Spain’s Ministry for the Ecological Transition and the Demographic Challenge (MITECO) has released €524 million in aid to five renewable hydrogen projects, boasting a combined electrolyser capacity of 425 MW and targeting 55,200 tonnes of annual green hydrogen output. While the figures are impressive, expert assessments reveal a growing disconnect between funding ambitions and the regulatory and logistical framework needed to make these industrial-scale projects economically viable.
State Aid Meets Stagnant Frameworks
The selected projects—Green H2 Los Barrios, Asturias H2 Valley, Bilbao and Cartagena Large Scale Electrolyzers, and Ver-Amonia—benefit from IPCEI (Important Projects of Common European Interest) status, allowing them to access high subsidy rates of up to 65%. This level of support far exceeds the traditional cap of 40% for large companies, highlighting the strategic priority Spain places on hydrogen. But the grants, originally planned in 2022 and disbursed in 2025, face a radically altered economic and regulatory environment.
According to Brais Armiño, partner at renewable hydrogen consultancy atlantHy, the central issue is not the funding itself but the operational model that depends heavily on grid connection. “All these projects will go through the grid, which implies high costs of PPAs, tolls, and adjustment services,” he explains. In contrast, decentralized models using self-consumption schemes bypass these overheads, challenging the competitiveness of large-scale, grid-reliant hydrogen plants.
Scale Without Proximity: A Costly Compromise
Building 100 MW self-consumption systems near industrial centers is logistically and spatially prohibitive. This constraint pushes developers toward grid-reliant configurations, increasing levelized hydrogen production costs. Armiño estimates the current capital costs at €1.8 million per MW installed, a figure that excludes mounting operational expenses associated with energy transport, system balancing, and compliance with EU regulations.
This complexity introduces execution risks. While ArcelorMittal previously rejected hydrogen-related grants due to cost uncertainties, Armiño suggests a similar fate could befall newer projects if their original economic models—crafted in 2022—no longer hold in today’s energy market. “There is a possibility that projects may reject the aid due to changed market conditions or deviations from initial forecasts,” he warns.
Regulatory Rigidity and Market Misalignment
A critical roadblock is the EU’s “additionality” requirement, stipulating that green hydrogen must be produced using new renewable energy installations commissioned after the electrolyser. Under the delegated acts of the EU Renewable Energy Directive, this provision restricts projects that cannot secure such matching renewable capacity.
This requirement becomes even more burdensome given Spain’s slow transposition of RED III (Renewable Energy Directive III). Although the deadline passed in May 2024, Spain—like most EU countries—has not implemented the new rules. Yet RED III will force Spain to meet minimum targets for renewable fuels of non-biological origin (RFNBOs), such as green hydrogen, particularly in the transport and industrial sectors.
If interpreted strictly, these constraints could delay or cancel planned capacity additions, especially when viewed alongside limited new renewable installations expected before 2028. Armiño argues that unless the additionality clause is revised, “many projects will not be able to be executed.”
Technical Viability vs. Market Fragmentation
Technologically, electrolysers are improving in energy efficiency, with commercial models consuming between 55–58 kWh/kg and newer systems reaching 53 kWh/kg. While these figures support the technical viability of hydrogen production, logistical barriers remain.
Projects like Repsol’s in Cartagena and EDP/Cervales’s in Aragon benefit from proximity to industrial consumers, allowing for direct delivery and cost minimization. However, these cases are exceptions. Armiño advocates for a decentralized network of smaller electrolysis plants (30–40 MW), directly integrated into regional industrial hubs. Such a model would reduce grid dependency, eliminate the need for hydrogen transport infrastructure, and offer greater regulatory flexibility.
Unrealistic Auctions and Market Signaling Risks
Spain’s success in securing seven projects in the second European hydrogen auction might seem encouraging. However, market insiders warn that the exceptionally low bid prices—some reportedly under €0.50/kg—do not reflect actual development costs, which remain in the €3–€5/kg range.
Armiño cautions that most awarded projects are unlikely to materialize unless the auction structure is overhauled. “If the rules aren’t adjusted to reflect market realities, the credibility of the sector could be damaged,” he says. Unrealistically low bids not only distort price signals but also waste public resources if projects are not executed.
Looking Ahead: 2026 and H2MED
Despite current stagnation, Armiño forecasts a market rebound in 2026, spurred by final investment decisions related to the H2MED corridor—a transnational hydrogen infrastructure project slated for 2027. He urges developers to solidify land access and technological readiness ahead of this inflection point to remain eligible for future financing and logistical inclusion.
Until then, the sector walks a tightrope between ambition and execution. Spain’s hydrogen future depends less on the scale of its public investment and more on its ability to untangle regulatory rigidity, realign auction frameworks, and decentralize production to enhance resilience. Whether this €524 million injection will catalyze a hydrogen renaissance or dissolve into missed opportunities remains contingent on policy shifts and market discipline.
