Eleven electrolytic hydrogen projects in the UK have secured government support potentially totalling up to £2b ($2.6b) over 15 years via the country’s inaugural subsidy allocation round.

As a condition of the subsidy awards, the projects have committed to upfront private capital investments of £413m between 2024 and 2026, with around 760 direct jobs created during construction and operation, the government said.

Energy security secretary Claire Coutinho said the subsidy awards would help to put the UK “at the forefront” of the green hydrogen sector.

“Today’s funding commitment represents a monumental step forward” Coutinho, energy security secretary

“Today’s funding commitment represents a monumental step forward in helping producers to deliver a fuel of the future today, backing businesses to go greener,” she said. “Today’s announcement represents the largest number of commercial-scale green hydrogen production projects announced at once anywhere in Europe.”

However, the total capacity of 125MW to be delivered by the selected projects falls short of the government’s ambition for the allocation round, which was up to 250MW.

Seventeen project entered final negotiations with the government, of which two withdrew from the process. This left projects totalling 243MW, but four of these were eliminated as their best and final offers were not acceptable to the government.

The target for a second allocation round, launched on 14 December, has been increased to 875MW, up from a previous target of 750MW in an apparent move to compensate for the first-round shortfall.

Strike price

The subsidies will be paid out via contracts for difference (CfDs) which guarantee a strike price, giving developers revenue certainty over the lifetime of a project—a key benefit for those seeking private finance.

The projects were contracted at a weighted average strike price of £241/MWh—placing green hydrogen at the upper end of renewables CfDs in the UK—as the government has linked contracts to natural gas prices.

This compares to a maximum strike price of £73/MWh offered to offshore wind, and £176/MWh to floating offshore wind.

The government said the electrolytic hydrogen strike price “compares well” with the strike prices of other nascent technologies such as floating offshore wind and tidal stream.

Green and blue

The government plans further allocation rounds in 2025 and 2026 with the ambition to raise contracted capacity to 1.5GW. The UK’s hydrogen strategy has from the outset called for the development of both green and CCS-enabled blue production routes. It aims to support the development of 6GW of green hydrogen and 4GW of blue hydrogen by 2030, the government said.

125MW – Contracted capacity

In a strategy update, the government also said it had decided to support hydrogen blending in natural gas “in certain scenarios—subject to an assessment of safety evidence and final agreement”.

Hydrogen could be blended with other gases in the network as an offtaker of last resort, working to reduce costs in the hydrogen sector by helping producers, and to support the wider energy system, the government said. However, blending would have “a limited and temporary role” as the UK moves away from the use of natural gas, it added.

Heating off

The government also said it had scrapped a scheme in Redcar in northeast England that had aimed to trial the use of hydrogen for household heating because the main source of hydrogen for the project is not yet available.

“The government recognises the potential role of hydrogen in home heating and will assess evidence from the neighbourhood trial in Fife, as well as similar schemes across Europe, to decide in 2026 whether and how hydrogen could help households in the journey to net zero,” it said.

FIG.1: UK SUBSIDY ALLOCATION WINNERS

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Author: Stuart Penson