The energy transition is no longer limited to mere words; it is now a series of concrete steps and mechanisms already being implemented. At the beginning of 2021, our company identified the German project H2Global as one of the key and target initiatives for participation. We planned to participate in this initiative aimed at developing the market for renewable hydrogen and its derivatives. However, due to the full-scale invasion of Ukraine by russia in February 2022, we were forced to change our status from a potential participant to an observer.

Last week, the results of the first tender within H2Global were announced. I will try to analyze these results in detail and consider the operational mechanisms of H2Global. This analysis will help better understand the opportunities and challenges facing the renewable hydrogen market, as well as the potential for further development.

H2Global is an initiative created to promote a global transition to clean energy, particularly by developing the renewable (green) hydrogen market and its derivatives. This mechanism was initiated to support the production and sale of renewable energy products such as green ammonia, green methanol, and synthetic aviation fuel (E-SAF). Ammonia and methanol are key chemical compounds widely used in industry and agriculture. Ammonia, in particular, is used as a raw material for fertilizer production, which is an important component for ensuring agricultural production. Methanol is used as a raw material in the chemical industry, as well as fuel and solvent. SAF is an alternative to traditional aviation fuel and helps reduce greenhouse gas emissions in the aviation sector.

The H2Global mechanism is administered by the German Federal Ministry for Economic Affairs and Climate Action (BMWK). However, the practical implementation of projects is carried out through Hintco GmbH, which is responsible for organizing and conducting auctions, as well as managing contracts for the purchase and sale of hydrogen products.

How Does the H2Global Mechanism Work?

H2Global uses a double auction mechanism for the purchase and sale of hydrogen products. The purchase is carried out through a competitive process involving long-term agreements (10 years) for hydrogen procurement. This process ensures stable production and supply of hydrogen products. The sale of hydrogen derivatives also takes place through a competitive process, but with short-term agreements (1 year). This allows market prices to be set and ensures availability for end consumers.

Hintco GmbH plays a key role as the operator of the H2Global mechanism. Hintco GmbH conducts auctions for both purchase and sale and subsequently manages contracts with producers and buyers, ensuring compensation for the price difference between purchase and sale using financial support from a special fund.

Key Goals Achieved by H2Global Structure Using Hintco GmbH:

Efficiency. Centralized auction organization and contract management increase process efficiency and reduce administrative costs.

Transparency. The use of competitive auctions ensures transparency and fair pricing for hydrogen derivatives.

Stability. Long-term hydrogen procurement agreements provide supply stability and support producers, while short-term sales agreements allow for flexible responses to market changes.

Financial Viability. Compensating the price difference reduces financial risks for producers and attracts investments in renewable energy.

Tender Budget and Participation Criteria:

The first tender was announced in December 2022, with the following budget planned for the H2Global initiative:

• 2024: €20 million
• 2025: €60 million
• 2026-2033: €1025 million annually

There was no fixed volume of products to be purchased for each hydrogen-based product (ammonia, methanol, SAF). However, a budget of €300 million per lot with a tolerance of ±20% per lot was planned, but the total amount of all lots should not exceed €900 million.

Companies that had started projects before applying for participation in the tender were not allowed to participate. The project was considered to have started only after the contract for the supply and creation of electrolytic capacities for hydrogen production necessary for hydrogen derivatives production was signed. Preliminary land acquisition, obtaining preliminary permits, preparing feasibility studies, and other preparatory activities were not considered project initiation.

Among the key criteria, it was stated that the value chain must be located outside the EU and the European Free Trade Association countries (Iceland, Liechtenstein, Norway, and Switzerland). The value chain includes the production, transportation, delivery, and storage of the proposed product until acceptance by the customer.

In addition to full technical requirements, another important section of the tender documentation was identified. Participants had to provide an environmental impact assessment report and a social impact assessment project along with their application. The potential seller had to ensure compliance with basic labor standards and apply an environmental management system.

The tender procedures for three lots were announced in December 2022:

• Lot 1 – Renewable Ammonia
• Lot 2 – Renewable Methanol
• Lot 3 – E-SAF

Considering the increase in lot sizes and contract duration, reduction of regulatory uncertainty, providing greater support to participants, and improving access to port infrastructure, the pilot H2Global auction was somewhat delayed, and the results were announced only after a year and a half – in July 2024.

Currently, results have only been announced for the first lot. The methanol auction is still ongoing, and the E-SAF auction did not take place due to regulatory uncertainty and certain inconsistencies in the contract terms.

Details on the Pilot Green Ammonia Auction.

Participants from 65 countries registered on the tender platform. Interested companies, like ours, made 1393 downloads of the tender documentation. After the qualification stage, 22 projects were selected, and after several rounds of negotiations in January 2024, only 5 participants were invited to submit indicative proposals.

In their tender proposals, potential suppliers offered an average combination of 145 MW of electrolysis and 295 MW of renewable energy sources. This combination, in my opinion, is the most efficient in terms of achieving the highest number of operating hours for electrolysis with the lowest production cost of hydrogen. This allows optimizing the use of renewable energy and reducing production costs, which is critical for the commercial success of the project.

All presented projects used alkaline electrolyzers, with only two participants proposing the use of high-pressure alkaline electrolyzers. Interestingly, no one opted for PEM (proton exchange membrane) technology, SOEL (solid oxide electrolysis), or high-temperature electrolysis. This is somewhat surprising since these technologies also have their advantages. Perhaps the absence of these technologies among the proposals is related to implementation costs, specific project requirements, or other technical constraints. However, its potential should be considered in future tenders and project solutions.

Logistics and Selected Project

Among the five projects selected to submit commercial proposals, one project planned delivery to the Port of Antwerp, while the other four planned delivery to the Port of Rotterdam. The total volume ranged from 210 to 475 thousand tons. It is important to note that the receiving port must have the necessary capabilities for receiving, storing, and further dispatching ammonia to offtakers. The role of ports as key hubs in this process cannot be underestimated, as they play an important role in ensuring stable and uninterrupted product supply.

After the competitive selection and evaluation of all final price proposals submitted in May this year, the winner was announced in July – the “Egypt Green” project by Fertiglobe. Fertiglobe, in turn, is a strategic partnership between ADNOC and OCI Global, registered in Abu Dhabi and listed on the Abu Dhabi Stock Exchange (ADX).

Project Partners and Details:

• Fertiglobe PLC: The largest nitrogen fertilizer producer in the MENA region and a global leader in urea and ammonia exports by sea.
• Scatec ASA: a Norwegian company specializing in renewable energy development.
• Orascom Construction: a well-known contractor with extensive construction experience.
• Sovereign Fund of Egypt: the Sovereign Fund of Egypt supports economic projects.
• Egyptian Electricity Transmission Company: an Egyptian company engaged in electricity transmission.

The “Egypt Green” project does not involve greenfield construction, as the biggest part of the necessary capacities and infrastructure already exists. Planned technical modernization includes replacing steam methane reforming with electrolysis, significantly reducing CO2 emissions. A 70 MW solar generation and a 203 MW wind farm are planned to power the 100 MW electrolysis.

The air separation unit is another component of the plant. After preliminary cleaning and compression, the air passes through a series of heat exchangers and distillation columns for further separation of components and obtaining nitrogen. In the synthesis gas production stage, nitrogen and hydrogen are mixed to produce gas used in the Haber-Bosch process for ammonia production. This process uses an iron catalyst and operates at high pressures (150-300 atmospheres) and temperatures (400-500 °C). The exothermic reaction in the ammonia synthesis reactor results in the formation of ammonia.

Green ammonia from the “Egypt Green” project will be transported to the Ein El Sukhna Port storage via an existing 7 km ammonia pipeline, from where it will be shipped to the Port of Rotterdam. The first production year in 2027 is planned to realize 20 thousand tons of ammonia, with a subsequent guaranteed minimum consumption of 40 thousand tons per year. Green ammonia will be sold by Hintco GmbH on the European market in standard lots of 500 tons through annual auctions. These auctions will provide regular and uncorrelated data on market prices, contributing to the development of a functioning renewable ammonia market in Europe.

Financial Aspects

According to the tender conditions, the price selling of ammonia is €1282/t. This amount was determined based on the analysis of the cost of producing green hydrogen and its derivatives conducted by leading associations and industry companies. According to a preliminary market analysis, the average cost of ammonia in 2022 (at the time of the auction launch) was €952/t. The winning project from Fertiglobe offered €811/t (ex-factory), which is the net price excluding additional costs. The total product cost on CIF (Cost Insurance and Freight) terms to the Port of Rotterdam is €1000/t (transportation – €90/t, logistics – €70/t, duties – €30/t).

Environmental Impact

The “Egypt Green” project makes a significant contribution to ensuring stable renewable ammonia supplies to the European market and reducing global greenhouse gas emissions. The project achieves significant greenhouse gas emissions reductions equivalent to the annual emissions of approximately 62,000 cars. Fertiglobe’s emission reduction proposals were carefully verified and confirmed by the international certification organization TÜV Süd. Additionally, the proposals were checked for compliance with the regulatory requirements established in RED II and Delegated Acts.

In conclusion, the “Egypt Green” project demonstrates decisive steps towards clean energy, contributing to the global energy transition. The project initiates the supply of green ammonia to the European market, motivating our company to work with even greater enthusiasm. We wish Fertiglobe success in implementing the project and congratulate them on this important achievement. This is just the beginning of a great journey, and you inspire us for further productive work.

Author: Iaroslav Kryl, CEO Hydrogen Ukraine