France’s New Green Hydrogen Support Mechanism: An Opportunity for European Players?
The wind, solar, and biomethane industries have benefited from support mechanisms that have helped the sector grow. The hydrogen industry is now set to receive government support to accelerate its development. In France, the government has announced a €4 billion plan to develop 1 GW of electrolysers to produce green hydrogen.
Main provisions of the draft specification document
The French energy regulatory authority (Commission de Régulation de l’Énergie—CRE) has issued an opinion on the draft specification document for a new project funding mechanism designed to support both low-carbon and renewable hydrogen production. It provides for the division of the targeted installed capacity into three tender tranches (150 MW, 250 MW, and 600 MW) and the organization of a competitive procedure for the first tranche in order to establish the specifications that will also apply to the subsequent tranches.
Public support may consist of operating aid (aide au fonctionnement), which would take the form of a contract for difference (CfD) covering the difference between the cost of producing renewable or low-carbon hydrogen and the price of producing a carbon-intensive alternative; or a combination of operating aid and investment support (aide à l’investissement) to finance the electrolyzer.
Organization of the competitive bidding process
The competitive bidding process aims to award public funding for a period of 15 years for the construction and operation of renewable or low-carbon hydrogen production facilities based on water electrolysis, a technique that uses an electric current to separate hydrogen and oxygen atoms and does not release carbon during the chemical process of hydrogen extraction.
Article L811-1 of the French Energy Code defines the different types of hydrogen to be produced:
- Renewable hydrogen is produced either by electrolysis using electricity from renewable energy sources, or by any other technology that uses exclusively one or more of these same renewable energy sources and does not conflict with other uses that allow for their direct recovery. The production process shall emit a quantity of carbon dioxide equivalent per kilogram of hydrogen produced that is less than or equal to a threshold.
- Low-carbon hydrogen generates emissions during its production process that are less than or equal to the threshold used to classify it as renewable hydrogen, but it does not qualify as renewable hydrogen because it does not meet the other criteria. The classification of hydrogen is based primarily on the amount of carbon dioxide released during production.
These thresholds are to be specified by order of the Minister of Energy.
Candidates may only receive support for periods during which the production process emits a quantity of carbon dioxide equivalents that is less than or equal to 3.38 kg of CO2 per kilogram of hydrogen produced. If this threshold is not met for the facility’s entire production, the support actually paid will have to be prorated to ensure that the winning facility receives support only for the quantities of energy produced that meet the eligibility criteria. The production of hydrogen from nuclear power falls within the scope of the draft specifications.
The procedure is open to all applicants established in a Member State of the European Union or the European Economic Area who wish to build and operate a facility to produce renewable or low-carbon hydrogen through water electrolysis on French territory.
Projects with a capacity greater than 30 MW intended for fuel refining, synthetic fuel production, and direct industrial use without blending in France are eligible for the competitive bidding process (except for use in heating and blending with methane gas).
The Candidate Selection Process
The competitive dialogue procedure consists of three phases: the phase for selecting candidates to participate in the competitive dialogue, the competitive dialogue phase, and the final phase for selecting the winning bids.
The selection phase for applications to participate in the competitive dialogue
Early in the process, applicants must already submit numerous documents, including information on the applicant’s economic capacity (average annual revenue of more than €100 million over the past three years, excluding tax), financial capacity, and references demonstrating the applicant’s ability to finance projects with an investment cost of more than €30 million.
Applicants must also demonstrate their technical capacity by providing references for industrial projects “involving technological risks” that they or their controlling shareholders have carried out in the last ten years with an investment cost exceeding €30 million. The total investment cost for the references submitted must be at least €100 million.
It should be noted that candidates may participate in the procedure individually or as part of a consortium. In the case of an application submitted by a consortium, the revenue of all consortium members (and, where applicable, of the controlling shareholder(s)) will be aggregated for the purposes of the economic capacity requirement. With regard to references, the candidate consortium may rely on the respective references of the consortium members, giving priority to the references of the designated representative.
Only a maximum of 5 candidates will be admitted to the competitive dialogue. They will be ranked based on their ability to meet the minimum application requirements, or on criteria such as the maturity of their project, the relevance of the references demonstrating their technical capabilities, etc.
The competitive dialogue phase
The competitive dialogue phase is expected to last approximately four months and will be based on draft specifications provided by the Minister of Energy. The discussions must result in the drafting of final specifications.
The final bidding and selection phase
The candidates who participated in the competitive dialogue will be invited to submit a bid in accordance with the final specifications. The candidates’ bids will be evaluated based on the following criteria:
- for at least 70% of the total score, a price criterion based on the amount of funding offered per metric ton of CO2 avoided;
- for a maximum of 30% of the total score, non-price criteria, including the facility’s carbon footprint and its contribution to the objectives set forth in Article L. 100-4 of the Energy Code.
The bidding process targets major economic players
The minimum requirements regarding the financial capacity of candidates in the first phase of the procedure are likely to reduce the number of potential candidates. To mitigate this problem, the CRE proposed that candidates provide evidence of their financial capacity by combining a financial performance guarantee at the competitive dialogue application phase (a) with a justification of the financial capacity required to finance the candidate’s project, including minimum criteria relating to the amount of equity on the candidate’s balance sheet (b).
With regard to technical capacity, the CRE recommends limiting the maximum number of references that can be submitted to 5, in order to avoid unduly diluting the references that are genuinely relevant to the candidates’ project, and establishing as a minimum requirement that the candidate must have at least 3 references considered relevant, with an investment cost above a minimum threshold set in the consultation document. Finally, the CRE considers that it would be appropriate to lower the minimum threshold for technical references (i.e., €30 million in investment costs per reference) to reduce barriers in the early stages of the procedure.
With regard to the selection of candidates, the CRE recommends increasing the maximum number of candidates allowed to participate in the competitive dialogue to 8 in order to ensure a diversity of operators and project types and to limit the risk that the number of bids ultimately selected will be lower than the target for the first period.
Finally, the CRE supports a compensation system based on the actual amount of hydrogen produced, rather than investment aid. It also considers that delays in the provision of connection facilities should be grounds for postponing the deadline only when they cannot be anticipated and are attributable to the applicant.
The draft specifications have not yet been approved by the Minister of Energy. It is difficult to know whether the changes requested by the CRE and called for by the industry will be implemented.
While the draft specifications are aimed at large industrial companies or major consortia, it is worth noting that the public commitment to supporting major projects is part of a vision for the large-scale development of low-carbon and renewable hydrogen in France, enabling European players to establish a presence in the French market. Nevertheless, small and medium-sized companies will not be excluded from the hydrogen development strategy, as they will still be able to apply for the call for tenders as part of a consortium, while projects with an installed capacity of less than 30 MW are eligible for the auction launched by the European Hydrogen Bank (minimum installed capacity of 5 MW).
Anouk Darcet-Felgen and Charlotte Hacot, February 15, 2024