EU tees up shipping fuel funding in €1.2bn Hydrogen Bank auction

The European Union has set the terms for a €1.2bn ($1.34bn) green finance auction that will include a tranche of funding for clean shipping fuels.

The European Hydrogen Bank auction package includes €200m for projects that will produce green hydrogen-based fuels for the maritime sector. The remaining €1bn will be available for any use.

The auction will use cash collected from the EU’s Emissions Trading System (ETS), which began to require vessels to pay for the right to pollute in January, and deposited in the bloc’s Innovation Fund.

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The European Commission said successful bidders will receive fixed-premium grants priced in euros per kilogram of renewable hydrogen-based fuels. The auction has a ceiling of €4 per kg.

“The Innovation Fund support will bridge the gap between production costs and the price that offtakers are ready to pay for renewable hydrogen,” the commission said.

It is the second auction by the European Hydrogen Bank, but the first to include a dedicated pot for shipping and the first since the industry joined the ETS.

The funding is for hydrogen-based fuels that are technically known as renewable fuels of non-biological origin. That refers to those fuels that are produced from hydrogen made from renewable energy and water through electrolysis.

For methanol and ammonia, they must be the equivalent of at least 60% renewable hydrogen.

The projects must include the equivalent of 5 megawatts of electrolysers.

Recipients of the maritime funding must produce the fuels for offtakers that will bunker vessels in European ports.

The projects must have signed contracts with maritime offtakers for 60% of the funded production volume by the time of financial closing. Those companies have to be either bunker suppliers or shipping companies, but traders or intermediaries do not qualify, according to the documentation.

Brussels is gearing up to roll out its FuelEU Maritime law starting in January.

The regulation places gradually tightening carbon-intensity limits on the energy used by shipping, as a way to incentivise the uptake of green fuels.