United Kingdom: UK Government publishes Hydrogen Investment Roadmap & More News Here

In temporary

Following the federal government’s announcement of the creation of a brand new Future System Operator (FSO) to supervise the UK’s power system together with rising applied sciences and the arrival of the UK Energy Security Strategy, on 8 April 2022, the UK authorities revealed a package deal of proposals in assist of UK hydrogen coverage, together with specifically a coverage paper titled “Hydrogen Investor Roadmap: leading the way to net zero”. The paper reiterates the federal government’s pledge made within the Strategy to double its 5GW low-carbon hydrogen goal to 10GW by 2030, with the intention that a minimum of half of this manufacturing will come from electrolytic hydrogen. The paper aligns with the method specified by the Strategy to utilise extra offshore wind energy to drive down hydrogen manufacturing prices.

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The roadmap highlights funding alternatives throughout your entire hydrogen worth chain and offers lengthy awaited particulars in relation to the low-carbon hydrogen normal, Net Zero Hydrogen Fund (which was set as much as assist deployment of hydrogen) in addition to hydrogen enterprise fashions offering income assist to pioneer hydrogen initiatives. The roadmap additionally offers particulars in relation to the Industrial Hydrogen Accelerator Programme referenced within the UK Energy Security Strategy.

We welcome this substantive improvement of the UK’s hydrogen coverage and imagine it would appeal to traders and function a catalyst for numerous pioneer hydrogen initiatives within the nation.

Hydrogen Investor Roadmap

The Hydrogen Investor Roadmap is actually the UK authorities’s advertising and marketing marketing campaign to draw funding into the UK’s hydrogen economic system. It accommodates essential details about the timings for the launch of assorted state assist/funding mechanisms and along with the broader Hydrogen Investment Package offers a lot wanted readability on how and when the federal government expects the fledgling trade to ship on the federal government’s targets.

This essential a part of the broader package deal:

• Details 59 potential hydrogen initiatives throughout the UK involving electrolytic, storage and distribution and CCUS enabled initiatives, with many extra in improvement.
• Confirms that the UK authorities’s purpose for five gigawatts of low-carbon hydrogen manufacturing capability by 2030 within the UK Hydrogen Strategy has been doubled to as much as 10GW (nevertheless, it notes that this ambition is “subject to affordability and value for money”);
• Appeals to overseas traders by highlighting the UK’s enticing enterprise atmosphere;
• Highlights in depth state assist afforded to the UK hydrogen trade, together with a well-developed regulatory framework, obtainable funding and income assist mechanisms, dedication to allocate business-model assist in 2023 and 2024 and availability of a set low-carbon hydrogen normal;.
• Provides the federal government’s 2035 Delivery Plan, outlining vital actions and milestones on a path to growing the UK hydrogen economic system; and.
• Announces the timeline, exhibiting the important thing dates, for the Department for Business, Energy & Industrial Strategy (BEIS) funding rounds anticipated in 2022 and 2023 that may assist hydrogen initiatives.

Hydrogen Business Model

Two papers (Government response to the session on a Low Carbon Hydrogen Business Model and Low Carbon Hydrogen Business Model: indicative Heads of Terms) define the meant revenue-support mechanism for UK hydrogen initiatives. The Hydrogen Business Model goals to beat the price hole between low-carbon hydrogen and better carbon counterfactual fuels, supporting a number of hydrogen-production routes to allow the UK to develop low-carbon hydrogen manufacturing at scale.

The papers comprise a big quantity of element in relation to the rationale behind and the operation of the income assist mechanisms. We intend to analyse these and their implications in later articles however the important thing factors embrace the next:

• The indicative Heads of Terms set out a preliminary and indicative framework for the principal phrases and circumstances anticipated to be included within the contract underpinning the enterprise mannequin — the Low Carbon Hydrogen Agreement (“Agreement”). These contracts are anticipated to start being awarded in 2023 and can usually final between 10 and 15 years.
• The Business Model is meant to assist new manufacturing, whereas present producers could also be eligible to use for funding by way of the Industrial Carbon Capture enterprise mannequin.
• To qualify for assist, the producers might want to meet the UK Low Carbon Hydrogen Standard (see under). Importantly, initiatives benefitting from Business Model assist will likely be permitted to export hydrogen. However, the particular volumes exported is not going to be eligible for assist funds.
• The Business Model envisages each value and quantity assist (the latter by way of a sliding scale mechanism enabling the Producer to recuperate a comparatively higher proportion of its price of manufacturing if offtake volumes fall).
• The Agreement will embrace a mechanism designed to assist value discovery and incentivise the Producer to hunt greater value gross sales.

It needs to be famous that on 8 April 2022, the federal government launched a session in relation to the proposed method to allocating Hydrogen Business Model and Net Zero Hydrogen Fund assist by way of a joint allocation course of for electrolytic-hydrogen initiatives. The session closes on 6 May 2022, with the outcomes anticipated within the coming months.

The authorities has additionally dedicated to design new enterprise fashions for hydrogen transport and storage infrastructure by 2025. These after all are vital to supporting the roll-out of supporting infrastructure in addition to to stimulating a marketplace for hydrogen.

Establishing the usual for low-carbon hydrogen

Early members within the hydrogen market have lengthy known as for a longtime low-carbon hydrogen normal, one thing essential for the functioning of the home hydrogen market. The authorities has now revealed its response to the market session on the hydrogen normal, which successfully units out the low-carbon hydrogen emissions normal making use of to the grant of state assist (such because the Net Zero Hydrogen Fund and the Hydrogen Business Model). It covers the methodology just for UK manufacturing pathways at this stage.

The normal now has a single threshold utilizing “absolute emissions.” The threshold, set on the level of manufacturing, is 20gCO2e/MJLHV (Lower Heating Value) of hydrogen. The UK Low Carbon Hydrogen Standard steering doc units out intimately the methodology for calculating the emissions related to hydrogen manufacturing and the steps producers are anticipated to take to show that the hydrogen they produce is compliant with this normal.

In specific:

• Projects will likely be required to reveal that they’ll meet the usual necessities on the level of making use of for presidency assist.
• Depending on the federal government scheme in query, initiatives may be required to show ongoing compliance with the usual throughout operation. For instance, all through the length of their enterprise mannequin contract, producers might want to reveal that the hydrogen produced meets the usual with the intention to qualify for and obtain Hydrogen Business Model funding.
• Government expects offtake contracts to specify hydrogen strain and purity, however with regard to influence on emissions, a theoretical minimal strain of 3MPa and minimal purity of 99.9% will likely be utilized for the needs of evaluating initiatives for presidency funding.
• For the needs of the present normal, emissions calculations is not going to enable a Global Warming Potential (GWP) issue however this will properly change sooner or later after the federal government collects additional knowledge and producers will likely be anticipated to report their fugitive emissions individually.
• Production is not going to have an moreover requirement to fulfill the usual (though it could be used as an evaluation standards for allocation rounds).
• Different electrical energy inputs might be averaged over an inexpensive interval, permitting for blended inputs into manufacturing programs.
• CCU aren’t be given carbon discount credit below the usual. Biomass initiatives are anticipated to adjust to the necessities of the Green Gas Support Scheme and Renewable Transport Fuel Obligation.

Importantly, the federal government has confirmed that the Hydrogen Business Model contract is not going to require producers to adjust to future amendments to the usual with the intention to proceed receiving Hydrogen Business Model assist after signing the contract – i.e., initiatives funded at one degree of carbon depth is not going to want to fulfill a later, greater normal. However, the federal government additionally clarified that there will likely be no leeway on the usual for present hydrogen-production amenities.

As outlined within the UK Energy Security Strategy, the federal government expects to arrange a separate hydrogen certification scheme by 2025 to assist future worldwide commerce.

Net Zero Hydrogen Fund

This paper accommodates additional particulars in relation to the beforehand introduced Net Zero Hydrogen Fund. The Fund is price as much as GBP 240 million and will likely be delivered between 2022 and 2025. It is aimed toward supporting the business deployment of low-carbon hydrogen initiatives in the course of the 2020s. The Fund has been designed to assist all types of hydrogen manufacturing (together with nuclear power), supplied these initiatives meet eligibility necessities.

The funding is allotted below the next 4 strands:

• Strand 1: DEVEX (improvement expenditure) for Front End Engineering Design (FEED) research and submit FEED prices.
• Strand 2: CAPEX (capital expenditure) for initiatives that don’t require income assist by way of the hydrogen enterprise mannequin.
• Strand 3: CAPEX for non-Carbon Capture, Usage and Storage (CCUS) enabled initiatives that additionally require income assist by way of the hydrogen-specific enterprise mannequin.
• Strand 4: CAPEX for CCUS-enabled initiatives that require income assist by way of the hydrogen enterprise mannequin.

The funds for strands 1 and a couple of is as much as GBP 90 million. The funding is to be delivered within the type of grants, co-funded with personal sector funding. The authorities said that it expects a big proportion of this funds to be allotted to strand 2 initiatives, with the rest of the Fund being allotted to strands 3 and 4. Projects making use of to strand 1 and a couple of will be capable to bid as much as 50% and 30% of their whole eligible prices, respectively. Projects making use of for strands 1 and a couple of will likely be assessed towards seven standards (1) Deliverability. (2) Risk, (3) Project governance and stakeholder administration, (4) Emissions and wider environmental impacts, (5) Commercial, (6) Economic advantages and mission significance, and (7) Hydrogen market improvement and information sharing. Projects should reveal monetary backing related for the strand and a minimum of one agreed offtaker, for strand 2, or demonstrated demand for hydrogen, for strand 1.

The competitors temporary paperwork for strands 1 and a couple of have been revealed. The first wave of funding for strands 1 and a couple of opened on 25 April 2022. The utility window for strand 1 will shut on 22 June and for strand 2 it would shut on 6 July 2022. Applications for strands 3 and 4 are anticipated to open mid-2022 and mid-2022 (EOI) and 2023 (full utility) respectively.

Industrial Hydrogen Accelerator Programme

While launched prematurely of the launch of the roadmap, the Industrial Hydrogen Accelerator Programme is a vital a part of the general hydrogen coverage package deal. The Programme will present funding for innovation initiatives that may reveal end-to-end industrial gas switching to hydrogen.

There are two streams – a fund going straight to demonstration of a small variety of the biggest initiatives, allocating grants of between GBP two million and 10 million and match-funding applicant prices of between 25-60% of the mission whole, after which a second two half stream, with round 5 initiatives to be initially funded for GBP 100k-400k 100% grant funded feasibility research, adopted by GBP 1-7 million grant allocations matched to 25%-60% of the mission whole.

The authorities goals to launch the Programme in late April 2022 and all initiatives should obtain demonstration by March 2025.

In addition, the federal government has arrange the Industrial Hydrogen Accelerator Networking Platform (B2Match IHA), a digital market the place hydrogen market members can browse the experience, services and products of potential companions and request assist from others.

We welcome this substantive improvement of the UK’s hydrogen coverage and we imagine it would appeal to traders and function a catalyst for numerous hydrogen initiatives within the nation. As with any new coverage supporting rising market, numerous element will should be labored out in the course of the implementation course of. We anticipate (and the UK authorities acknowledges this in its response to the session on the enterprise mannequin) that sure changes will should be made to the coverage. Baker McKenzie is an energetic member of Hydrogen UK, the commerce affiliation dedicated to the event and deployment of hydrogen options. We will likely be completely happy that can assist you navigate the complicated regulatory framework and, drawing on our expertise in pioneer hydrogen initiatives across the globe, execute hydrogen initiatives. 

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