Legal and Regulatory Framework

Just before Christmas, France took another major step forward in its decarbonization strategy with the launch of the competitive bidding procedure designed to award financial support for the production of renewable[1] or low-carbon[2] hydrogen (H2) by water electrolysis.

This support mechanism falls within the legal framework defined by Ordinance no. 2021-167 of February 17, 2021, codified in a dedicated chapter of the Energy Code.[3] Articles L.812-1 et seq. and R.812-1 et seq. of the Energy Code provide a framework for the State to grant public operating and/or investment aid, in order to accelerate the deployment of green hydrogen production capacity.

The support mechanism set out in the current procedure launched by Ademe provides for the granting of aid over 15 years, with a ceiling price of 4 euros/kgH2.

Details of the Procedure

The published consultation document specifies that the power allocated to this first phase of competitive bidding is 200 MW of indicative electrolysis for the period 2024-2025, with a planned ramp-up to 1000 MW spread over several periods, and in particular 250 MW in 2026 and 550 MW in 2027.

The procedure comprises three successive phases:

1. Selection of candidates on the basis of their technical and financial capabilities, assessed on the basis of the requirements detailed in article 3.4 of the consultation document. In principle, between three and 12 candidates will be admitted to the dialogue procedure.
2. The competitive dialogue phase with the selected candidates in order to refine their projects.
3. Designation of the winners who will be awarded financial support after evaluation of the final applications.

The deadline for applications for the first period is March 14, 2025. Applications will be analyzed within two months of this date, with a view to selecting the candidates for the dialogue phase in May. The date for submission of the final bids and selection of the winning projects remains to be confirmed.

Project Eligibility Criteria and Information Expected From Candidates

First of all, it should be noted that only entirely new installations are eligible. This means that work on the project must not have begun prior to the selection of candidates or at the time of the final application for aid (excluding any connection work), that investments must not be committed before the winners are chosen, and that the plant must not produce H2 before the contract comes into force (except in the test phases).

As part of the procedure, candidates must demonstrate their technical capabilities, their experience in the development of industrial projects involving technological risks (and present a minimum of three relevant references) and the stage of maturity and development of their project.

They must submit a file detailing in particular:

• A description of the project: only projects with an electrolysis capacity of more than five MW and less than 100 MW, located in France, are eligible.
• An electricity supply plan demonstrating that 30 percent of the total volume of electricity used is secured over 10 years by means of memoranda of understanding, letters of intent or other forms of pre-contractual clauses signed by the applicant, and that the electricity used is of renewable or low-carbon origin.
• Commercial commitments covering at least 60 percent of production for direct industrial use.[4] The applicant must therefore be able to demonstrate that 60 percent of the offtake (Hydrogen Purchase Agreement – HPA) is secured by memoranda of understanding, letters of intent or other forms of pre-contractual clauses.
• Financial guarantee: A guarantee equivalent to eight percent of the maximum amount of support requested is required, which must take the form of a GAPD (Guarantee on First Demand) or a deposit in the hands of the CDC.
• Strict timetable for financial closure and industrial commissioning: Financial closure must take place within 30 months of signature of the aid contract between the French government and the winning candidate, and industrial commissioning within 60 months (except in exceptional circumstances, duly justified, which will be specified in the specifications).
• Cybersecurity criteria: Facilities must be operated and data stored within the EEA (European Economic Area).
• The consultation document also emphasizes the resilience of projects and their contribution to Europe’s “net zero” strategy, notably by limiting to 25 percent of the project’s electrolysis capacity (in electrical MW) the supply of cell stacks whose surface treatment, cell unit production or assembly has been carried out in a non-EU country.[5] The procedures for checking this requirement will be detailed in the specifications at the end of the dialogue phase.[6]

Summary of Selection Criteria and Weighting Issues

At the end of the dialogue phase, successful applicants will be asked to submit their final applications. Project selection will be based on two criteria,[7] with a weighting that strongly favors the financial criterion:

• Price criterion (at least 70 percent of the weighting): Projects will be assessed on the level of subsidy requested, expressed in euros per kilogram of hydrogen produced. The amount of the subsidy may not exceed the ceiling of four euros/kgH2. However, the consultation document does not specify how this weighting is to be applied. Should we deduce, for example, that a request for four euro/kg would be equivalent to a score of zero?
• Non-price criteria (maximum 30 percent of the weighting): These criteria will assess the energy, technological and environmental impact of the projects.

The high weighting of the price criterion encourages applicants to limit their subsidy requests to maximize their chances of being selected. However, non-price criteria, although secondary, will play a decisive role in differentiating projects on strategic aspects such as innovation, energy efficiency and environmental benefits.

Opportunities and Challenges for Economic Operators

This procedure represents a significant opportunity for economic players wishing to position themselves on the green hydrogen market in France. However, it implies rigorous preparation of applications, mastery of regulatory requirements, and the ability to structure a sustainable and secure business model. The conditions for participation require a well-defined strategy and a perfect command of the commitments required by the consultation document and future specifications.

Interested operators should therefore familiarize themselves with the requirements of the consultation document and prepare for the various phases of the procedure. Particular attention should be paid to compiling administrative and technical files, identifying industrial partnerships and securing supply and sales contracts.

In particular, the technical information to be provided by bidders should focus on the progress and strategy of engineering, procurement and construction contracts (EPC, O&M, MOE, MOA, etc.), securing offtake and selecting equipment suppliers. It seems illusory to expect bidders to present firm commitments or signed contracts at the bid submission stage, given the uncertainty surrounding their selection, the risk of exposure linked to the indexation of material prices and the impossibility for their co-contractors to commit to a firm price at this stage.

Finally, given the prices currently observed in France for green hydrogen compared with those for grey hydrogen, it is legitimate to question the level of support envisaged in this procedure. Is a ceiling of €4/kg sufficient to enable a transition to scale and provide an adequate incentive for the development of the sector? This is doubtful.

Read a French language version of this update.

[1] As defined in article L. 811-1 of the French Energy Code, supplemented by decree.

[2] Ibid.

[3] Chapter II of Title I of Book VIII on hydrogen.

[4] For the purposes of the consultation document, direct industrial use does not include heating (with the exception of high-temperature thermal processes (>400°C)); injection into the natural gas network; or electricity production from hydrogen.

[5] If the volume concerned makes the EU dependent.

[6] This clarification is welcome, as the entire legal framework for implementing the NZIA Regulation is not yet in force at the time of writing.

[7] Defined by article R. 812-14 of the French Energy Code.