Newly launched trade association Hydrogen UK has called on the government to bring forward its launch of a proposed contract for difference (CfD) support scheme for clean hydrogen production projects to accelerate the sector’s growth.

Hydrogen UK, the members of which include oil and gas firms Shell and BP, German utility Uniper and Norway’s Equinor, has urged the government to open applications for CfDs by mid-2022 at the latest and to award contracts to projects at the end of the year.

This would enable projects to reach FID in 2023, the association says.

The government’s current timetable is to finalise the business model in 2022, enabling the first CfD contracts to be allocated from Q1 2023.

“Without business models there will be no confidence from investors and public and private finance will be impossible to access” Hydrogen UK

“The government has consulted on the [CfD] scheme, which is welcome, but it is vital that momentum is maintained, and the business models are made available by mid-2022 at the latest,” Hydrogen UK says in a report published this week to mark its launch.

“Without business models there will be no confidence from investors, and public and private finance will be impossible to access.”

The government, which wants clean hydrogen to play a key role in its push for net-zero emissions, says CfDs are its preferred support mechanism for hydrogen production. 

It aims to replicate the success of the UK’s offshore wind sector, which has grown rapidly with the support of CfDs and now leads the world with a capacity of over 10GW.

Strike price

CfDs would set a guaranteed “strike price” that would give producers and investors certainty over a project’s income. If market prices fall below the strike price, the government pays the producer a top-up to cover the difference.

The market reference price would be taken as the higher of either the spot price for natural gas or the achieved hydrogen sales price, according to a government consultation that closed in late October.

Hydrogen strategy

The national hydrogen strategy, which is supportive of both green and blue hydrogen, sets a target of 5GW of capacity by 2030. Hydrogen UK says there is potential to overshoot this target significantly.

Its low-case scenario puts combined green and blue hydrogen production capacity in 2030 at 7GW, with a central scenario achieving  14GW and a high scenario over 22GW, though it says that high level is unlikely to be achieved in practice.

5GW – UK’s 2030 clean hydrogen production capacity target

“The total production capacity within the UK pipeline is more than four times the UK’s current ambition, and while it is unlikely that all these projects will be realised at the scale they are targeting, it shows there is scope for the UK to set a higher target,” Hydrogen UK says.

The UK’s Hynet North West and East Coast Cluster were last month confirmed as the first low-carbon clusters that will receive state funding to develop blue hydrogen projects. 

“These two clusters alone could deliver more than the 5GW target set by the government for 2030, provided the necessary support schemes and policies come forward in a timely manner,” Hydrogen UK says.

The association also calls for government and industry to work together to develop policies to stimulate demand for hydrogen in end-use sectors.

Storage a key priority

The report also calls for the establishment of mechanism to support distribution and storage infrastructure. The amount of hydrogen storage required will depend on the eventual demand-side profile, but is likely to be around 5TWh by 2030, according to Hydrogen UK.

“Storage assets have long lead times and, therefore, developing support mechanisms that enable investments in storage should be a key priority,” it says.

The association also calls for the development of training and support to ensure the UK has the skilled workforce to deliver on its hydrogen ambitions. And it urges engagement with a wide range of stakeholders to build a hydrogen society.

“Hydrogen has the potential to deliver significant economic, environmental and energy system benefits to our country. However, this will only be realised if industry and government work together,” says Hydrogen UK vice-president Angela Needle.

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Author: Stuart Penson