RenewableUK has published a new guide, “Demystifying the Hydrogen Business Model for Electrolysis”, which aims to explain to investors and policy makers how the Government’s Hydrogen Production Business Model works, the challenges which come with it and the reforms which are necessary to ensure the UK can rapidly deploy the first tranche of major green hydrogen projects needed to catalyse cost reduction.
Green hydrogen can be used in a wide range of sectors which have proved to be difficult to decarbonise so far, including generating heat for heavy industry and providing fuel for transport. It can also be stored to be used whenever it is needed, providing essential system flexibility services and ensuring the UK can always meet its energy needs.
Green hydrogen is made in state-of-the-art electrolysers which split water into hydrogen and oxygen, with zero carbon emissions. The UK is already home to a small number of globally- renowned electrolyser companies such as ITM Power and Ceres whose cutting-edge technology has been licensed worldwide.
The Government has set a target of 10 gigawatts (GW) of low carbon hydrogen by 2030, half of which will be green hydrogen generated from renewables. Analysis shows that this will support over 12,000 jobs and attract £11 billion in private investment. Ministers have also set an interim target of 2GW of low carbon hydrogen by 2025, including 1GW of green hydrogen. There are currently only about 5 megawatts (MW )of green hydrogen projects operational in the UK, so the Hydrogen Production Business Model will be essential to kickstart a baseline of large operational projects by de-risking and reducing finance costs.
The document aims to guide developers and key stakeholders through the business model, which has been criticised for being complex and difficult to understand for new entrants. At its most basic level, the Hydrogen Production Business Model provides support in a similar way to same way to the Contracts for Difference scheme, in which a generator receives a fixed price (a strike price) for their electricity over a fixed term. The guarantee of a fixed price for renewable generators de-risks the project sufficiently to attract private capital investment in it. As well as revenue stabilisation, the Government’s Hydrogen Production Business Model is also attempting to establish a market for low carbon hydrogen in the absence of multiple buyers and sellers.