The H2Global mechanism was designed to allow the configuration and implementation of individually designed tenders. Aligned with the individual objectives of the funding body, specific parameters aredetermined for each tender(modular principle):

• Which clean product(s) is to be promoted: e.g. hydrogen, ammonia, methanol, jet fuel, etc.
• The geographical application of the funding instrument: regional (e.g. Europe) or country tender,or global award procedure
• Product requirements and sustainability criteria for production, transport, and off-take.

Once the criteria for the tender have been defined, the products are then purchased by Hintco through individual tender processes, which are called lots. A tender can have several lots. Each lot has its own rules and specifications to match the features of the product being purchased.

A lot is characterized by the double-auction process of a specific product, such as renewable hydrogen, ammonia, or methanol. In each lot, there is one auction for acquiring the product, resulting in the signing of a long-term contract with the winning bidder, called a Hydrogen Purchase Agreement (HPA). The acquired product will then be resold and auctioned by Hintco through shorter-term contracts and potentially in smaller batches.

This auction then results in the signing of several sales contracts, which are called Hydrogen Sales Agreements (HSAs), with various off-takers. This tenure and volume transformation actively contributes to the development of a functioning hydrogen market, as it provides the necessary price signals and liquidity on a continuous basis.

The H2Global auctions are divided into supply-side (HPA) and demand-side (HSA) auctions.

On the supply side, the geographic location of the projects might be restricted, depending on the grant decisions of the funding providers. This might differ between the various H2Global tenders and individual lots and will be clearly outlined in the respective calls and tender documents.

In principle, all companies or consortia that produce renewable hydrogen or derivatives such as renewable ammonia and methanol) can participate in HPA auctions targeting these products. However, Hintco determinesminimum requirements that are subject to change for each tender.

On the demand side, for the pilot tender, companies based in the entire EU are eligible to participate in the HSA auctions. Additional minimum requirements are clearly outlined in the respective documents, which will be made available for the HSA auctions of the pilot tender.

The production-side (HPA) auction of the pilot tender (BMWK) is currently in the final phase. If you are a producer of renewable hydrogen or derivatives, you can participate in the HPA auction in one of the next tenders (e.g. the €3.5 bn BMWK-financed tender).

The off-take (HSA) auctions of the pilot round of auctions (BMWK) are expected to start one year before the first quantities of products are delivered. For Lot 1 (renewable ammonia), these are expected for 2025/2026.

The combination of subsidies from different sources and support schemes (e.g. local schemes in the country of production, tax exemption, etc.) is possible. However, any subsidies received must be made transparent to Hintco as a double funding must be avoided.

The framework conditions for each individual tender, e.g. product, sustainability specifications, and regionality, etc., are solely defined by the providers of the funds covering the green premium/cost of difference. Hintco consults the provider of the funds during the design process and advises on commercial and procurement-related implications of the tender. As all state aid in the EU is subject to European public procurement law, the award process for any tenders funded by EU member states is based on this law.

The hydrogen derivatives in the pilot tender – renewable ammonia, renewable methanol, and eSAF – were selected by BMWK, based on a market analysis and a market consultation carried out in 2021.

The products auctioned in future tenders may vary according to the individual objectives of the respective funding bodies.

Based on the grant decision of BMWK, the first tender is divided into three lots: renewable ammonia, renewable methanol, and eSAF. Several auctions will take place in each lot: one on the production side (an HPA auction), and annual HSA auctions on the off-take side.

As the physical intermediary, Hintco is the sole recipient of any public funds made available within this support scheme. Funds are drawn by Hintco according to the actual occurring costs of difference. These will most likely differ between HSA auctions, as the demand-price curve will vary. As such, the €900 million made available by BMWK for the pilot auction has not been provided to Hintco upfront. The funds are programmed to compensate for any occurring cost of difference between the fixed and long-term purchase price Hintco pays to the supply side (HPA) and the short-tenured sales-price fixing that Hintco receives via the demand-side (HSA) auctions. In practice, the process is as follows:

1. The HSA customer (off-taker) pays Hintco upfront of the date of delivery
2. The producer delivers the product
3. Hintco draws funds from BMWK under the grant agreement to cover the negative spread between purchase and sales price (if applicable)
4. Hintco pays the producer within pre-determined payment terms.

The funds made available by BMWK to support auctions of the first H2Global tender were programmed to foster the international market development outside the EU and European Free Trade Association (EFTA) countries. In other words, production projects within the EU and EFTA were not eligible under this pilot-trading scheme. This provision reflects the intention to support the much needed international market development for hydrogen and hydrogen derivatives to meet the expected increase in demand for imported hydrogen and its derivatives.

In future tenders, the geographical restrictions might be different, depending on the intentions and funding sources of the respective funding body.

In the first tender, eligibility criteria for the HPA auction included minimum requirements as to the financial (e.g. equity ratio of at least 20%) and technical capacities (e.g. references) of participants in order to maximize the likelihood of projects being realized.

In principle, all companies can take part in tenders, including small and medium-sized enterprises (SMEs) and start-ups. SMEs can contribute resources and expertise either as part of a bidding consortium or as a subcontractor.

Hintco is currently in the process of structuring the criteria and award procedure for the HSA auction part of the pilot tender. In principle, any interested party located in the EU will be able to submit a bid to purchase the products sold by Hintco on the EU market. Start-ups and SMEs will also be able to participate as long as they are able to honor the contractual agreements.

For future tenders, the overall procedure as well as the detailed eligibility and award criteria may vary.

From a budgetary and state aid perspective, state funds must be used efficiently. This means that no projects may be subsidised if an investment decision (FID) has already been made. Necessary preparatory work (i.e. detailed technical and economic planning, discussions with financial institutions or other customers, etc.) is permitted and encouraged.

Offtakers have different requirements. While a few sectors require volume and price security over a longer period of time to make investment decisions (e.g. the steel industry), many offtakers are hesitant and unable to be exposed to long-term price and volume obligations in what is a very nascent and unpredictable stage of the market development.

The reason Hintco only enters into short-term sales agreements (HSA) on the demand side is twofold:

• Hintco aims to use public funding in the most effective and efficient manner possible, as public funds are scarce and their impact towards market creation should be maximized. The short-tenured auctions allow Hintco to benefit from any potential change of the demand side’s ability and willingness to pay a higher premium for the product over the timeframe of the HPA. In other words: government subsidy only flows in the amount needed to close the actual and continuously changing differential cost gap. If Hintco’s revenues increase because the market is prepared to pay higher prices for clean hydrogen or its derivatives, this reduces the state’s subsidy share accordingly.
• Hintco aims to actively contribute to the creation of a functioning market. Through short-term supply contracts, Hintco regularly generates price transparency and liquidity, thus pointing to the important elements for the development of a market.

Nevertheless, longer-term sales contracts as part of the H2Global mechanismare also envisaged and might be added to future tender designs.

Under the H2Global scheme, the contract negotiations with the participating bidders are finalized before the final bids are submitted. Once the best bidder has been identified, the award of the winning bidder closes the enforceable contract with Hintco. This ensures the highest quality of bids and increases the probability of project realization. This process is different from other support schemes, under which binding contracts are only finalized after the best bidder has been awarded.

The Pilot Auction was open to projects from all over the world that are subject to very different national regulatory regimes. This made it necessary to specify comprehensive social and environmental criteria that all applicants had to meet. Regulations that have entered into force during the pilot tender or that are in the legislative process such as the Carbon Border Adjustment Mechanism (CBAM) and the EU Supply Chain Act also had to be taken into account by Hintco and understood by the consortia participating in the auction.

Due to the complexity of the tendered product, bidders had to clarify many technical, economic and regulatory issues to prepare binding offers. The resources required for this could not be anticipated by many bidders, which is why Hintco granted several deadline extensions at various stages of the process.

All these findings will be incorporated into the design of future tenders. This will ensure that the H2Global mechanism becomes even more efficient, speeding up future tender processes.

The price signals in the context of H2Global tenders include several key components, including the product price, transportation costs, as well as export and import duties. This pricing structure ensures that all significant costs associated with the delivery and handling of hydrogen products are accounted for.

The prices from the HPA within the pilot tender, though limited to a maximum of three lots, provide initial insights into the market. These instances help establish a baseline for understanding product pricing and associated costs.

Meanwhile, the HSA price signals are seen as particularly valuable because they are more frequent and regular and have annual updates. These signals are crucial for tracking ongoing market trends and gaining a clearer picture of the evolving dynamics in the hydrogen market.

In the pilot auction, the supply side is responsible for the transport and logistics of the product into a pre-defined delivery triangle (Belgium, Germany, and the Netherlands). The final port of delivery is indicated in the project of the winning bidder (signatory to the HPA) and must meet the requirements set out in the rules of the auction process.

The HSA offtaker (signatory to the HSA) must collect the product at a predefined date and time from the point of delivery of the product.

The costs, as well as the emissions, resulting from the transportation process must be accounted for and monitored by the seller in compliance with the emission requirements set out in the HPA.

HSA auctions in the pilot tender are expected to start in 2025/26.

Governments from around the world are in dialogue with H2Global about possible new tenders.

Beyond the existing import model of the pilot tender - where Germany is the sole provider of funds - there are other models currently being explored and developed, including, but not limited to:

• Joint import tenders, where two states provide funding with the intention of each receiving the final product, such as the upcoming joint tender betweenthe Netherlands and Germany.
• Bilateral trade tenders, where two states provide funding to promote the trade between a net producer country and a net importer country.

H2Global’s tenders will not all look the same. Each tender is customized to the needs of the provider of the funds and specific market characteristics.