The UK government has outlined more details on how it will support the hydrogen sector following the release of its energy security plan earlier this week. 

The UK doubled its hydrogen targets under the plan and now aims for 10GW of hydrogen production capacity by 2030 with at least half coming from green hydrogen. It wants to have 2GW of hydrogen capacity operational by 2025, targeting 1GW of blue hydrogen and 1GW of green hydrogen.

To achieve this, the government plans to set up and allocate £100mn ($130mn) to a new subsidy scheme this summer. It aims to finalise the design of the scheme this year, with the first contracts awarded to projects “from 2023”, the government says in a separate consultation response published this week.

Existing proposals to use a contract for difference (CfD), or variable premium, subsidy mechanism received strong support from consultation respondents, and the government says it will “proceed with proposals” to develop that type of scheme. Current government thinking is to award contracts lasting between ten and fifteen years but no final decision has been made on this, it says in the consultation response.

2GW – 2025 target for blue and green hydrogen capacity

The government is still considering its methodology for the creation of a reference price against which to settle CfDs. Current proposals are to construct a reference based on achieved hydrogen sales prices, with the price of natural gas forming a floor price. This system would be replaced once a published price benchmark for hydrogen becomes available from providers such as price reporting agencies.

The government is also assessing options to index-link the CfD strike price to account for inflation or commodity price volatility. The overarching design of the subsidy scheme can make it work for all hydrogen production technologies, the government says, although it acknowledges there may be a need for separate contract allocations and different approaches to strike price indexation.

The government also aims to design new business models for hydrogen transport and storage infrastructure by 2025. And it will establish a hydrogen certification scheme by 2025 with the goal of guaranteeing the quality of exports.

Funding innovation

The government will launch a £240mn Net Zero Hydrogen Fund later this month, with the aim of awarding funding from the end of 2022. This scheme will provide capex support for the initial construction of green and blue hydrogen production projects.

The government will also introduce a £26mn innovation funding programme to help UK industry adopt hydrogen. And it will provide £7.5mn funding to electrolyser manufacturer ITM’s gigastack project and £5mn funding to accelerate carbon capture and storage technologies, including those involved in blue hydrogen projects.

The government plans to ensure green hydrogen projects are located in sites where they make best use of surplus low carbon electricity and reduce network constraints.

“More detail is required on how hydrogen storage and transport infrastructure will be supported” Jackson, Hydrogen UK

The government will also move ahead with plans to blend 20pc hydrogen into the natural gas grid, with a final decision decision to be made before the end of the year. It also aims to ensure all new gas infrastructure is ‘hydrogen-ready’.

High gas prices and Russia’s aggression in Ukraine have highlighted the urgent need to produce more energy domestically, according to business secretary Kwasi Kwarteng.

“This investment will unlock the enormous potential of hydrogen fuel, advanced nuclear reactors and carbon capture to level up the UK energy landscape and deliver for businesses and households,” he says.

But more could still be done, according to Clare Jackson, CEO of trade group Hydrogen UK.

“Whilst significant work has been done to develop the support mechanisms for hydrogen production, more detail is required on how hydrogen storage and transport infrastructure will be supported,” she tells Hydrogen Economist.

“There is also more work to be done to develop the specific policy and regulatory mechanisms to drive demand in end use sectors.”

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Authors: Tom Young, Stuart Penson