The UK government is inclined to subsidise geological hydrogen storage projects via a support scheme that guarantees a minimum level of revenue for at least 15 years, according to a consultation response published by the Department for Energy Security and Net Zero.

However, support is unlikely to be granted to above-ground facilities, or projects based on chemical storage such as ammonia, except under special circumstances, the department added.

The government has committed to finalise the design of a subsidy business model for storage by 2025. Its latest consultation response describes this target as “challenging” but also warns of the potential impact of delays to the model.

The government has committed to finalise the design of a subsidy business model for storage by 2025

“Delays to the business model could result in delays to the delivery of critical infrastructure which could threaten government’s ambition to have 10GW of low-carbon production capacity by 2030, and ultimately our net-zero target,” the department said. “Storage infrastructure will be key to address imbalances in hydrogen production and demand.”

The key element of the storage subsidy scheme looks likely to be the introduction of a “revenue floor” mechanism for projects, designed to reassure investors by guaranteeing income from a facility even if sufficient demand for its services fails to materialise.

 “The key market barrier that developers and investors face is demand risk. This is the risk that the facility is not able to raise enough revenue from sales to storage users to cover its costs due either to low volumes of sales or low prices, or both,” the department said. “This means that, in the absence of government intervention, it is unlikely storage developers would choose to invest in hydrogen storage facilities.”

The government is also inclined to introduce regulation that would oblige operators of storage facilities to become separate legal entities rather than remaining part of larger energy companies, an approach it took with storage operators in the natural gas market.

Centrica, the UK’s largest gas supplier, is in discussions with the government over plans to potentially convert its North Sea Rough offshore gas storage site off England’s east coast into one of the world’s largest hydrogen storage facilities.

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Author: Stuart Penson