UK hydrogen industry warns further political delay could jeopardize investment

Further political delay to UK hydrogen projects following the forthcoming parliamentary elections would undermine investor confidence and put climate goals at risk, trade body Hydrogen UK has warned.

The industry group called on whichever party forms the next government to catalyze industry momentum and accelerate investment decisions.

"We're at a critical juncture and must be reaffirming investor confidence in order to drive the inward investment," Hydrogen UK chief executive Clare Jackson said in a statement June 20. "Further delay and stagnation risks net-zero goals, establishing energy security, and ultimately missing out on the economic growth that the industry can bring to the UK."

A priority for the next government must be to secure final investment decisions for pioneering hydrogen projects, "setting a precedent for subsequent initiatives," Hydrogen UK said.

The next government should also establish a ministerial role with direct responsibility for hydrogen, it added.

The opposition Labour Party has a strong lead in the polls ahead of the general election on July 4.

Labour has pledged GBP500 million ($630 million) over the course of the next parliament to support green hydrogen production, backed by a new national wealth fund.

The ruling Conservative Party has introduced the first electrolytic hydrogen allocation round to support green hydrogen production, as well as the carbon capture and storage cluster sequencing program, with support for blue hydrogen under its Track 1 and 2 allocations.

Funding agreements and final investment decisions for successful projects under Track 1 of the CCS cluster sequencing program are expected in September, though industry representatives have said this could be delayed to later in the autumn following the election.

"Expediting the first Hydrogen Allocation Rounds of the Hydrogen Storage Business Model and Hydrogen Transport Business Model is required to provide clarity on the regions and projects that will be selected," Hydrogen UK said.

The industry association also called for a "reiteration of the commitment to future Hydrogen Allocation Rounds" from the new government, and for it to issue a consultation on the hydrogen funding mechanism design to provide certainty on support schemes, supporting investor confidence.

The UK is targeting 10 GW of low-carbon hydrogen production capacity in operation or construction by 2030, with 6 GW of this coming from renewable-powered electrolysis.

Platts, part of S&P Global Commodity Insights, assessed the cost of producing hydrogen via alkaline electrolysis in the UK (including capex) at GBP5.31/kg ($6.71/kg) June 20, based on month-ahead grid power prices. PEM electrolysis production was assessed at GBP5.57/kg, while blue hydrogen production by autothermal reforming was GBP2.11/kg (including capex, CCS and carbon).

CCUS cluster sequencing

The UK government's Department for Net Zero and Energy Transition announced successful projects under its Track 1 CCUS round in March 2023, including BP's H2Teesside blue hydrogen project in the East Coast Cluster and the HyNet hydrogen production plant in the northwest of England.

Winning projects also include the associated CO2 transport and storage infrastructure to enable the CO2 capture and hydrogen projects.

However, Norway's Equinor has pushed back a target final investment decision date for its 600-MW H2H Saltend blue hydrogen plant in the UK to around 2027 after failing to be selected under Track 1.

An FID on H2H Saltend was previously expected in 2024, with operations from 2027.

Equinor vice president for Low Carbon Solutions, Dan Sadler, told S&P Global Commodity Insights an investment decision hinged on getting the go-ahead for the CO2 pipeline system for Humberside, part of the East Coast Cluster.

Hydrogen UK called for immediate funding for Track 1 projects, and the announcement of successful Track-1 extension projects, along with "clear timelines and funding envelopes" for Track 2 projects.

In December, the government announced plans to move to a competitive allocation process for CCS projects from 2027, and to open the HyNet CCS cluster to more companies from 2030.

It also awarded Track 2 status to the Acorn and Viking CCS cluster projects in 2023.

Sadler said informal discussions with Labour were encouraging.

"The most important thing that Labour needs to do is to take on FIDs in September," Sadler said at the FT Hydrogen Summit in London on June 12. "If they don't take those FIDs, the international investment community will say 'we can't trust them'. If they take the FIDs, then game on."

"What we're not clear on yet is where their priorities lie," he said. For example, the Labour Party is targeting a net-zero power system by 2030, five years ahead of the ruling Conservative Party's ambitions.

Hydrogen allocation rounds

In December, the UK government awarded funding to 11 electrolytic hydrogen production projects totaling 125 MW under HAR1, with the volume awarded falling short of the 250 MW available.

HAR2 was increased to 875 MW from the previous planned 750 MW to compensate.

However, industry representatives warned in April that HAR1 could still fall short of the 125 MW awarded, with the expectation that some developers will pull out when it comes to signing final contracts.

The government is targeting a further 1.5 GW of capacity across allocation rounds 3 and 4 in 2025 and 2026, respectively.

The successful HAR1 projects were awarded at a weighted average strike price of GBP241/MWh (around GBP8.03/kg using a lower heating value), backed by more than GBP2 billion of revenue support from the Hydrogen Production Business Model, the UK Department of Energy Security and Net Zero said in December.

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.

The business model provides revenue support to hydrogen producers, making up the operating cost gap between low-carbon and higher-carbon fuels via 15-year contracts.

"As it stands, the UK is well placed to capitalise on the hydrogen opportunity and emerge as a global leader," Hydrogen UK said. "However, the next five years will be critical for the sector," and "delivery requires a committed, decisive government."