profitable for industry. In order for the market to develop quickly and generate the necessary funding, the EU is planning a European Hydrogen Bank. The Centre for European Policy (cep) sees great opportunities in this instrument, but also risks – above all the danger of over-subsidisation.
"Efficient and fast: our results show that a premium system can indeed accelerate capacity building. It acts as a safe supplement to uncertain future market revenues and thus creates incentives to accelerate investments," says cep technology expert André Wolf, who analysed the EU plans for the first-time using data-based simulations.
However, according to Wolf, the conditions set for the pilot auction are associated with risks. "Our simulations show that, given the local cost situation in most EU regions, a subsidy at the maximum level set would be unreasonably high. Since competition is limited by the restricted group of participants to begin with and the pay-as-bid procedure creates incentives for strategic bidding, it is not unlikely that bids near the maximum limit will be successful," says the cep expert. He sees this as a risk of over-subsidising efficient large-scale hydrogen producers and/or promoting electrolysis in regions with poor conditions for renewable energies.
To counter this risk, the maximum subsidy rate should be lowered significantly. "At the same time, restrictions on participation should be relaxed to strengthen competition. This applies in particular to the minimum size of electrolysis capacities, allowing small producers to benefit from the support scheme as well, the cep researcher suggests.