The French government will release €4 billion in subsidies in the form of public-private contracts for the development of low-carbon hydrogen projects as part of the country’s updated national hydrogen strategy.

The EU aims to produce 10 million tonnes of green hydrogen a year by 2030 and import the same quantity as part of its REPowerEU plan presented last year to reduce Europe’s dependence on Russian fossil fuels.

To reach this target, EU countries are proposing different strategies, with France favouring domestic production and Germany relying more on imports.

France has now put its strategy out in the open, with its government announcing on Monday (28 August) that it would adopt a decree in the coming weeks, releasing a €4 billion cheque to subsidise the development of low-carbon hydrogen production capacity as part of the €9 billion in public support announced at the end of 2020.

This decree aims to support several projects with a total capacity of 1 gigawatt (GW), or around 140,000 tonnes of production per year, according to Maxime Sagot, head of hydrogen public and regulatory affairs at Electricité de France (EDF), the French state-owned power utility.

The first electrolyser is expected in 2026.

Smoothing out prices

In concrete terms, the 15-year public support will take the form of subsidies, possibly even before the first kilo is produced, in order to compensate the difference between the high price of carbon-free hydrogen and the lower price of fossil-based hydrogen.

The difference in price currently ranges between two to four, depending on the technologies used, Sagot told EURACTIV.

If prices reverse, producers will pay money back to the government.

The aim is to smooth out prices in much the same way as the contracts for difference (CfDs) currently in place for the development of renewable energies in France and currently being negotiated in Brussels as part of the ongoing reform of the EU’s electricity market.

Price gap unclear

However, it is still unclear what type of contract the government will choose and whether authorities will be able to fully compensate for the significant price difference between carbon-free and fossil-based hydrogen.

According to Sagot, there are several ways to reduce the gap: industrial economies of scale in the manufacture of electrolysers, better control of the cost of delivering carbon-free electricity, or the end of free quotas for fossil hydrogen production plants.

In addition, “the ongoing reform of the European electricity market could help in the future by encouraging long-term power purchase agreements,” he explains.

Until these options are implemented, the price gap “is likely to persist for some time, given the link between gas and electricity prices in the European market,” he continues.

As a result, “the [public] subsidy could cover a greater or lesser part of the difference” between the prices of decarbonised and carbonised hydrogen in order to maintain the balance between the resources allocated and the objective pursued, Sagot adds.

In other words, there is no guarantee that public subsidies will automatically fill the gap.

EU-backed projects

With its decree announced on Monday, France is rolling out its national hydrogen strategy, unveiled in September 2020, after fighting in 2023 for nuclear-produced hydrogen to be part of the EU’s decarbonisation efforts.

This target could be exceeded in view of the various projects currently under development.

Some of these are part of Important Projects of Common European Interest (IPCEIs), which are subject to looser EU state aid rules as long as they benefit the EU as a whole.

As such, they will benefit from more than €10 billion in EU funding and more than €15 billion in private funding. There are currently more than 80 hydrogen projects across the EU, spread across two IPCEIs.

French Energy Minister Agnès Pannier-Runacher was due to visit two IPCEI projects in the Haut-Rhin region of eastern France on Wednesday (31 August), one of which is a 1GW electrolyser production plant.

Source: Euractiv.com