© Iberdrola
BP and Iberdrola have secured Spanish government approval to reallocate €211m in EU subsidies to their green hydrogen joint venture at the British oil major’s refinery in Castellón, opening the door to an expansion of the site beyond its initial 25MW capacity.
Funding reshuffle reflects wider strain on EU hydrogen subsidy scheme
The decision, taken by Spain’s Ministry for Ecological Transition and the Demographic Challenge through the Institute for Energy Diversification and Saving (IDAE), redirects money originally earmarked for other projects under the EU’s Important Projects of Common European Interest (IPCEI) Hy2Use programme. Spain had allocated €794m of Hy2Use funding to seven projects in 2024, but neither BP nor Castellón featured on that list. It is not clear which project or projects have been dropped to free up the €211m, underscoring the difficulty several EU governments face in keeping IPCEI-backed hydrogen schemes on track.
Plant has completed construction, enters testing phase
The joint venture, Castellón Green Hydrogen S.L., has finished building a 25MW electrolysis plant using Plug Power equipment and is now in commissioning and testing. Iberdrola said the plant is expected to begin producing renewable hydrogen before the end of this year and to become Spain’s largest operational green hydrogen plant by 2026. The plant will replace grey hydrogen — produced from natural gas — with green hydrogen made via electrolysis powered by renewable electricity.
Project carries broader decarbonisation remit alongside refinery use
The plant also involves Valencia’s Energy Technology Institute (ITE) and has separately secured €15m from the Spanish government via the NextGenerationEU-backed Recovery, Transformation and Resilience Plan. Iberdrola said the venture is intended to help industrial customers, including in the ceramics and chemicals sectors, replace natural gas with domestically produced renewable energy — sectors regarded as hard to decarbonise because they rely on high-temperature heat that electrification alone cannot easily replace. The company also linked the project to the EU’s recently announced ACCELERATE EU package, aimed at reducing the bloc’s dependence on imported energy.
BP’s wider hydrogen retreat complicates expansion ambitions
The reallocation comes despite BP’s broader pullback from hydrogen and carbon capture. The company has exited a large-scale blue hydrogen project in the UK and a planned green hydrogen and renewables hub in Australia’s Pilbara region, and has previously disclosed halting 18 early-stage hydrogen projects. That retreat sits uneasily against BP’s 2023 commitment to build “at least” 200MW of electrolysis capacity at Castellón by 2027, with ambitions of reaching 2GW by 2030 — targets already scaled back once from an original 200MW first-phase plan.
Implications: subsidy flexibility tested against corporate retrenchment
For policymakers, the Castellón reallocation shows EU member states are willing to redeploy IPCEI funding toward projects that survive corporate strategy shifts, rather than letting subsidies lapse when recipients withdraw. For investors, BP’s continued, if uncertain, commitment to Castellón — even as it retreats elsewhere — suggests refinery-based green hydrogen tied to a major’s existing grey hydrogen demand may prove more durable than greenfield projects dependent on new offtake. Whether BP follows through on its 2GW ambition, however, remains an open question given the company’s broader shift back toward its core oil and gas business.
