Octopus Hydrogen, a subsidiary of UK energy group Octopus, has cancelled its Kemble project and diverted the planned 1MW electrolyser to its project at the Mira Technology Park in Nuneaton, CEO Will Rowe tells Hydrogen Economist.

The Mira project was due to come online in Q3 last year, but Octopus has cancelled its order with the electrolyser supplier for the project, Clean Power Hydrogen, owing to delays in delivery. “The technology was not mature enough,” Rowe says.

“We have had to divert the electrolyser for our Kemble project, which was scheduled for delivery in March, to Mira,” he says. The diverted electrolyser will be supplied by Denmark’s Green Hydrogen Systems, which uses “pressurised alkaline technology, rather than novel technologies”, and is due for commissioning this April.

“We have decided that we will not do a second 1MW project, and instead focus our attention on our next, 15MW Scottish project for Q2 2024,” Rowe says. Octopus Hydrogen will take FID on the onshore wind-to-hydrogen project in February and has applied for funding via the government’s £240mn ($297mn) net-zero hydrogen fund.

“For projects with direct connection to renewables… green hydrogen is competitive with grey even on a subsidy-free basis” Rowe, Octopus Hydrogen

“We are lucky as our projects are already designed to serve multiple offtakers,” Rowe says. While projects in industrial clusters are directly connected via pipeline to large, anchor offtakers—which would prohibit any change in location—Octopus Hydrogen focuses on smaller, containerised systems with offtake as a compressed gas in storage tanks. “It does not matter exactly where the project is for our offtakers, as long as we can service their assets once they arrive.”

Octopus Hydrogen has signed an offtake agreement with dispatchable power generator firm Geopura, and anticipates further offtake from heavy-duty vehicles in the long term as green hydrogen becomes competitive with diesel.

Over the past 18 months, while electricity prices have soared in line with a rise in natural gas prices, “for projects with direct connection to renewables, where we do not need to buy large amounts of power from the wholesale market, green hydrogen is competitive with grey even on a subsidy-free basis,” Rowe says.

“While green can already replace grey, diesel prices have not moved as dramatically,” he adds. “At scale, when we get to the point of 1,000kg/d refuelling at depots, hydrogen can be competitive with diesel. But given each depot is still at 100kg/d, and accounting for hydrogen vehicle capex… we would expect five years is a sensible timeframe for switching from diesel to hydrogen.”

Scaling up

Octopus Hydrogen has two further green hydrogen projects planned for early 2024, which are likely to use solar power in the south of England. “These are currently going through Feed right now, although they are closer to pending FID. The applications for the hydrogen business model have gone in, so we are just waiting on whether the subsidy has been awarded,” Rowe says.

The hydrogen business model and Net-Zero Hydrogen Fund—the UK’s two main support schemes for electrolyser-based projects—are “running broadly on time and relatively straightforward”, he adds. “We have projects that are good to go and it is just a case of moving into execution.”

“While for us, it is a waiting game, it is also true that for developers of large-scale infrastructure, the timeline imposed by the hydrogen business model is quite tight. Schedules for projects to be delivered—without much lenience on go-live dates—are ambitious.”

While the passage of the Inflation Reduction Act in the US has prompted concern that future electrolyser delivery slots will be fully booked for US projects, Rowe notes that this is still “a theoretical, potential problem” as many of these projects are yet to take FID. “Let us see where we are in two years’ time, but for now, we are not losing out on manufacturing capacity.”

Rowe notes that, once the IRA’s clean hydrogen production tax credit is ratified by the Internal Revenue Service, “in theory, there is no volume constraint” on projects in the US.

“That is a challenge we face with the UK model as it scales up. We have annual awards with maximum number of projects per developer, but the criteria is unclear on how many can be awarded. Can every project that applies theoretically get funding, or are we competing with each other? That said, this kind of ongoing, deep support is a major advantage for hydrogen in the UK,” he adds.

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Author: Polly Martin