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International: H2Global enables imports of sustainable hydrogen products into Germany and incentivizes investment in green hydrogen outside of the European Union

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In brief

The H2Global Foundation announced on 8 December the launch by its wholly-owned subsidiary, HINT.CO GmbH its first procurement procedure for the import of green ammonia into Europe. This procedure is intended to provide an innovative and efficient funding instrument, backed by EUR 900 million provided by the German Federal Ministry for Economic Affairs and Climate Protection, with further funding planned for 2023. This is the first global tender procedure of its kind.

The deadline for application is 7 February 2023.

H2Global

H2Global Foundation (“H2Global“) was set up by the German government to promote the protection of the environment and the climate, including by supporting the production and use of green hydrogen in Europe as well as promoting its import. Under the National Hydrogen Strategy the target for German H2 imports is 76-96 TWh per year by 2030.

The H2Global initiative was backed by very substantial state funding: when it was originally set up in June 2021. In addition to the EUR 900 million provided for the current procurement procedure, the German government has earmarked in its 2023 draft budget a further EUR 3.6 billion that can be spent by H2Global in future years. H2Global is open to donors (including from outside Germany) – currently more than 50 companies are engaged in the foundation.

The H2Global funding instrument

Under the H2Global funding instrument, Hintco buys, for its own account, hydrogen derivatives on a long term basis from non-EU or EFTA producers at the lowest possible price (as determined by a competitive bidding process) and sells it on a short-term basis at the highest price (again as determined by a competitive bidding process). HINT.CO, therefore, bridges the anticipated difference between the cost of production and the market price using public funding.

The Tender

The details of the tender can be found here. The key requirements include:

  • The tender is for green ammonia for import into Europe (with subsequent procurement procedures to follow for green methanol and e-SAF).
  • Production of the hydrogen derivatives must take place outside the EU and EFTA states and be delivered to a port in Belgium, the Netherlands or Germany.
  • The period of the long-term purchase agreements is 10 years.
  • The first deliveries of these sustainable hydrogen derivatives to Europe are planned for the end of 2024 or early 2025.
  • Companies that have started their production project before applying to participate in the procurement procedure cannot take part in the procurement procedure.
  • The hydrogen derivatives must be produced using renewable energy and in compliance with detailed sustainability requirements.
  • Without funding under the H2Global mechanism, the hydrogen derivatives would not be produced.
  • The successful bidder will need to demonstrate that its production project is technically and commercially feasible.
  • Tender bids have to be submitted in German.

EU Hydrogen Policy considerations

This tender should be seen in the context of the EU’s wider H2 objectives – notably the ‘RePowerEU’ target of consuming 20MT of renewable H2 in the EU by 2030 (split 50/50 between EU-produced and imported), as well as the ongoing negotiations on the ‘Fit for 55’ package between the EU’s Council and Parliament.

This new legislation should create the conditions to drive renewable H2 demand in the EU. It will almost certainly provide for a legal obligation on Member States to ensure that H2 currently consumed by EU industry would be partially replaced by renewable hydrogen by 2030 (the Commission proposes 50%), as well as minimum blending requirements for air and maritime transport.

One key question for investors submitting tenders under the current round will be how to ensure that EU sustainability requirements – notably on ‘additionality’ and ensuring a minimum (70%) GHG saving will be met when producing the H2 outside the EU. Not least, as the additionality rule is not yet defined (the Commission is likely to adopt a draft Delegated Act in the coming weeks), this will require care when designing an offer.

Hydrogen Market Impact

The launch of the H2Global funding instrument is a potentially significant step forward for the green hydrogen sector. For project developers, we would expect it to stimulate investment in hydrogen production capacity (by offering revenue stability). For European consumers, it should increase demand for imported green hydrogen (as a mechanism for delivery of imported hydrogen at European market prices).

At the same time, the mechanism proposed by the H2Global Foundation will be of interest to many hydrogen policy makers around the globe as they look to deliver on their net zero commitments.

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Author

Christopher Jones is a Principal in the European Competition Law Practice Group in the Brussels office. He joined Baker McKenzie in 2018.

Christopher's career has spanned more than 30 years at the European Commission, focusing on energy policy and competition policy.

During the last two decades, Christopher held a wide range of key energy posts including Director for Renewable Energy, Energy research and Energy Efficiency, Deputy Head of Cabinet for the Energy Commissioner and Deputy Director General for Energy.

He has been at the forefront of many major key energy and competition law decisions and innovations. He played a key role in the evolution of EU competition law towards the more economic and market based instrument it is today, and was instrumental in the successful implementation of EU merger control. He was the central EU official in opening up energy markets to competition as well as developing and implementing the core of the EU's energy policy as it is today; driving the '20-20-20' renewables and energy efficiency decarbonisation agendas, and setting the gas strategy and research policies.

Christopher is also an expert on competition policy, having spent 11 years in the field including responsibility for antitrust and mergers in the Cabinet of the Energy Commissioner, and as personal Policy Assistant to two Directors' General.

He is a leading academic in the competition and energy areas, as a part-time Professor at the European University Institute, editing and co-authoring a number of standard text books on Competition Law and Energy Markets, the Internal Energy Market, and EU Renewable Law and Policy, as well as books on merger control and the standard competition law reference work, the EU Competition Law Handbook.

Author

Claire Dietz-Polte is a partner in Baker McKenzie's Public Law and Projects practice and co-head of the German energy and infrastructure practice. Claire leads the GER-AUT Energy, Mining & Infrastructure Industry Group and is EMEA Sustainability Lead of the Industrials, Manufacturing & Transportation Industry Group. Claire started her career in 2011 in the Energy M&A team of a leading international law firm and worked in the M&A / Energy & Infrastructure practice group of another international law firm from 2013 to 2016.

Author

Philip is a Partner based in the London office who specialises in transactions in the energy and infrastructure sectors.

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