Apr 3, 2025
The UK will finalize the remaining Contracts for Difference (CfDs) for the initial hydrogen round in May.
The UK is aiming to finalize long-awaited subsidy agreements with the remaining projects from its initial hydrogen allocation round (HAR1) in May, stated Sarah Jones, the Minister of State for the Department of Energy Security and Net Zero.
Additionally, the UK will soon reveal a shortlist of projects chosen for subsidies in a larger second round (HAR2), Jones mentioned during the Hydrogen UK conference in Birmingham today. However, this announcement is unlikely to satisfy UK developers who have been anticipating the shortlist since late 2024, making it a central topic of discussion among attendees at the event.
According to the latest details from the Low Carbon Contracts Company (LCCC), which acts as a government-backed counterparty, the UK has signed 15-year contracts-for-difference (CfDs) with four of the eleven renewable hydrogen projects selected in HAR1.
Many developers consider finalizing the remaining CfDs overdue, as the winners were announced in December 2023. Delays in the process were attributed to the general election held last summer and concerns regarding the Climate Change Levy (CCL) imposed on electricity supply, among other factors. Recently, the new government moved to alleviate concerns about the CCL, which could enable more projects to enter into contracts.
However, HAR1 developers have cautioned that signing a CfD does not ensure that they will immediately commence projects, due to a lack of penalties for entering into the subsidy agreement. Some still need to finalize agreements for power supply, construction contracts, and financing, indicating that it may take time for signatories to make their final investment decisions.
Jones also mentioned that the UK will update its hydrogen strategy later this year, noting that 'new evidence has emerged on cost, demand, and expected operating patterns, and our understanding has evolved over time,' particularly concerning 'how we expect the hydrogen economy to develop over time.' These remarks suggest that the Labour government might revise the previous administration's target of 10GW for clean hydrogen production by 2030, according to an industry participant. The Conservative government's 10GW target set in 2022 also included a sub-target for 6GW of electrolytic production capacity.
Furthermore, Jones indicated that the government will reassess the role of hydrogen in steel production in the UK. The previous government had seemingly dismissed the potential for using hydrogen in steel as concepts from UK steel plants had not progressed significantly.
Additionally, the UK will soon reveal a shortlist of projects chosen for subsidies in a larger second round (HAR2), Jones mentioned during the Hydrogen UK conference in Birmingham today. However, this announcement is unlikely to satisfy UK developers who have been anticipating the shortlist since late 2024, making it a central topic of discussion among attendees at the event.
According to the latest details from the Low Carbon Contracts Company (LCCC), which acts as a government-backed counterparty, the UK has signed 15-year contracts-for-difference (CfDs) with four of the eleven renewable hydrogen projects selected in HAR1.
Many developers consider finalizing the remaining CfDs overdue, as the winners were announced in December 2023. Delays in the process were attributed to the general election held last summer and concerns regarding the Climate Change Levy (CCL) imposed on electricity supply, among other factors. Recently, the new government moved to alleviate concerns about the CCL, which could enable more projects to enter into contracts.
However, HAR1 developers have cautioned that signing a CfD does not ensure that they will immediately commence projects, due to a lack of penalties for entering into the subsidy agreement. Some still need to finalize agreements for power supply, construction contracts, and financing, indicating that it may take time for signatories to make their final investment decisions.
Jones also mentioned that the UK will update its hydrogen strategy later this year, noting that 'new evidence has emerged on cost, demand, and expected operating patterns, and our understanding has evolved over time,' particularly concerning 'how we expect the hydrogen economy to develop over time.' These remarks suggest that the Labour government might revise the previous administration's target of 10GW for clean hydrogen production by 2030, according to an industry participant. The Conservative government's 10GW target set in 2022 also included a sub-target for 6GW of electrolytic production capacity.
Furthermore, Jones indicated that the government will reassess the role of hydrogen in steel production in the UK. The previous government had seemingly dismissed the potential for using hydrogen in steel as concepts from UK steel plants had not progressed significantly.