Frustration has mounted over setbacks to hydrogen projects in Europe with recent news of projects put on hold, including pauses in high-profile pipeline projects. It appears that risk remains deeply embedded in key points of the supply chain.
Advocates decry the slowness of national governments in the US and Europe to clarify standards and policy directives. They see a deficiency of attention to infrastructure to move the new fuels within and among countries. And they increasingly point to a need for financial markets that give clear price signals and offset risk.
In retrospect, it appears inevitable that gravity would eventually hold down low-carbon hydrogen, for which no market has ever existed. Yet the nascent industry is moving forward. While many projects have been paused, relatively few have been cancelled so far. And the Hydrogen Council, in its ‘Hydrogen Insights 2024’, reports that more than 1500 clean hydrogen projects worldwide have reached final investment decision (FID). The industry group sees a maturing project pipeline now prioritizing those with highest potential.
Advocates call for stronger leadership and more financial backing from governments and public financial institutions. But their main focus remains on stimulating markets.
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Auctions, offered by such entities as the European Hydrogen Bank and the H2 Global Foundation, have appeared to begin to foster a true market for low-emission molecules including low-carbon hydrogen and its derivatives. Their leverage in creating such global markets may be significant.
Green ammonia goes ahead
A significant breakthrough came when the first winner of the H2Global auctions was announced in July.
A contract went to Fertiglobe, the UAE-based joint venture between fertilizer group OCI and Abu Dhabi’s state-owned oil company ADNOC, for delivery of green ammonia to European ports beginning in 2027. The contract calls for delivering 397,000 tons by 2033, at contract price of 1,000 €/t, for a maximum contract value of EUR 397 million.
Fertiglobe’s Egypt Green Hydrogen project, launched in the Suez Canal Economic Zone in 2022, will supply the product with new build solar and wind (273MW) with electrolyzer capacity of 100 MW, according to H2Global.
Auctions for green methanol and eSAF were also planned. Auctions on the sales side in Europe are expected to start in 2025 or ’26.
Market mechanism
“It’s volume and price that determines the best bidder,” says Timo Bollerhey, CEO, H2Global. “It’s pure market play, the best offer that’s on the table.”
The H2Global Foundation was established by the German government in 2021, and now with an impressive list of more than 70 corporate donors. Its mission is to begin making markets for industrial-scale trade in the new green commodities.
Its subsidiary Hintco is a trading company able to enter into long-term contracts with selected suppliers worldwide and short-term contracts with offtakers in Europe. Its contracts secure large-scale production and delivery, giving the legal certainty required for big projects to reduce risk and achieve FID.
It works as a ‘double auction’ system to overcome the difference of relatively high-cost supply and much lower prices on the demand side.
The auctions are designed to achieve the lowest cost available in the long-term 10-year contracts that producers require. H2Global with its significant funds can close the gap, allowing sales in Europe at market-based prices in short-term contracts.
Thus the mechanism also reduces risk for buyers such as chemical producers, steel producers, and so forth, who seek a large volume of product in standardized contracts of one year with regulatory certainty.
What is critical is that the projects show transparent prices to begin to create a functioning market. The intention, as the market is made, is to simulate a functioning market at a growing scale, supporting demand build-up, even encouraging secondary markets.
Allowing buyers and sellers to reduce risk while establishing clear price signals should move the market forward, eventually to achieve equilibrium price.
“We need to create this market, not only big bilateral trades, but liquid markets with price transparency,” says Bollerhey.
“That’s why many people were eager to see the publishing of our first pricing signal.
“And the pricing signal on the demand side will be even more important, to know what the market is able and willing to pay.”
He says these price signals will guide project developers worldwide as they make adjustments to their business plans according to available prices in Europe.
Auctions go global
With the auctions, H2Global can meet specific objectives, technology- or sector-specific and within specific countries. They are not intended exclusively to procure green fuels for European import.
It is a growing global business, originally founded by Germany, it is entering into partnerships with similar entities in The Netherlands, Canada, Japan and elsewhere.
Hintco received a first allocation of EUR 900 million from the German government in 2021 for its initial three auctions. In 2023, EUR 3.5 billion was allotted by the German government. In the same year EUR 300 million was promised to it by the Dutch government. Similar amounts were allocated by Canada and Australia in 2024.
“We have created a holding company H2Global Holding, which will most likely have different Hintcos serving different windows, different governments.
“For example, for the Dutch joint window we will create a separate entity.”
Green market maker
In 2024, the H2Global Foundation received a $1 million grant from the Bezos Earth Fund, which recognized H2Global as a good role model for creating markets for the new green fuels. Hintco, essentially a trading company, has been called a market maker for the new green energy commodities.
As a ‘green market maker’ H2Global supports the creation of futures contracts and other derivative financial instruments on the new green commodities.
“We first need to see supply and demand coming together,” says Bollerhey. “The second step is definitely futures markets.”
“At the end of the day you need to get financial instruments in place for markets to develop,” he says. “These are the prerequisites for real market liquidity to take place.”
He says that market liquidity, pricing signals, futures and hedging instruments need to be in place before large, gigawatt-scale investments can begin in the next decade. H2Global is working closely with the European Energy Exchange in Leipzig on the creation of new energy exchange platforms.
Bollerhey refers to a study published late last year by the consultancy Roland Berger, “The Roaring ’30s – A clean hydrogen acceleration story,” which acknowledges that year 2030 green hydrogen goals are unlikely to be met and sees the decade of the 2030s as critical for the hydrogen industry.
“It’s important that we’re laying the basis now, so that in the roaring ‘30s these markets can really take off,” he says.
Mobilizing markets
With EUR 3.5 billion from the German government, a growing volume of international partnerships and contributions from other governments, H2Global is poised to mobilize markets. Its second round of auctions is anticipated to be larger, building on lessons learned in the first round.
Its efforts will be amplified by the EU’s European Hydrogen Bank, which held a EUR 800 million pilot auction this year for production within Europe. Larger auctions will follow, supported by the EU’s Innovation Fund with funds from the EU Emissions Trading System.
Other governments are now working on creating market intermediary mechanisms in the form of auctions to bridge buyers and sellers, including Denmark, the UK, Chile and India.
Advocates believe that such programs, providing billions by governments for market stimulation and price discovery, can provide the initial leverage needed for the trillions of investment that will be required for a future green hydrogen economy.
“We need to mobilize private sector investment, which is why we’re market-driven,” says Timo Bollerhey.
“It’s good to see trade flows starting,” he says. “But public dollars should not only be subsidizing specific projects, but should be flowing towards market creation.”
“We believe a functioning market is required as a prerequisite for the private funds to flow.”
By Alan Mammoser for Oilprice.com