RenewableUK and Hydrogen UK have launched a report, outlining key measures to drive down green hydrogen production costs by more than half (58%) and, as a result, drive demand up.
According to the pair, their recommendations could see the cost of hydrogen taken down from £241/MWh – as achieved in 2023’s initial Hydrogen Allocation Round – to less than £100/MWh if fully implemented. Setting the scene, the trade associations explained hydrogen has to become more affordable if it is to realise its full potential in helping the UK decarbonise and be deployed at scale and set out a total of 11 actions to take to help make that happen spread across the areas of the hydrogen production business model and Contracts for Difference, flexibility and optimal location, cutting electricity costs and the need for infrastructure.
Breaking them down, it wants to see risk reflected in strike price indexation; for the Hydrogen Production Business Model and Contracts for Difference (CfD) to be made compatible, allowing CfD contracted generators to sell some of their generation at their CfD strike price to a hydrogen producer, or allowing unsuccessful CfD projects to contract directly with Hydrogen Allocation Round contracts; and for barriers to co-location between hydrogen projects and renewable energy generators to be removed.
The trade associations are also calling for a review of the requirement for half-hourly time matching within the Low Carbon Hydrogen Standard (LCHS) with a view to extend temporal correlation to monthly or annual – in line with wider industry practice – and for business models for the future to be created, helping to evolve the funding landscape and maximise opportunities to co-deploy renewable sand electrolytic hydrogen. In a bid to incentivise flexibility and optimal location, meanwhile, the pair are calling for market arrangements to be implemented that incentivise the flexible use of electrolysers and change the LCHS rules to allow electrolysers that are engaged in curtailment reduction to account for their electricity at zero carbon intensity, and for regional carbon intensity differences to be reflected in the LCHS.
They also want to see energy intensive levies reviewed, reducing the burden of electricity system costs on hydrogen production projects, for low carbon electrolytic hydrogen to be exempted from the Climate Change Levy, the requirement to retire Renewable Energy Guarantees of Origin to be relaxed, and for a strategic hydrogen transmission network to be developed. This network should link Scotland to England and Wales, with the government setting out timelines for deployment and funding mechanisms, paving the way for renewable and hydrogen developers to plan and optimise their projects based on the availability of hydrogen transport and storage infrastructure.
