The UK government expects to launch the first round of its low-carbon hydrogen business model support scheme this summer, Greg Hands, minister of state for business, energy and clean growth, told the Hydrogen for Life 2022 conference in London this week.

The scheme will kick off by opening the first-round allocation process for support for electrolysis projects to “incentivise both production and the use of low-carbon hydrogen through the provision of ongoing revenue support”, Hands said.

He did not comment on the potential timing of actual subsidy awards. The government said in a consultation response in April that it aimed to make the first awards under the hydrogen business model in 2023.

10GW – UK’s 2030 low-carbon hydrogen production target

“Low-carbon hydrogen will be vital for meeting our legally binding commitment to achieve net zero by the year 2050, as well as supporting UK energy independence. It will also be critical to helping vital British industries transition away from expensive oil gas and can provide green energy for power, transport and potentially home heating as well,” Hands says.

In April, the government doubled the UK’s ambition for low-carbon hydrogen production to 10GW by 2030 as part of an energy security strategy launched by Prime Minister Boris Johnson in response to the crisis unleashed by Russia’s invasion of Ukraine. At least half of the 2030 target will be met by green hydrogen, according to Hands.

CfDs

Under the hydrogen business model, the government is expected to offer ongoing revenue support to projects in the form of contracts for difference (CfDs)—an approach that received strong backing in a consultation last year. CfDs could be awarded for periods of 10-15 years, the government says.

Recent proposals for CfDs have included using a reference price based on actual hydrogen sales, with natural gas prices forming a floor.

The government has also said it is assessing options to index-link the CfD strike price to account for inflation or commodity price volatility—both of which have increased markedly in recent months.

Jake Tudge, associate director at consultancy KPMG, stressed the importance of the hydrogen business model to accelerating investment in the UK’s low-carbon hydrogen sector.

“This government has provided a clear long-term signal to investors. Now it is industry’s time to deliver” Hands, UK business minister

“The fastest way you can provide certainty to an investor is going to be a form of business model or a form of certainty that provides that 10-15 year outlook,” he told the conference.

“And the moment we can deliver that—and hopefully those details will be released soon  and we get some clear indications on what that looks like—investors will come.”

The hydrogen business model is in addition to direct capital support offered to the industry through a £240mn ($289mn) net-zero hydrogen fund, which opened for applications in April, and a £26mn hydrogen accelerator fund to support innovation.

Transport and storage

The government is also committed to designing a business model for hydrogen transport and storage by 2025, Hands said.  And it aims to set up a hydrogen certification scheme by 2025.  

“This government has provided a clear long-term signal to investors. Now it is industry’s time to deliver, invest in and commit to hydrogen and ultimately take us to our destination, the world leading UK hydrogen economy,” Hands says.

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Author: Stuart Penson