European Commission approves state aid for hydrogen infrastructure projects to drive green energy transition

On 15 February, the European Commission approved the third Important Project of Common European Interest (IPCEI), "IPCEI Hy2Infra", under EU State Aid rules to support the development of hydrogen infrastructure.

The "IPCEI Hy2Infra" project is jointly promoted by seven Member States - France, Germany, Italy, the Netherlands, Poland, Portugal and Slovakia - and involves up to €6.9bn of public funding and is expected to attract €5.4bn of private investment. The project will cover a wide range of parts of the hydrogen value chain, including the deployment of large-scale electrolysers, new and modified hydrogen transmission and distribution pipelines, the development of large-scale hydrogen storage facilities, as well as the construction of loading and unloading terminals for liquid hydrogen carriers and related port infrastructure.

The project will also strengthen cooperation among member countries to promote interoperability among equipment and the development of common standards to remove barriers to application and facilitate the integration of hydrogen energy markets. This will gradually establish a hydrogen infrastructure network covering the entire EU.

The types of projects supported by the aid are broadly described below:

1. the deployment of 3.2 GW of large-scale electrolysers to produce renewable hydrogen; and

2. the deployment of new and repurposed hydrogen transmission and distribution pipelines of approximately 2,700 km; the development of large-scale hydrogen storage facilities; and

3.the development of large-scale hydrogen storage facilities with capacity of at least 370 GWh; and

4. the construction of handling terminals and related port infrastructure for liquid organic hydrogen carriers ('LOHC') to handle 6,000 tonnes of hydrogen a year.

The EC's approval of projects within this aid programme bases on an assessment of the EU's state aid rules. It focuses on the innovative nature of the project, its contribution to the EU's strategic objectives and the financial risks involved. All 33 projects included in the aid programme are forward-looking. They go beyond the current level of infrastructure and market demand.

In SMM's view, granting appropriate assistance to such projects will promote the development of the industry as a whole. In the future, these forward-looking projects can and will contribute to a low-carbon, sustainable development of EU industry.

The EC also emphasises that government support is necessary to incentivise companies to invest. At the same time, it should be ensured that the scope of assistance is necessary and appropriate to avoid undermining fair competition in the market. In addition, participating companies will share the technology and experience gained during the construction and the first year of operation of the project through various channels, in accordance with the recommendations, with a view to generating spillover effects for the relevant industries across Europe.

The IPCEI Hy2Infra project complements the infrastructure investments that were missing in the first two IPCEI projects along the hydrogen value chain (i.e. "Hy2Tech" focusing on the development of hydrogen technologies and "Hy2Use" focusing on industrial applications) and marks the EU's commitment to support innovation, signalling the EU's continued efforts to support the development of an innovative and sustainable hydrogen industry. As another major step in the EU's transition to renewable energy and reduction of dependence on natural gas, it will help achieve the goals of both the European Green Deal and the REPowerEU programme.

As the global quest for clean energy accelerates, economies such as the EU, US, China and Japan are increasing their support for clean hydrogen energy through industrial policies, SMM observed. For the lithium-ion battery and electric vehicle industries, the rise of hydrogen technology could trigger ecological niche overlap and high-intensity competition between the two. In the short term, although the EU still maintains a leading position in key aspects of hydrogen energy technology, such as electrolyser manufacturing, the continued development and application expansion of hydrogen energy technology may divert current global capital investment and R&D resources from lithium-ion batteries and electric vehicles, causing a reshuffling of the market landscape. In the long run, such competition will prompt the two industries to explore more deeply in technological innovation and cost-effectiveness, thus accelerating the maturity and diversification of the entire clean energy market; however, the possibility of vicious competition cannot be ruled out.

Overall, the programme will have a significant impact not only on the hydrogen industry itself, but also on the global energy market and related industries, including lithium-ion batteries and electric vehicles. SMM expects it to drive the transition to a cleaner and more sustainable energy system in the EU and globally. At the same time, the development of hydrogen energy, especially hydrogen from renewable power sources, will create a new pattern of energy trade globally, especially for those countries with abundant solar and wind power resources.