UK poised to award first green hydrogen subsidies following Labour budget – S&P Global
The UK is preparing to award GBP2.3 billion ($3 billion) in revenue support to 11 green hydrogen projects totaling 125 MW, after the finance ministry confirmed the funding in the new Labour government’s first budget on Oct. 30.
The projects will provide hydrogen to at least 35 offtakers, a spokesperson for the Department of Energy Security and Net Zero (DESNZ) said in an email late Oct. 30, following the budget announcement.
The Low Carbon Contracts Company will offer contracts
DESNZ said,
As soon as possible to enable projects to take final investment decisions,
The funding, originally announced by the previous government in December 2023 under its first electrolytic hydrogen allocation round (HAR1), will cover the cost gap over 15 years between renewable hydrogen generation and the market price, with natural gas setting a floor.
The LCCC was contacted for comment.
MorGen Energy — previously known as H2 Energy Europe, and one of the successful HAR1 project developers — welcomed the news for its planned 20-MW plant in Milford Haven, Wales.
A spokesperson told S&P Global Commodity Insights by email,
We look forward to receiving the Low Carbon Hydrogen Agreement, which will be instrumental in progressing to the next stages of development for our project,
Government award
The December award allocated funding to just half of the total capacity submitted.
The 11 successful projects were awarded at a weighted average strike price of GBP241/MWh (around GBP9.50/kg).
DESNZ said at the time,
This compares well to the strike prices of other nascent technologies such as floating offshore wind and tidal stream,
Platts, part of Commodity Insights, assessed the cost of producing hydrogen via alkaline electrolysis in the UK (including capex) at GBP6.69/kg ($8.68/kg) Oct. 30, based on month-ahead grid power prices. PEM electrolysis production was assessed at GBP6.87/kg.
Projects will be paid once they become operational. An additional GBP90 million from the Net Zero Hydrogen Fund will support project construction.
Strike price and floor
The weighted average strike price is weighted by the total hydrogen volumes expected over the lifetime of the contract, and will vary according to the natural gas reference price.
Modeled on contracts for difference, used in renewable power generation, the Low Carbon Hydrogen Agreement subsidy will pay the difference between an achieved low-carbon hydrogen sales price and a strike price, with the natural gas price setting a floor.
The strike price is the unit price a low-carbon hydrogen producer needs to cover its production costs, plus an “allowed return on investment.”
DESNZ said previously,
The level and specific components of the Strike Price and cost components will be negotiated on a project-by-project basis,
and are likely to vary across different production technology pathways,
DESNZ said Oct. 30 the funding
Aims to overcome the cost gap between low-carbon hydrogen and the high carbon counterfactual fuels hydrogen will replace,
such as natural gas or diesel, suggesting the offtake price could be near the lower cap of the range at the natural gas price.
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UK poised to award first green hydrogen subsidies following Labour budget – S&P Global, source
