Building an energy system that is secure, self-sufficient, cheap, and clean requires renewable technologies that can complement one another. Vast amounts of new renewable energy, particularly wind and solar, are an essential part of the solution, but to fully unlock the potential of renewables we also need green hydrogen.
Green hydrogen is produced by splitting water via electrolysis powered by renewables. As a versatile energy vector, it solves the challenge of integrating renewables and managing supply and demand mismatches. It does this by allowing surplus renewable generation to be stored over long durations as hydrogen, and used later when needed. On top of this, it can enable deep decarbonisation in sectors that are traditionality difficult to electrify using renewables alone, such as industry and heavy-duty transport.
Recognising this smorgasbord of opportunities, the government recently doubled its low carbon hydrogen target to 10GW by 2030 in the British Energy Security Strategy released on 7 April. At least half of this will come from green hydrogen, including an interim target of 1GW by 2025.
To bring about this raised ambition, the Department for Business, Energy and Industrial Strategy (BEIS) recently published a suite of policy documents setting out how they intend to bring about the green hydrogen revolution. There is much in this to be welcomed, though in other areas there is more work to be done.
First, BEIS confirmed that it will run annual allocation rounds for hydrogen producers seeking revenue support under the Hydrogen Business Model (HBM), with the first round to be launched this year. Producers may choose to apply to the HBM only, or both the HBM and Net Zero Hydrogen Fund, in the first allocation round; which is currently being consulted on. Initially funding will be secured through bilateral negotiations between government and industry, but will move to competitive auctions by 2025. Government intends for future auctions to involve a separate pot for green hydrogen.
Under the HBM, the amount of support given to the hydrogen producer is determined by the difference between the strike price (the amount needed for a project to financially feasible) and reference price (which represents the market price received for the hydrogen produced).
Controversially, in the absence of an observable market price benchmark for hydrogen, the reference price will continue to be based on the achieved sales price, with the floor at the natural gas price. BEIS is still exploring different index options for determining the level of the strike price for different production methods, but its minded-to position for green hydrogen projects is for it to be indexed against the Consumer Price Index (CPI), and not the major input cost of electricity. Whereas blue hydrogen will be indexed against gas price rises and the CPI.
To get the scheme up and running quickly, there will be no separate support scheme for small-scale projects, but BEIS is looking at options for projects below the 5MW eligibility criteria to be allowed to aggregate and submit joint bids in future rounds. BEIS is also considering having two pathways for agreeing an offer: one would be concluded by bilateral negotiations and the other would have minimal to no negotiations.
BEIS has also set out the ambition to design a new business model for hydrogen transportation and storage infrastructure by 2025.
In addition, BEIS published its response to the Low Carbon Hydrogen Standard consultation, which sets out the criteria for defining “low carbon” hydrogen. Unfortunately, the standard will treat all hydrogen production under 20gCO2/MJ as “low carbon”. This means it does not currently differentiate hydrogen that is “zero” or “negative” carbon. However, BEIS has said that it will consider multiple categories and a grading system based on carbon intensity once the standard evolves into certification scheme by 2025.
Green hydrogen projects will not be mandated to adhere to additionality principles, which would have placed stringent and complex rules on producers to develop new low carbon power sources. BEIS does, however, intend to incentivise additionality by potentially including it as a 5% weighting in the evaluation process for HBM bids.
To bring down the cost of green hydrogen, BEIS will extend the Energy Intensive Industry exemption of up to 85% of environmental levies on big energy users (including electrolysers) for three years. It intends to increase the aid intensity to up to 100%, however it is yet to confirm this.
RenewableUK welcomes the 5GW target to start building a green hydrogen economy, but we are urging the government to align this ambition with an enabling policy and regulatory environment. In an upcoming report, RenewableUK will set out 9 policy recommendations to nurture a home-grown hydrogen revolution in the UK.
So, there is a huge amount of change and opportunity for the green hydrogen market.
To find out more, join us at Green Hydrogen 2022, a one-day conference focussed on accelerating the green hydrogen economy to meet these new and ambitious government targets. The event will cover the latest policy updates from BEIS as well as share practical guidance from industry on how best to deliver green hydrogen projects. As an industry at the beginning of an epic transformation, this is the place to meet, network and collaborate with policy makers, project developers, manufacturers, network operators and supply chain within the green hydrogen space. With limited tickets available, register now to secure your place.
Green Hydrogen 2022 is on Thursday 05 May at ITM’s Gigafactory in Sheffield.