Portugal to hold Europe's pioneering auction for piped hydrogen

A pioneering auction will be launched by Portugal in the second half of 2023 for rights to put on sale hydrogen that will be injected into the national gas grid, which some perceive as a key step to kickstart the fledgling hydrogen market of Europe.

As per the terms of the auction, energy group Galp Energia will sign a contract with producers to purchase hydrogen mixed with natural gas and resell it to meet the market's demand. The system has been designed to increase investment in production by providing guaranteed buyers to the suppliers.

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This would remove the requirement for multiple bilateral contracts between consumers and suppliers. The first auction for hydrogen's transportation to consumers via pipeline in Europe is being watched to see if it can resolve one of the stickiest conundrums of the sector which is balancing the producer's requirement for a demand pickup with the desire of the client of price and supply guarantees.

Around $76 billion have been pledged by the investors to construct green hydrogen plants, as per the Hydrogen Council and McKinsey & Company, however, around $6 billion had reached the stage of final investment decision till May 2022.

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The auction has been designed to foster hydrogen technology's development in Portugal, "ensuring that there is a firm off-taker at a time when private demand is still at an early stage", said Environment Minister Duarte Cordeiro's office in a written response sent to Reuters.

The Portugal solution can help in resolving the "chicken and egg" situation of waiting for justifying the investment with sufficient demand, said Dilara Caglayan, who is a senior research associate for hydrogen at Aurora Energy Research.

“Blending hydrogen into the existing gas network could help generate demand to get the market up and running,” she added.

(With inputs from agencies)

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