The UK government today opened the world’s first national clean hydrogen subsidy scheme, which will use a contracts-for-difference (CfD)-style setup to help fund an initial 1GW of green H2 and 1GW of blue H2 projects as it aims to reach 10 GW of low-carbon hydrogen by 2030.
A one-time application process will allow developers to access ongoing support from the Government’s Hydrogen Business Model (HBM) CfD-type revenue, as well as up to £240m (288, $5 million) in grants from the Net Zero Hydrogen Fund (NZHF) “to support the initial development and construction costs of low-carbon hydrogen generation projects” (see panel at the bottom of the story).
The first stage of the application process for HBM funding for green hydrogen projects – or as the Department for Business, Energy and Industrial Strategy (BEIS) calls it, “electrolytic” – is now open, developers having until September 7 to register “expressions of interest” (EoI) (see panel below).
The government says it has committed to “award up to 1GW of HBM contracts to electrolytic projects via two award rounds in 2023 (opening in 2022) and 2024, (opening in 2023)”.
“This means we will have up to 1 GW of electrolytic hydrogen generation projects under construction or operational by 2025, with up to 2 GW of overall generation capacity (including CCUS-enabled hydrogen [ie, blue H2]) under construction or operational on that date”.
The UK Government will not consider any funding application that does not register an Expression of Interest (EoI).
“Submission of the EoI form is a necessary condition for participation in the electrolytic allowance cycle,” says BEIS. “Any application received without first submitting an EoI will not proceed to the evaluation stage.
“Projects will be asked to confirm to the best of their knowledge and belief that they meet the relevant eligibility criteria within the EOI, and also to provide additional information on their project plans. This includes information on the location and capacity of their smelter project, as well as their expected commercial operation date.Projects will be required to provide supporting evidence to prove their eligibility when submitting a final bid.
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“We hope to support at least 250MW via the first round of allocation, although we reserve the right to allocate less if we do not see enough projects that meet our eligibility criteria and exhibit VfM. [value for money] to the government”.
While the projects must be commercially operational by the end of 2025, “to align with government targets for hydrogen deployment by 2025 and to kick-start the market”, exceptions could be allowed for “reasons beyond the plaintiff’s control”.
The government adds: “Our aim for this process is to support projects to be deployed at scale as soon as possible, advancing the government’s aspiration to deploy up to 10 GW of low-carbon hydrogen generation capacity. by 2030, subject to affordability and VfM, with the intention that at least half of this will come from electrolytic hydrogen.
Once a developer has submitted their expression of interest, the “government intends to hold engagement sessions, to ensure that projects have a clear understanding of the criteria and objectives of the development cycle. electrolyte allowance and how to complete a request” – what it calls “Window Commitment Submission”.
Final funding requests must be submitted by October 12.
A funding round for blue hydrogen projects has yet to be announced.
As Reload previously reported, the HBM fund offers a “variable premium price support model” – providing a subsidy that represents “the difference between a ‘strike price’ reflecting the cost of hydrogen production and a ‘premium price’. reference” reflecting the market value of [grey] hydrogen”.
It includes a “contractual mechanism to induce the producer to increase the selling price and thereby reduce the subsidy” and would provide “volume support via a sliding scale in which the strike price (and therefore the subsidy) is higher per unit if hydrogen withdrawals drop”.
The government has previously said it will define “low carbon hydrogen” as H2 produced with less than 2.4 kg of CO2– equivalent emissions for each kilogram of hydrogen produced — including upstream emissions, which could be a stretch for blue H2 developers.
“Low-carbon hydrogen will be key to achieving net zero,” says BEIS. “Hydrogen investment to de-risk early projects is expected to unlock over £9bn of private sector co-investment through 2030 in generation alone, with BEIS analysis showing that up to 100 000 jobs and £13bn of GVA [gross value added] could be generated from the UK hydrogen economy by 2050 in a high hydrogen scenario.
Controversially, the new application guide states that while up to £100m of public funds will be available for operational projects before March 2025, “it is expected that all HBM support will be funded by levy from 2025, subject to consultation and approval parliamentarian of any required legislation”.
It suggests a hydrogen tax will be added to consumers’ energy bills from 2025, although the Tory government – reeling from the squalor and subsequent resignation of Prime Minister Boris Johnson – may be out of power by then, as a general election must be held by January 24, 2025, under UK law.
While this is the first national hydrogen subsidy scheme to start, Germany has launched a program to support green hydrogen imported from outside the EU as part of its H2Global program.
Separately, Energy Secretary Kwasi Kwarteng is due to announce today that Jane Toogood, a former senior executive at Johnson Matthey, has been named the government’s new ‘hydrogen champion’, who will ‘help boost investment and industry deployment at this critical stage in the early development of the UK hydrogen economy”.
“She will identify current barriers to building a strong hydrogen economy in the UK and develop creative solutions on how to address them to accelerate the pipeline of projects and meet UK government commitments,” says BEIS. .
The government has divided the “delivery” of the Net Zero Hydrogen Fund (NZHF) into four parts, as BEIS explains below:
• Section 1: DEVEX (development expenditure) for FEED (Front End Engineering Design) studies and post FEED costs. Tier 1 offers up to 50% co-funding.
• Stream 2: CAPEX (capital expenditure) for projects that do not require income support through the HBM [Hydrogen Business Model]. These are likely to be smaller electrolytic projects that can access revenue support through the Department of Transport’s Renewable Transportation Fuel Obligation (RTFO). Tier 2 offers up to 30% co-funding.
• Stream 3: CAPEX for projects that require revenue support through the HBM and fall outside of the Phase 2 cluster sequencing process. The first round of allocation will be limited to electrolytic projects.
• Section 4: CAPEX for CCUS [ie, blue hydrogen] projects that require financial support through the HBM and are part of the Phase 2 cluster sequencing process.
Investment costs for storage and transportation are not included as part of NZHF funding.