The UK government's proposal for a levy on energy bills to support the installation of hydrogen infrastructure risks a backlash against the sector, critics have warned.
Is the UK serious about green hydrogen?
The UK Government has followed the announcement of its first Net Zero Hydrogen Fund winning projects by publishing more details about its hydrogen strategy. But it is blue hydrogen projects, not green, that have dominated so far.
- UK revealed its first Net Zero Hydrogen Fund winners on 30th March
- Winners of the fund's electrolytic hydrogen round are due this year
- 17GW low-carbon hydrogen pipeline is dominated by blue projects
The UK Government is looking to be a leader in low-carbon hydrogen production, and has committed to achieving 10GW of installed capacity by 2030. But what can investors read into the flurry of activity coming out of Whitehall?
On 11th April, the UK’s Department for Energy Security & Net Zero opened to bids from companies seeking support in the second allocation round for the £240m Net Zero Hydrogen Fund. Companies can bid for financial backing for projects that need support in their early development phase, or capital expenditure for construction.
This follows the announcement on 30th March of the winners in the first allocation round, where a total of £37.9m was deployed for 15 projects. The winners included Conrad Energy, Octopus Hydrogen, RWE and Statkraft. You can see the full list of winning projects in this debut allocation round here.
Also on 30th March, the UK announced the identities of 20 shortlisted bidders in the fund’s first bidding process for projects that use electrolytic hydrogen technology. These projects totalled 408MW hydrogen capacity, and the bidders must now submit more information as the UK Government seeks to back 250MW of them.
The winners of this allocation round are due to be revealed by the end of 2023, and companies in the running include Carlton Power, EDF, Octopus Renewables, RES Group and Scottish Power. You can see the full list here.
You would be forgiven if these different tenders are tying you in knots. Last week, the UK sought to clarify its approach by unveiling its Hydrogen Net Zero Roadmap. This sets an ambition where hydrogen could represent between 20% and 35% of the country's final energy consumption by 2050, focused on industry, power generation and transport.
This roadmap also gave further details of a flurry of hydrogen policy activity. It confirmed its timeline to design new business models for hydrogen in the UK by 2025; revealed its timeline to develop a Supply Chain Roadmap; and is looking at other mechanisms to boost investor certainty. But truly green hydrogen is a small part of the mix.
Green versus blue
Research from energy consultancy Westwood Global Energy last month said there are 45 low-carbon hydrogen projects totalling 17GW being planned in the UK. Most of these are small green hydrogen schemes. However, blue hydrogen projects most of the headline capacity, as they total 14.3GW (or 84% of the planned capacity). The green hydrogen projects in Westwood’s analysis have headline capacity of just 2.6GW.
There are some obvious reasons for this, most notably the availability of natural gas to produce hydrogen and the head start enjoyed by blue hydrogen technology.
By contrast, green hydrogen projects are small. The largest currently being planned is the Gigstack scheme by Ørsted, Philipps 66, ITM Power and Element Energy that is set to use electricity from the 1.3GW Hornsea 2 offshore wind farm to create hydrogen. However, even the Gigastack project would start with a 5MW electrolyser in its demonstration phase, which would be expanded to 100MW in future.
There is a great opportunity for green hydrogen production in the UK powered by the electricity from offshore wind farms. With the amount of new offshore wind being planned in UK waters, this sidesteps any concerns that new green hydrogen facilities will use green electrons that would otherwise be used to power the electricity grid.
But let’s not ignore the biggest flaw in the UK Government’s green hydrogen plans: it still has a de facto ban in place on new onshore wind capacity in England, and this is a major impediment to the use of onshore wind to produce British green hydrogen. If this is not addressed, the nascent UK green hydrogen industry will always be at a disadvantage while fighting against gas-powered blue hydrogen projects.
There are other challenges too. The UK’s hydrogen strategy could face upheaval if we see more political change at national government level, although we can at least be confident that any Labour government would continue to focus on green energy.
Then there are the competing policies from the US and European Union, which could attract green hydrogen investors away from Brexit Britain; the lack of certainty on future backing for green hydrogen after the next Net Zero Hydrogen Fund allocation round; and the need for fast clarity on business models if developers and investors can take the final investment decisions needed to press ahead with their developments.
The ambition is good as far as low-carbon hydrogen goes, but there are clearly issues to be solved. For now, green hydrogen is struggling to keep pace with its dirtier rivals. If the UK Government wants the greenest hydrogen then it must fix these problems now.