The UK government has today opened the world’s first national clean-hydrogen subsidy scheme, which will use a contracts-for-difference (CfD) style set-up to help fund an initial 1GW of green H2 and 1GW of blue H2 projects as it aims to reach 10GW of low-carbon hydrogen by 2030.

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A single application process will enable developers to access ongoing CfD-style revenue support from the government’s Hydrogen Business Model (HBM), as well as up to £240m ($288.5m) of grant funding from the Net Zero Hydrogen Fund (NZHF) “to support the upfront costs of developing and building low carbon hydrogen production projects” (see panel at bottom of story).

The first stage of the application process for HBM funding for green hydrogen projects — or, as the Department for Business, Energy and Industrial Strategy (BEIS) calls them, “electrolytic” — has now opened, with developers having until 7 September to register “expressions of interest” (EoI) (see panel below).

The government says it has committed to “awarding up to 1GW of HBM contracts to electrolytic projects via two allocation rounds in 2023 (opening in 2022) and 2024, (opening in 2023)”.

“This means we will have up to 1GW of electrolytic hydrogen production projects in construction or operational by 2025, with up to 2GW of production capacity overall (including CCUS-enabled hydrogen [ie, blue H2]) in construction or operational by this date”.

The importance of the Expressions of Interest (EoI)

The UK government will not consider any funding applications that do not register Expressions of Interest (EoI).

“Submission of the EoI form is a necessary condition of participation in the Electrolytic Allocation Round,“ says BEIS. “Any applications received without prior submission of an EoI will not progress to the evaluation stage.

“Projects will be asked to confirm to the best of their knowledge and belief that they meet the relevant eligibility criteria within the EoI, and also provide additional information about their project plans. This includes information on the location and capacity of their electrolytic project, as well as their planned Commercial Operation Date. Projects will be required to provide supporting evidence to prove eligibility when they make a final submission.”

“We hope to support at least 250MW via the first allocation round, although we retain the right to allocate less if we do not see sufficient projects coming forward that meet our eligibility criteria and present VfM [value for money] to government.”

While projects have to be commercially operational by the end of 2025, “to align with government’s aims around hydrogen deployment by 2025 and to kickstart the market”, exceptions could be allowed for “reasons outside of the applicant's control”.

The government adds: “Our aim for this process is to support projects to deploy at scale at the earliest opportunity, advancing government’s aspiration to deploy up to 10GW of low carbon hydrogen production capacity by 2030, subject to affordability and VfM, with the intention that at least half of this will be from electrolytic hydrogen.”

Once a developer has submitted its expression of interest, the “government intends to carry out engagement sessions, to ensure Projects have a clear understanding of the criteria and objectives in the Electrolytic Allocation Round and how to complete an application” — what it calls “Submission Window Engagement”.

Final applications for funding must be filed by 12 October.

A funding round for blue hydrogen projects has yet to be announced.

As Recharge has previously reported, the HBM fund offers a “variable premium price support model” — providing a subsidy that represents “the difference between a ‘strike price’ reflecting the cost of producing hydrogen and a ‘reference price’ reflecting the market value of [grey] hydrogen”.

It includes a “contractual mechanism to incentivise the producer to increase the sales price and thereby reduce the subsidy” and would provide “volume support via a sliding scale in which the strike price (and therefore subsidy) is higher on a per-unit basis if hydrogen offtake falls”.

The government has previously stated that it would define “low-carbon hydrogen” as H2 produced with less than 2.4kg of CO2-equivalent emissions for every kilogram of hydrogen produced — including upstream emissions, which could be a stretch for blue H2 developers.

“Low carbon hydrogen will be essential for achieving net zero,” says BEIS. “Investment in hydrogen to de-risk early projects is expected to unlock over £9bn of private sector co-investment up to 2030 in production alone, with BEIS analysis showing that up to 100,000 jobs and £13bn GVA [gross value added] could be generated from the UK hydrogen economy by 2050 in a high hydrogen scenario.”

Controversially, the new application guidance document states that while up to £100m of government money will be available for projects operational before March 2025, “it is intended that all HBM support will be levy funded from 2025 onwards, subject to consultation and Parliamentary approval of any legislation required”.

This suggests that a hydrogen levy will be added to consumer energy bills from 2025, although the Conservative government — reeling from the sleaze and subsequent resignation of Prime Minister Boris Johnson — may be out of power by then, as a general election must be held by 24 January 2025, according to UK law.

While this is the first national hydrogen subsidy scheme to get under way, Germany has launched a support programme for green hydrogen imported from outside the EU under its H2Global programme.

Separately, Energy Secretary Kwasi Kwarteng is due to announce today that Jane Toogood, the current chief executive of Johnson Matthey's catalyst technology business, has been appointed as the government’s new “hydrogen champion”, who will "help drive industry investment and deployment at this critical stage in the early development of the UK hydrogen economy”.

“She will identify current barriers to building a strong UK hydrogen economy and develop creative solutions for how these can be addressed to accelerate the project pipeline and deliver on the UK government commitments,” says BEIS.

Details of the Net Zero Hydrogen Fund

The government has split "delivery" of the Net Zero Hydrogen Fund (NZHF) into four strands, as BEIS explains below:

• Strand 1: DEVEX (development expenditure) for Front End Engineering Design (FEED) studies and post FEED costs. Strand 1 offers up to 50% co-funding support.

• Strand 2: CAPEX (capital expenditure) for projects that do not require revenue support through the HBM [Hydrogen Business Model]. These are likely to be smaller electrolytic projects that are able to access revenue support through the Department for Transport’s Renewable Transport Fuel Obligation (RTFO). Strand 2 offers up to 30% co-funding support.

• Strand 3: CAPEX for projects that require revenue support through the HBM and sit outside of the Phase 2 cluster sequencing process. The first allocation round will be limited to electrolytic projects.

• Strand 4: CAPEX for CCUS-enabled [ie, blue hydrogen] projects that require revenue support through the HBM and are part of the Phase 2 cluster sequencing process.

Capex costs for storage and transport are not included within the scope of NZHF funding.