Commission approves €350 million German State aid scheme to support renewable hydrogen production

The European Commission has approved, under EU State aid rules, a €350 million German scheme to support the production of renewable hydrogen through the European Hydrogen Bank’s “Auctions-as-a-Service” tool. The German measure is in line notably with the objectives of the REPowerEU Plan and the European Green Deal Industrial Plan. It will contribute to further reducing imports of Russian fossil fuels and fast forward the green transition.

The German scheme

Germany notified the Commission of its intention to introduce a €350 million scheme to support the production of renewable hydrogen through the “Auctions-as-a-Service” tool within the European Hydrogen Bank. The approved scheme will support the construction of up to 90 MW of electrolysis capacity and is expected to incentivise the production of up to 75,000 tonnes of renewable hydrogen. This will help Germany achieve its ambition to have at least 10 GW of domestic electrolysis capacity by 2030 and contribute to the EU target of a minimum of 42.5% renewable energy production by 2030, with the aim of reaching 45%.

The aid will be awarded through a competitive bidding process supervised by the European Climate, Infrastructure, and Environment Executive Agency (CINEA). The bidding closed on 8 February and the Agency is currently assessing and ranking bids for projects in all Member States. The support provided under this German scheme is will be open to companies planning to construct new electrolysers in Germany.

Under the scheme, the aid will take the form of a direct grant per kilogram of renewable hydrogen produced. The aid will be granted for a maximum duration of ten years. Beneficiaries will have to prove compliance with EU criteria for the production of renewable fuels of non-biological origin (RFNBOs). This includes contributing to the deployment or financing of the additional renewable electricity which is needed to produce the hydrogen supported under the scheme.

The Commission’s assessment

The Commission assessed the measure under EU State aid rules, in particular Article 107(3)(c) of the Treaty on the Functioning of the European Union, which enables Member States to support the development of certain economic activities under certain conditions, and the 2022 Guidelines on State aid for climate, environmental protection and energy(‘CEEAG’).

In particular, the Commission found that:

• The scheme is necessary and appropriate to facilitate the production of renewable hydrogen and thus the decarbonisation of the industrial, transport and/or energy sectors.
• The measure has an incentive effect, as the beneficiaries would not carry out the relevant investments without the public support.
• Germany put in place sufficient safeguards to ensure that the scheme has a limited impact on competition and trade within the EU. In particular, the beneficiaries will be selected following an open, transparent and non-discriminatory bidding process and the aid will be kept to the minimum necessary to undertake the projects.
• The aid will bring about positive effects, in particular on the environment, in line with the European Green Deal, that outweigh any possible negative effects in terms of distortions to competition.

On this basis, the Commission approved the German scheme under EU State aid rules.

Background

The Commission’s 2022 CEEAG provide guidance on how the Commission assesses the compatibility of environmental protection, including climate protection, and energy aid measures which are subject to the notification requirement under Article 107(3)(c) TFEU. The Guidelines create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the Green Deal objectives in a targeted and cost-effective manner.

The European Hydrogen Bank is an initiative to facilitate EU-domestic production and imports of renewable hydrogen in and to Europe. Its objective is to close the investment gap and connect the future renewable hydrogen supply to consumers to meet the intended target of 20 million tonnes by 2030, contributing to the REPowerEU objectives and the transition to climate neutrality. The Innovation Fund hydrogen auctions implement the EU-domestic leg of the European Hydrogen Bank.

On 20 December 2023, the Commission and Germany announced Germany’s participation as first Member State in the European Hydrogen Bank “Auctions-as-a-Service” scheme.

Under the concept of Auctions-as-a-Service, Member States may choose to use the EU-wide pilot auction mechanism under the Innovation Fund to also allocate a pre-defined amount of national funding to renewable hydrogen production projects on their territory. These projects will be assessed and ranked in the competitive auction procedure under the auction and can become eligible for national funding if the Innovation Fund budget is insufficient to cover those projects. Auctions-as-a-Service are aimed at harmonising, and tying together national and European support schemes, increasing the comparability of subsidy levels, and saving on the administrative costs to Member States and project developers of developing and understanding different hydrogen support schemes.

The Renewable Energy Directive of 2018 set out stringent criteria for RFNBOs, such as renewable hydrogen, to ensure that their environmental impact is minimal and that they contribute to the deployment of renewable energy. Amongst others, emission savings of the end product must be at least 70% across the entire value chain. Amendments to the Renewable Energy Directive in 2023 increased the target for the share of renewable energy in the EU’s gross energy consumption to 42.5% by 2030, and introduced a target that 42% of the hydrogen used in industry should be renewable by 2030, increasing to 60% by 2035.

With the European Green Deal Communication in 2019, the Commission set an objective of net-zero greenhouse gas (GHG) emissions by 2050 that is enshrined in the European Climate Law. In force since July 2021, the law also introduced the intermediate target of reducing net GHG emissions by at least 55% by 2030. Through the adoption of the ‘Fit for 55′ legislative proposals, the EU has now in place legally binding climate targets covering all key sectors in the economy.

The non-confidential version of the decision will be made available under the case number SA.109550 in the State aid register on the Commission’s Competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.