Two EU auctions to decarbonise industry
Europe is opening two major competitive calls that reward verified climate impact with simple, output-based premiums: one for industrial process heat, the other for renewable and low-carbon hydrogen. Both are designed to move mature projects off the drawing board and into operation, with price-only competition and clear safeguards. Below is what each auction is trying to buy, the fast filters to check whether a project fits, how bids are ranked and paid, and how national co-funding can be layered in without running afoul of State-aid rules.
What is each auction seeking?
The Industrial Heat Auction
Targets the electrification of process heat—think high-temperature heat pumps, electric boilers and resistive heating, induction, microwaves or plasma—as well as direct renewable heat such as solar thermal or geothermal, and hybrid solutions. It pays a fixed premium per tonne of CO₂ avoided for up to five years, with abatement calculated from metered process heat and an ETS benchmark or fossil-replacement factor where old boilers are decommissioned and evidenced. The envelope is EUR 1 billion split into three “baskets” by temperature and size: two medium-temperature baskets (100–400 °C) segmented at <5 MWth and ≥5 MWth, and a high-temperature basket (>400 °C).
The design hard-wires system-friendly operation. As a default, subsidised production is capped at the equivalent of 70% of hours at nameplate capacity to avoid incentivising peak-time electricity consumption; projects can raise this cap to 80% with flexible ramping, or remove it via storage or certain technologies (e.g., heat pumps with COP ≥ 2 or direct renewable heat), with compliance checked through metering and reporting.
The Hydrogen Auction—the third Innovation Fund hydrogen round—
Supports production of RFNBO hydrogen and/or electrolytic low-carbon hydrogen with a fixed premium in EUR/kg paid on verified output for up to ten years. The Commission’s draft terms foresee an estimated total budget “up to EUR 1.1 billion,” distributed across three topics: a general topic for RFNBO and/or low-carbon volumes, an RFNBO-only topic, and a maritime topic restricted to offtakers in the shipping/bunkering value chain.
Does my project fit?
The Industrial Heat Auction
Only process heat is eligible—not space heating and not heat sold to district networks. A minimum eligible temperature of > 100 °C applies. Technologies can be electrification, direct renewable heat, or hybrids; bids rely on metered heat and a standardised abatement method, including specific evidence if claiming a fossil decommissioning factor.
Minimum project sizes are defined by basket: medium-temperature projects of ≥ 3 MWth to < 5 MWth, medium-temperature ≥ 5 MWth, and high-temperature ≥ 3 MWth. The application states a nominal thermal capacity and an expected average yearly volume; the form automatically converts the EUR/MWhth premium into EUR/tCO₂ for ranking.
The Hydrogen Auction
Electrolyser capacity must be new (no “start of works”) and at a single location with a minimum of 5 MWe. Each bid is capped at a maximum grant amount of EUR 200 million across all topics. Topic #3 requires that the offtaker belong to the maritime sector (e.g., bunkering in EEA ports or receiving bunker fuels from EEA ports).
How do the auction mechanics work?
The common model in both calls is a one-stage, static, pay-as-bid auction. Proposals are first ranked by bid price; those that fit within the available budget are then checked against “Relevance” and “Quality” award criteria on a pass/fail basis.
Tie-breakers also converge but are spelled out per call. In heat, ties are resolved first by the smaller maximum grant amount; if still tied, by the presence of at least one SME, and then by the country with fewer Innovation Fund awards to date. In hydrogen, ties go to the smaller maximum grant amount, then to countries with fewer prior IF awards, and then to shorter time to Entry into Operation, with the Commission reserving the right to apply a final draw.
Price bands differ subtly. The hydrogen auction discloses a ceiling of EUR 4/kg and no minimum price; the heat auction discloses no ceiling and no minimum.
What documents and maturity will be expected?
The Industrial Heat Auction
If you claim extra abatement by decommissioning fossil heat units, you must prove the replaced capacity at application and deliver a decommissioning report one year after Entry into Operation, or the grant can be terminated and recovered. Regardless of technology, metering must follow the MRV section, with direct or indirect heat measurement and calibrated instrumentation, typically under EMAS or ISO 50001 systems.
The Hydrogen Auction
The application must include: an electricity sourcing strategy that quantifies renewable versus low-carbon shares and demonstrates at least 60% pre-contracted renewable volumes for RFNBO, plus modelling and hourly profiles; an off-take and price-hedging plan; Heads of Terms with offtakers covering at least 60% of total volumes with sector details and pricing structure; MoU/LoI with electrolyser manufacturers for the full capacity; and evidence that environmental and grid permits have been requested on a credible timeline. Where a consumer receives OPEX State aid, the offtake documents must confirm the exclusion—by Financial Close—of volumes supported through the Innovation Fund to avoid double funding.
How co-financing works (and how to avoid double funding)
Both calls integrate Auctions-as-a-Service (AaaS), allowing EEA countries to channel national funds through the EU-wide mechanism—useful to top up the maritime hydrogen topic and to support heat projects—while avoiding fragmented rules and easing State-aid clearance. The hydrogen terms also note how Topic #3’s budget can be increased by national AaaS contributions.
When combining support, always check Section IV of the respective Terms & Conditions. As a practical rule, avoid paying the same cost/volume twice and make sure any offtakers receiving operational State aid explicitly exclude volumes supported by the Innovation Fund—this must be confirmed no later than Financial Close in the hydrogen auction documentation.
Production, payments and flexibility
The Industrial Heat Auction
Pays semi-annually on verified process heat, with sanctions if flexibility claims are not delivered (e.g., storage not implemented when used to waive the hours cap). The default 70% full-load-hour cap can rise to 80% with flexible ramping; storage or COP ≥ 2 heat pumps or direct renewable heat can remove the restriction.
The Hydrogen Auction
Allows semi-annual payment cycles, up to 140% of half-year output versus the bid’s annual average, but never beyond the total maximum grant implied by your bid price × annual volume × 10 years. There is no indexation; verification and certification of produced volumes are required, and projects must ultimately certify at least 70% GHG savings over the support period.
Timelines and completion guarantees
The Industrial Heat Auction
The maximum time to reach Financial Close is 2 years from grant agreement, and Entry into Operation is 4 years. A completion guarantee equal to 6% of the maximum grant is required, issued by an EEA bank meeting minimum ratings, and must be callable if FC/EiO deadlines are missed.
The Hydrogen Auction
The deadlines are 2.5 years to Financial Close and 5 years to Entry into Operation. The completion guarantee is 8% of the maximum grant, with similar rating and timing requirements, and is likewise callable if milestones slip.
How to bid and how the price is set
The Industrial Heat Auction
Bids state a premium in EUR/MWhth of process heat; the form converts it into EUR/tCO₂ avoided for ranking, using standardised emission factors or the ETS heat benchmark. You also declare nominal thermal capacity and the expected average yearly volume. There are no price ceilings.
The Hydrogen Auction
Bids state a premium in EUR/kg, an average annual volume (kg/year) for ten years, and electrolyser capacity (MWe). The maximum grant is simply price × annual volume × 10; a EUR 4/kg ceiling applies.
If you operate energy-intensive assets with process heat above 100 °C—or are ready to produce RFNBO or electrolytic low-carbon hydrogen with offtakers in sight—these auctions are calibrated for late-stage projects that can move quickly, run reliably, and document every kilowatt-hour and kilogram. The rules keep the focus on price and performance, while leaving room for Member States to add national firepower through AaaS—provided projects keep the lines between funding sources clean.
Our view
These auctions are not mere subsidy schemes but revenue contracts that reward operational excellence and meticulous process engineering. In heat, the “secret” is to redesign the load profile—storage, flexible ramping, and the right technology choices—so that an hourly cap becomes more remunerated output and, therefore, the ability to bid more competitively without straining the P&L. In hydrogen, the real bottleneck is not the electrolyser but the orchestration of electricity (profile and cost), certification, logistics, and bankable offtake; this is where a specialised consultancy can add value by mapping regulatory fit, quantifying emissions savings and market risk, structuring price hedging, and aligning the combination of public support without double funding.
The conclusion—rarely evident from a first read of the T&Cs—is that the winning price is built before the bid: it is engineered by optimising industrial design, the energy mix, and product traceability, not by shaving margins. When that puzzle fits, the auction stops being a formality and becomes a lever for sustainable competitiveness for the plant and its value chain.
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