The developers of a proposed 1GW/yr blue hydrogen production facility at the Stanlow manufacturing complex in northwest England have warned of potential delays to the project unless a government-backed support scheme is fully signed off by the end of this year.

The project, which forms the central element of the Hynet North West low-carbon cluster, is being developed by oil and gas firm Essar and technology company Progressive Energy under a joint venture called Vertex Hydrogen. Hynet has been selected by the government as one of two first-round low-carbon clusters to receive state support.

The construction schedule for the blue hydrogen project envisages FID by the end of this year, with first production in late 2025, according to a report on the project compiled in November for the government and made public by the developers this week. FID is highly dependent on the developers signing a support agreement with the government, the report says.

“To reach FID before the end of 2022 requires a regulated support regime agreement in place with government. If government is not ready to sign such an agreement before the end of 2022, then startup of hydrogen production will inevitably be delayed,” the developers say.

5GW – UK’s 2030 clean hydrogen capacity target

The sequencing of the project’s construction means the hydrogen production plant needs to achieve FID before the carbon-capture component in order to make the late 2025 target for first hydrogen production, the report adds.

The government has signalled its readiness to offer a contract-for-difference (CfD) scheme to support green and blue hydrogen projects. It is analysing feedback from a consultation on the design of a CfD, which closed in October. The government’s ambition is to deliver 5GW of low-carbon hydrogen production capacity by 2030.

Progressive Energy and legal firm Linklaters have developed a proposed hydrogen CfD as a basis for discussion with the government. Private-sector investment in hydrogen projects will require an ongoing support scheme such as a CfD, in addition to direct grants, the report says.

“Fundamentally, delivery of hydrogen production facilities requires that both the capital, and also the operational costs of production are covered. In that regard, grant funding alone cannot deliver. With a well-structured revenue support regime, the private sector has an appetite to invest,” it says.

With a CfD in place, the developers are confident the project can attract private funding through a combination of debt and equity. But they stress the importance of debt market engagement to the scaling up of hydrogen. “It is critical that the debt markets engage with the emerging hydrogen sector. This is necessary to provide the financing capacity required and drive down costs,” the report says. It suggests the project will be financed with about 65pc debt.

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Author: Stuart Penson