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2024

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05

Portugal opens first auction for hydrogen blending into the gas grid

Author:

Hydrogeninsight


The Portuguese government has this week opened applications for its first tender for green hydrogen and biomethane to be blended into the country’s public gas network, which will take the form of a “descending clock” auction.

 

In this style of sale, the auction starts at a set price cap — €127 ($138) per MWh for renewable H2 and €62/MWh for biomethane — and decreases incrementally, with bidders exiting when they are no longer willing to sell at that price.

 

This means that the government could hold multiple rounds in sequence in order to meet the procurement cap of 120GWh of hydrogen, or around 3,604 tonnes, per year.

 

Once the central auction is closed, Portugal’s wholesale gas “last resort suppliers” — which have special regulatory dispensations under law, such as the license to supply customers whose original gas provider has gone bankrupt — will be obligated to purchase whatever volumes had been sold into their area of jurisdiction.

 

However, the last resort suppliers will also be able to re-sell Guarantees of Origin linked to the purchase of renewable gases, which could offset their higher cost.

 

The 120GWh a year maximum that could be purchased by the auction is divided into 60GWh a year for injection into the national gas transmission network and 60GWh a year into the distribution network.

 

However, successful bidders must ensure their projects are on line and ready to blend H2 into the gas grid within three years of their award, which must take place by the end of 2025 at the latest.

 

Hydrogen Insight has reached out to OMIP, the market platform which will host the tender, for further information on deadlines for the auction.

 

Portugal is expected to produce extremely cheap hydrogen owing to abundant renewables — and in some cases projects have already secured subsidies to reduce the cost of their green hydrogen even further.

 

For example, Madoqua Power2X’s project in Sines has secured €0.48 per kilogram produced over ten years from the European Hydrogen Bank, the equivalent of around €245m. The developer expects to sell 50,000 tonnes of H2 per year to the Portuguese gas grid from its first 500MW phase, to be operational from 2028.

 

However, given that the scale of production exceeds what the Portuguese government plans to buy per year in its first auction, it is unclear whether Madoqua Power2X plans to sell its H2 to gas suppliers outside of the tender system.

 

Blending hydrogen into the natural gas grid is controversial as a climate measure, given analysts have pointed out that green H2 is expensive to produce and emissions savings are relatively slim compared to direct use of renewable electricity.

 

Recent lab tests have also raised alarm that high blends of hydrogen in gas distributed to households could not only leak H2, but increase the rate at which methane leaks, further diminishing any climate benefit.

 

Source: Hydrogeninsight

 

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