Only a quarter of funds from the second European hydrogen auction is turning into investment

The rollout of Europe’s hydrogen industry is lagging behind expectations: of the €1.2 billion ($1.39 billion) available in the European Hydrogen Bank’s (EHB) second auction, only around €300 million has been committed to actual projects.

This has led national hydrogen associations from more than a dozen countries including Spain, France, Italy, Ireland, Finland, Norway, the Czech Republic, Bulgaria, Romania, Hungary and Slovakia to call on the European Commission to reform how funding is allocated and implemented.

Paradoxically, the issue is not a lack of interest. Early EHB auctions saw strong participation, with the third round attracting bids worth roughly six times the available budget. However, according to the signatories, many applicants submitted ultra-low subsidy requests to improve their chances of success – levels that often proved economically unviable once awards were secured.

As a result, several winners later withdrew during the contract or financial close phase. In Spain alone, four awarded projects dropped out, while three proceeded to sign grant agreements.

The risk of speculative bidding

The EHB model prioritizes projects requesting the lowest subsidy per kilogram of hydrogen produced. While this approach is designed to maximise public spending efficiency, it has also created incentives for aggressive underbidding, even where project delivery is not realistic. Industry groups argue this has encouraged speculative bids that tie up public funds and delay support for more viable projects.

This dynamic is particularly evident in the second auction. After initial withdrawals, the Commission attempted to reassign funds to lower-ranked projects, but many lacked sufficient maturity to proceed. In the end, around three-quarters of the budget remained unspent.

A market that does not yet exist at scale

Beyond auction design, the sector points to a structural constraint: weak and uncertain demand for renewable hydrogen. Unlike other energy technologies, green hydrogen development depends on long-term offtake agreements to secure revenues capable of supporting capital-intensive projects. However, many industrial users continue to delay final investment decisions, awaiting clearer regulation and lower costs.

Delays in the national transposition of the EU’s RED III Directive are also cited as slowing market development. Without firm demand signals, many projects struggle to reach financial close, even when they secure public funding.

Calls for greater flexibility

While welcoming recent moves by the European Commission to strengthen eligibility and credibility criteria, industry associations warn that overly strict rules could further constrain deployment. They are calling for more flexible treatment of key milestones—particularly commissioning deadlines—when delays result from factors outside developers’ control.

They also urge a reassessment of requirements around temporal and geographic correlation between renewable electricity and hydrogen production, a contentious issue across the EU. According to the sector, excessive rigidity increases production costs and undermines project bankability.

The importance of the Auction-as-a-Service mechanism

One of the industry’s most valued tools is the European Commission’s Auction-as-a-Service (AaaS) mechanism. It allows Member States to use national funds to support projects that scored highly in EU hydrogen auctions but failed to secure EU-level financing. Spain alone has allocated €377 million to such projects. Industry stakeholders warn that partial auction failures risk undermining confidence among developers, financiers, and offtakers.

Renewable hydrogen projects require multi-million-euro investments in electrolyzers, renewable generation, and transport and storage infrastructure. Without clear signals of regulatory continuity, investors may delay or withdraw decisions. For this reason, industry associations are calling for the European Hydrogen Bank to continue beyond the currently planned third auction, alongside a guarantee of at least three further rounds. They argue that predictability over future calls is essential for enabling large-scale industrial planning.

Technical assistance to improve project readiness

Concerns over project maturity have also prompted stronger technical support schemes. The Clean Hydrogen Partnership has launched the second call under its Project Development Assistance (PDA) programme, supporting hydrogen projects across EU member states and Horizon Europe-associated countries.

Up to 13 projects will be selected for tailored support in four areas: financial modelling and commercial structuring, technical optimisation and technology selection, regulatory compliance and permitting, and governance, consortium building and stakeholder coordination.