The UK says it will finalise a plan to subsidise the production of low-carbon hydrogen by the end of this year, with the first support contracts for projects scheduled in 2023.

Despite a worldwide push for clean hydrogen, no country has yet put in place a national subsidy scheme that would allow green or blue H2 to compete on price with cheaper but highly polluting grey hydrogen made from unabated natural gas.

However, Germany has launched a subsidy scheme for green hydrogen imported from outside the EU under its H2Global programme.

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The government’s Contracts for Difference (CfD) plan — being billed as a “variable premium price support model” — would offer a subsidy representing “the difference between a ‘strike price’ reflecting the cost of producing hydrogen and a ‘reference price’ reflecting the market value of hydrogen”.

The deal would include 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 Department for Business, Energy & Industrial Strategy (BEIS) says it has an “intention to proceed” with the policy, following a supportive public consultation.

“We aim to finalise the hydrogen business model in 2022, and to allocate the first support contracts for projects reaching final investment decisions from 2023,” it explains.

A levy to fund the scheme would be introduced “from 2025 at the latest, subject to consultation and legislation, with the first electrolytic projects being funded through general taxation if they are operational before the levy is in force”.

The government said 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.

The subsidy scheme, which the government refers to as a “business model”, was unveiled along with a wide range of hydrogen-related announcements by BEIS on Friday afternoon.

These include a £240m ($312.8m) Net Zero Hydrogen Fund to support development and capital costs of low-carbon H2 projects, guidance on greenhouse gas emission reporting for low-carbon hydrogen producers and studies on the global warming potential of hydrogen and future fugitive H2 emissions.

It had unveiled plans on Thursday to produce 10GW of low-carbon hydrogen by 2030, half of which would be green hydrogen derived mainly from excess offshore wind power.

Another fund, the £26m Industrial Hydrogen Accelerator Programme, was announced in February, to provide support for “innovation projects that can demonstrate end-to-end industrial fuel switching to hydrogen”.

This article was amended on 12 April to point out that Germany has already launched its H2Global subsidy scheme for imported green hydrogen.