FRANKFURT (Reuters) -Deutsche ReGas on Wednesday said it will receive 112 million euros ($126.97 million) worth of public grants from the European Union's Hydrogen Bank for a renewable hydrogen project at Lubmin on Germany's Baltic Sea coast.

The grant comes under EU funding schemes to promote electrolysis processes that use carbon-free electricity to kick-start a local economy producing hydrogen as an alternative to fossil fuels.

ReGas said the hydrogen production at Lubmin, for which the funding will be spread over 10 years, can cut 1.6 million metric tons of carbon dioxide.

The EU subsidy is designed to help to close price differences between green hydrogen production costs and conventional energy prices.

The funding was awarded in a 992 million euro auction, the second for the Hydrogen Bank, in which 15 projects from five countries were awarded money, ReGas said in a statement.

ReGas is a private developer and operator of energy infrastructure, including floating storage and regasification units and hydrogen electrolysers.

The Lubmin plant, located near where ReGas used to import liquefied natural gas on a floating reception terminal in the aftermath of the 2022 energy crisis, aims to make use of access to offshore wind energy and Baltic Sea water that can be used in the electrolysis process to make hydrogen.

It is also close to both power transmission grids and a new hydrogen core transport network, set to start between 2025 and 2032.

ReGas has moved its LNG operations away from Lubmin to develop an LNG landing terminal in the nearby German port area of Mukran on Ruegen island.

"From the very beginning, our goal was to secure energy supply and, at the same time, to push forward the energy transition," said managing director Ingo Wagner.

Grant agreements for the hydrogen projects selected by the EU in the auction round are expected to be signed by September/October, an EU document attached by ReGas said.

($1 = 0.8821 euros)

(Reporting by Vera Eckert, editing by Jane Merriman)