‘The EU subsidies we won last week were never meant to cover cost gap with grey H2 — the buyer has to pay a premium’

When the European Commission first announced its plans to subsidise green hydrogen production through its European Hydrogen Bank, it said the funding would close “100% of the cost gap” between green and grey hydrogen.

But when the winners of subsidies in the first EHB auction were announced last week, the actual winning bids were less than €0.48 ($0.52) per kg — nowhere near the estimated cost gap of around €7/kg.

According to the head of the consortium that won the largest subsidies in the auction round, it was never the intention for the subsidies to cover that cost gap.

“The support is not to cover 100% of the cost,” said Rogaciano Rebelo, the CEO of Madoqua Renewables, which leads the 500MW MP2X project in Portugal that is now in line for €245m of subsidies over ten years after making a winning bid of €0.48/kg.

“Who will pay the rest? The buyer, there has to be a premium. The subsidy is just one of the ingredients, the efficiency of the technology is another, and the reduction in the price of raw materials is another.”

Chinese electrolysers?

Rebelo pointed out that with MP2X not due to start coming on line until 2028, there are still two years until the project development consortium MadoquaPower2X needs to buy electrolysers — and he expects costs to fall in that time.

“In 2019, 2020, a 1MW electrolyser cost €1.2m-1.3m. Today, the same electrolyser, with the same alkaline technology, can cost up to €450,000.

“We will buy in two years; in our opinion it will reach €300,000 per megawatt; in Asia, prices will drop to €200,000/MW.”

He added that his company was open to buying cheap alkaline electrolysers from China.

“We have not made a final decision on the manufacturer. But we made a decision about the technology — that will be alkaline, and there are several producers: China, the United States and Europe. There is no difference, the technology is the same.

“We have already carried out research with more than 20 electrolyser manufacturers. And now we are working with a shortlist of five. And there is not the slightest difference in terms of technology between them.

“I’m going to do what’s best for the project, it doesn’t matter if [the electrolysers are] Chinese, American or German.”

Financing and FID

The first 500MW phase of the MP2X green hydrogen and ammonia project, at the Portuguese port of Sines, will produce approximately 50,000 tonnes of green hydrogen per year, to be injected into the local gas grid, as well as 300,000 tonnes of green ammonia for use in maritime transport and fertiliser production.

Power for the project will come from approximately 1.1GW of dedicated wind and solar capacity procured from a nearby “renewables community”.

According to Rebelo, the final investment decision (FID) process will begin in June 2025, with financial close scheduled for December 2025.

“If [the financial close] isn’t done by then, there is no project,” he said, because the developer has five years to complete the project starting from the day it signs the subsidies contract with the European Commission in June, and it will run out of time if FID is delayed past the end of 2025.

The first phase of the project is expected to cost €1.3bn, and Madoqua is still seeking to raise between €700m and €900m, Rebelo told Jornal Económico, adding that the company hopes to fund the project through a combination of 40% equity and 60% financing.

“The cost of financing will make a difference,” he said.

“We are talking to the EIB [European Investment Bank], we are talking to all the banks in Europe.

“We were already talking to everyone before the [EHB] auction was declared. Long before. No one [financial institution] will do this alone. It will be a banking union.”

Next steps

There is still a lot to work to do before an FID can be made, Rebelo said.

Madoqua still requires the land to be signed off by the Portuguese government’s Trade and Investment Agency, AICEP, after consultation with the Portuguese environment agency APA, the local council and the regional co-ordination and development commission.

And it still needs an environmental licence from the APA, which requires a complete FEED (front-end engineering and design) study for the entire project, from the substation to the ships that will transport green ammonia to the Port of Rotterdam in the Netherlands, where it will be sold as a shipping fuel.

Madoqua does not expect to receive the environmental licence until the end of the first quarter in 2025, and the handover of the land until September next year.

Once construction begins, the 5-10MW electrolyser modules will be installed and started up in stages, first for testing, then commissioning, and then final start-up.

“This is the first time that things are being done on this scale, we need to do some tests, which will start in 2027, so that we are ready to start in 2028.”

Rebelo says the developers want to start construction of the second 700MW phase of the M2PX project in 2030, which would increase production to 150,000 tonnes of green hydrogen annually and more than one million tonnes of renewable ammonia a year.

The MP2X project is being developed by an international consortium called MadoquaPower2X, led by Portuguese developer Madoqua Renewables, that includes Denmark’s Copenhagen Infrastructure Partners and Dutch developer and management consultancy Power2X.

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