Phased deliverability key to UK hydrogen auction success: Carlton Power

Local hydrogen projects with viable offtake partnerships must be at the heart of a first electrolytic hydrogen auction in the UK, Carlton Power's hydrogen project developer Eric Adams told S&P Global Commodity Insights May 14.

Carlton Power has three projects in the government's competition, two with planning permission and all with nearby offtake partnerships.

"The government wants to kickstart the hydrogen economy, and to do that it needs to find a balance between value for money and deliverability," said Adams.

The auction, scheduled for later this year, is to seek 250 MW of the best projects from a shortlist of 20 amounting to some 408 MW.

"There is competitive tension in there that will bring the strike price down gradually," Adams said, drawing a parallel with offshore wind.

"You didn't try to do multi-gigawatt offshore wind projects 100 miles offshore in the first allocation round. There was development and maturity of the market over what a good project looked like."

As such the first viable projects should be embedded close to offtakers, preferably connected by dedicated pipeline.

"We're focusing on projects that work the easiest, require the lowest level of support from the government and can be delivered very quickly," he said.

The developer noted positive feedback from companies seeking to decarbonize very high temperature processes using hydrogen.

"Electrification does not work for them on the timescales they want to move on," Adams said.

Phased capacity, starting with 5 MW electrolyzers, reflected the reality of growing demand from these players incrementally.

"We're looking at 5 MW electrolyzers but we might not be utilizing all of that. Ultimately, we'll have a strike price and see what an offtaker can support. We're aiming for robust projects that are not contingent on other parties getting the hydrogen from A to B, or involving a large risk for the offtaker," he said.

Adams hopes the government recognizes the opportunity to support not just large scale projects in heavy industry, but also to stimulate a large number of distributed hydrogen production projects.

"Then in the long term you get connectivity between those in terms of the transport and distribution network," he said.

Shortlisted projects

Carlton has planning permission for projects at Trafford and Langage, while Barrow is close to approval. All were shortlisted by the government in late March for potential support under the GBP240 million Net Zero Hydrogen Fund.

At 35 MW, Barrow is the largest first-phase project of the three, but Trafford with a capacity of 20 MW in the first phase has the potential to expand to 200 MW.

In late April, meanwhile, Carlton signed partnership agreements with mining companies Imerys and Sibelco for potential offtake from a 10-MW electrolyzer planned at Langage in Plymouth, Devon.

"Langage is the only scheme of its kind shortlisted in the southwest. There is a lot of mining activity there and a large maritime sector, particularly around Plymouth. All have potential to use H2, so there is capacity to extend," Adams said.

Carlton would likely use PEM electrolysis technology and would look at procuring renewable power feedstock under power purchase agreements "via a provider who must manage the supply so we qualify for the low carbon hydrogen standard, and so we can meet the demand warranty for the offtakers," Adams said.

"We've avoided a model where the electrolyzer is supported purely by a directly-connected asset. In our view that does not produce enough hydrogen to justify a consumer switching [from on-demand gas supply]," he said.

Adams would not be drawn on costs, but readily acknowledged that the fate of UK hydrogen prices was closely aligned with the speed of the country's wind and solar build-out.

While connection delays are a worry on this front, hydrogen is also a solution, Adams concluded.

"As much as green hydrogen is reliant on the build-out of renewables, renewables are reliant on the development of electrolysis demand" to buttress revenues undercut by cannibalization, he said.

Platts, part of S&P Global Commodity Insights, assessed the price of UK hydrogen (PEM electrolysis, including capex) at GBP6.46/kg ($8.09/kg) on May 11, down 14% month on month.