The UK government has launched its hydrogen business model support scheme for electrolyser-based projects and aims to have 1GW of capacity in operation or under construction by 2025, energy minister Greg Hands told the Hydrogen Investment Forum in London today.

The deadline for applications to the scheme is 12 October, and the government expects to publish a shortlist of projects early next year. The first contracts under the scheme are likely to be awarded in July 2023, officials told the forum.

The scheme offers projects ongoing support via a contract for difference (CfD) mechanism, which guarantees an agreed strike price, offering developers and investors greater revenue certainty.

“We are moving forward at pace to make sure the government support for hydrogen continues to be very strong,” Hands said during the scheme’s launch, which took place at the forum. “We are in a good position in terms of moving forward the hydrogen agenda.”

1GW – UK 2025 capacity target

Earlier this year, the government doubled its 2030 hydrogen production capacity target to 10GW as part of its policy response to the energy security crisis triggered by Russia’s invasion of Ukraine.

The government hopes to award contracts amounting to a total green hydrogen production capacity of around 250MW in the first round of the scheme, with individual projects ranging from 5MW up to 80-100MW, Stef Murphy, joint director of hydrogen and industrial carbon capture at the Department for Business, Energy and Industrial Strategy, told Hydrogen Economist on the sidelines of the forum.

Projects applying to the scheme must have a target commercial operation date of end-2025 at the latest, although this date is subject to the award of hydrogen business model contracts in July. Projects can apply both to the business model scheme and to the government’s £240mn Net Zero Hydrogen Fund, which is running in parallel.

“We really want to bring forward those projects that can be up and running as quickly as possible to start to really make a difference and support our aim of 1GW of hydrogen production in construction or in operation by 2025,” Murphy told the forum, which was hosted jointly by Beis and industry association Hydrogen UK.

The government aims to launch a second round of applications around this time next year for contract awards in 2024, Murphy says. The second round is also expected to focus on green hydrogen, with support for blue hydrogen handled separately through the government’s support mechanisms for carbon capture and storage clusters, according to another Beis official.

The government has yet to finalise the exact details of the CfD mechanism for the hydrogen business model, but specifications are unlikely to deviate much from those set out in a consultation response in April, a Beis official tells Hydrogen Economist. These include settlement of the CfD against a combination of indexed natural gas prices and hydrogen sales prices, with scope to further index-link the mechanism to reflect gas price volatility and broader inflation as measured by the UK’s Consumer Prices Index.

Hydrogen champion

In addition to the hydrogen business model launch, the government announced the appointment of Jane Toogood, CEO of catalyst technologies at technology company Johnson Matthey, as the UK’s ‘hydrogen champion’. Toogood is already co-chair of the UK’s Hydrogen Advisory Council, together with Kwasi Kwarteng, secretary of state for business, energy and industrial strategy.

“This is a time of decisions; it feels as though we are on the cusp; there is a lot of money that is ready to be invested in hydrogen and yet people need confidence to make those decisions,” Toogood told the forum. “Part of having that confidence is being clear about the economics of investments.”  Kwarteng told the forum the government is confidence that hydrogen can be the “super-fuel of the future”.

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Author: Stuart Penson