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Accelerating UK Hydrogen Investment

  • United Kingdom
  • Energy and infrastructure - Hydrogen

23-08-2022

On 20th July 2022, Kwasi Kwarteng, the UK Business and Energy Secretary, announced a new funding round to accelerate investment in green hydrogen. The new joint allocation round for electrolytic green hydrogen projects is the world’s first national clean-hydrogen subsidy scheme.  It will use a contracts-for-difference-style revenue support mechanism to fund up to 1GW of low carbon hydrogen production projects via two allocation rounds in 2023 (opening in 2022) and 2024 (opening in 2023). 

If all goes to plan, this will mean that 1GW of electrolytic hydrogen will be in operation or construction by the end of 2025 with the overall aim being to increase hydrogen production to 10GW by 2030. 

How is this different to the UK offshore wind contracts for difference?
There’s no doubt that contracts for difference (“CfDs”) have helped spearhead the growth of the UK wind sector, and it’s clear the same is hoped for the hydrogen sector. CfD mechanisms work on the principle of providing energy price certainty for a developer, which encourages investment in what could otherwise be seen as risky emerging technologies. 

The proposed hydrogen ‘CfD’ (which we have analysed in further details in our previous article) uses a variable premium price support model, whereby generators are paid a subsidy that denotes the difference between a pre-agreed strike price and the higher of a ‘reference price’ or market/sales price. 

This is undeniably more complex than the offshore wind CfD mechanism, whereby generators are paid a pre-agreed strike price for the electricity produced and there is top-up/down mechanism to the extent that the actual electricity price is lower/higher than the strike price.

Interestingly, the government seems to have indicated an initial preference for progressing green Hydrogen projects, as a funding round for blue Hydrogen projects has yet to be announced. Kwasi Kwarteng said: ”The UK’s hydrogen sector is open for business. With the right investment, we can unlock the enormous potential of hydrogen by reindustrialising our economy and ending our dependency on expensive fossil fuels”. The Department for Business, Energy & Industrial Strategy (BEIS) has confirmed that a new levy could be added to household bills to fund the scheme from 2025 at the latest (subject to consultation and legislative approvals). 

In addition, Jane Toogood (Chief Executive of Catalyst Technologies at Johnson Matthey) was appointed as the UK’s first Hydrogen Champion – a role that has been set up in order to spearhead the government’s Hydrogen ambitions (including supporting up to 10GW of hydrogen production capacity by 2030, aiming to run annual allocation rounds for electrolytic hydrogen, and designing, by 2025, new business models for hydrogen transport and storage infrastructure) and drive investment in Hydrogen. 

On 20th July 2022, Kwasi Kwarteng, the UK Business and Energy Secretary, announced a new funding round to accelerate investment in green hydrogen. The new joint allocation round for electrolytic green hydrogen projects is the world’s first national clean-hydrogen subsidy scheme.  It will use a contracts-for-difference-style revenue support mechanism to fund up to 1GW of low carbon hydrogen production projects via two allocation rounds in 2023 (opening in 2022) and 2024 (opening in 2023). 

If all goes to plan, this will mean that 1GW of electrolytic hydrogen will be in operation or construction by the end of 2025 with the overall aim being to increase hydrogen production to 10GW by 2030. 

How is this different to the UK offshore wind contracts for difference?

There’s no doubt that contracts for difference (“CfDs”) have helped spearhead the growth of the UK wind sector, and it’s clear the same is hoped for the hydrogen sector. CfD mechanisms work on the principle of providing energy price certainty for a developer, which encourages investment in what could otherwise be seen as risky emerging technologies. 

The proposed hydrogen ‘CfD’ (which we have analysed in further details in our previous article) uses a variable premium price support model, whereby generators are paid a subsidy that denotes the difference between a pre-agreed strike price and the higher of a ‘reference price’ or market/sales price. 

This is undeniably more complex than the offshore wind CfD mechanism, whereby generators are paid a pre-agreed strike price for the electricity produced and there is top-up/down mechanism to the extent that the actual electricity price is lower/higher than the strike price.

Interestingly, the government seems to have indicated an initial preference for progressing green Hydrogen projects, as a funding round for blue Hydrogen projects has yet to be announced. Kwasi Kwarteng said: ”The UK’s hydrogen sector is open for business. With the right investment, we can unlock the enormous potential of hydrogen by reindustrialising our economy and ending our dependency on expensive fossil fuels”. The Department for Business, Energy & Industrial Strategy (BEIS) has confirmed that a new levy could be added to household bills to fund the scheme from 2025 at the latest (subject to consultation and legislative approvals). 

In addition, Jane Toogood (Chief Executive of Catalyst Technologies at Johnson Matthey) was appointed as the UK’s first Hydrogen Champion – a role that has been set up in order to spearhead the government’s Hydrogen ambitions (including supporting up to 10GW of hydrogen production capacity by 2030, aiming to run annual allocation rounds for electrolytic hydrogen, and designing, by 2025, new business models for hydrogen transport and storage infrastructure) and drive investment in Hydrogen.