UK aims to expand low carbon hydrogen production using CCUS

The announcement was overshadowed by the selection of 11 domestically oriented hydrogen production projects in the UK as part of the first hydrogen allocation round (HAR1), and the announcement of a second hydrogen allocation round (HAR2). 

The HAR1 round resulted in awards of up to 125MW of green hydrogen, with the development of the domestic production receiving funding from a Net Zero Hydrogen Fund (NZHF). A second hydrogen allocation round (HAR2) will conclude in 2024, which will help the government achieve our aim of up to 1GW of electrolytic hydrogen production projects to be in operation or construction by 2025.

The UK government also announced plans to allocate up to 750MW in future allocation rounds (HAR3 and HAR4), which are due to be held in 2025 and 2026, respectively.

Funding mechanism

The UK government is offering the HAR1 projects a 15 year guaranteed price of GBP241/MWh, based on a Contracts for Difference-style scheme reflecting differentials from the natural gas price.

The government announcement specified that a Hydrogen Production Business Model (HPBM), which is being established as part of a November bill passing through the UK parliament, is intended to be self-financing. 

The UK government specified that it plans to introduce a levy upon natural gas shippers to fund HPBM payments and associated costs. The government announced that it planned to consult upon the design of the levy in 2024, and to implement the levy in 2026, subject to the introduction of legislation.

CCUS ambitions

The Update to the Market document clarified that up to 4GW of the UK’s planned low carbon hydrogen production capacity will be produced via CCUS-enabled hydrogen production routes, compared with a further 6GW of green hydrogen to be produced from electrolysis using renewable electricity. 

The UK government also announced plans to publish a CCUS Vision ”shortly”, in which it would outline plans to allow the CCUS market to transition towards a self-sustaining merchant market model. 

In addition to reconfirming plans to take Final Investment Decision on the first carbon capture projects in the UK in 2024, the hydrogen strategy also outlined plans to introduce a low carbon hydrogen certification scheme in 2025. 

Uncertainties Remain

However, The Motorship notes that the revised strategy is subject to revision subject to affordability and Value for Money considerations, while the broader scope of the UK’s hydrogen strategy will be revised in 2025 as the government assesses the prospects for the introduction of the technology. 

The volatility of the UK’s political environment ahead of an election in 2024 suggests that the strategy will be subject to significant revisions under the next government that will take office by February 2025 at the latest.