Details
H2 Global: auction results groundbreaking for renewable ammonia
Earlier this year, H2Global, a Hamburg based non-profit working to create clean fuel markets completed its first pilot auction.
The auction had a total budget of EUR 900 million and focused on securing contracts to produce renewable ammonia, methanol, and e-sustainable aviation fuel (eSAF). Lot 1 for green ammonia production was successful and contributed to accelerating the energy transition and European decarbonization efforts. The winning bidder, Fertiglobe, a strategic partnership between ADNOC and OCI, will start producing renewable ammonia destined for delivery in European ports in 2027 for a maximum contract value of EUR 397 million.
In return, Europe has secured a significant supply of renewable ammonia starting at a potential 19,500 tons in 2027 subject to the start of production date and supply availability and rising up to a total of 397,000 tons cumulatively by 2033. This pilot auction established the first price signal at a contract price of EUR 1,000 per ton and a net price of EUR 811 per ton. These price signals send a positive, clear, and strong message, indicating renewable ammonia can be produced and imported into the EU at attractive prices through targeted support to the most competitive projects.
Pilot auction process
The pilot auction, launched in late 2022, employed a two-stage negotiated procedure conducted by Hintco. Hintco stands for Hydrogen Intermediary Trading Company, it is a 100% owned subsidiary of H2Global. It puts into practice the double-sided auction process that H2Global innovated. The first stage involved a preliminary competition (qualification phase) to identify eligible bidders, followed by a negotiation and bidding phase. The auction process aimed to limit the number of finalists to five, ensuring a rigorous and competitive environment for awarding contracts.
- The Qualification Phase: Hundreds of companies from over 65 countries downloaded tender documents, highlighting the global interest in renewable energy initiatives. More than 1,400 questions were submitted, demonstrating a meticulous approach to understanding the regulatory and procedural aspects of the auction.
- The Negotiation and Bidding Phase: This phase involved submitting initial, non-binding bids, followed by individual contract negotiations, and culminating in final, binding bids. The process required multiple rounds of negotiations to address contractual details, compliance with EU regulations, and potential infrastructure challenges.
The H2Global Mechanism: A double auction approach
H2Global employs a unique double-auction mechanism, encompassing two distinct stages:
- Hydrogen Purchase Agreements (HPA): This current auction phase involves competitive procurement for hydrogen production contracts spanning 10 years.
- Hydrogen Sales Agreements (HSA): These auctions, anticipated to begin in 2025/2026, will focus on the sale of the produced hydrogen, ensuring a continuous and uncorrelated market price signal.
This innovative mechanism is designed to promote transparency, competition, and market development in the renewable hydrogen sector.
Key insights from Lot 1: renewable ammonia
The auction for renewable ammonia yielded significant insights:
- Aggregated Bid Insights: Bids showed an average electrolysis capacity of 145 MW, coupled with the construction of an average of 295 MW of additional renewable energy. The projects offered quantities of renewable ammonia ranging from 210,000 to 475,000 tons. The net product price of the bids averaged €1,048 per ton, showcasing the market's potential for competitive pricing.
- Egypt Green Hydrogen Project: The successful bid from Fertiglobe is based on the Egypt Green Hydrogen project. This project involves a 100 MW electrolyzer facility, a newbuild 203 MW onshore wind park, and a 70 MW solar PV plant, creating up to 1,330 jobs during construction and 80 during operation and maintenance.
Future Auctions: Expanding the Horizon
The success of the pilot auction has paved the way for future auctions. Lot 2, focused on renewable methanol, is currently ongoing, with results expected in 2024. Lot 3, which covered e-SAF, concluded without a contract being awarded, due to the early stage of development of the e-SAF market and existing regulatory uncertainties. The funds from Lot 3 will be reallocated to Lot 2, enhancing opportunities for renewable methanol production. Additional auctions are planned, including a major round of auctions worth €3.5 billion and a joint Netherlands-Germany initiative. The Canadian and Australian governments have also come on board since the results were released – committing CAD300 million and EUR 200million respectively to future auctions.
Conclusion: A Catalyst for Change
As the sole green market maker, H2Global plays a pivotal role in shaping the future of renewable energy markets through its innovative auction processes. H2Global's pilot auction is a significant achievement in the journey toward a more sustainable energy future. The success of this initiative demonstrates the feasibility of large-scale renewable hydrogen production, paving the way for the development of a thriving global market. As future auctions unfold, we can expect to see further innovation, competitive pricing, and global collaboration in driving the creation of clean fuel markets for hard-to-abate sectors.
About Victor Ponsford:
He holds a M.A. in Diplomacy and International Studies from the School of Oriental and African Studies (SOAS), where he completed a first-class dissertation on Botswana’s diamond sector. Victor hails from Britain and grew up in Botswana, China, Russia and Tajikistan. Since April 2024 with H2Global as communication officer.
