UK to offer further HAR1 green hydrogen production contracts for early 2025

The UK government expects to offer renewable hydrogen production contracts to the remaining eight projects under its first allocation round in early 2025, after already issuing contracts to three projects, the Department for Energy Security and Net Zero said late Dec. 17.

The first projects are expected to be operational in 2025, and the government is also in the process of assessing applications under the second allocation round (HAR2).

"Signing contracts will enable these projects to be among the first commercial-scale hydrogen projects in the world to take final investment decisions and move into construction," DESNZ said in a hydrogen strategy update.

The government said on Dec. 12 it had offered the first contracts via the Low Carbon Contracts Company, but had not specified how many projects had been offered, or the status of the remaining projects.

The HAR1 funding is to support 11 renewable hydrogen projects with total capacity of 125 MW, half of the capacity on offer.

The government aims to publish a shortlist of HAR2 projects "in due course to be invited to the next stage of the process," it said.

HAR2 closed in April, offering support for up to 875 MW.

Applications for HAR2 funding include projects across the target delivery years between 2026 and March 2029, DESNZ said.

"The high level of interest we received for the second Hydrogen Allocation Round with 87 applications totaling over 2.8 GW of potential production capacity provided a strong signal that the UK's developing policy and regulatory framework for hydrogen presents an attractive investment opportunity," it said in the strategy document.

The government is also developing its approach to future hydrogen allocation rounds, including HAR3 and 4.

"We will seek feedback on the proposed design and delivery of Hydrogen Allocation Round 3 through a market engagement exercise, similar to the approach taken for the second Hydrogen Allocation Round," with further details "in due course," it said.

DESNZ will review allocation round design beyond HAR4 in 2025. It is considering moving to a competitive auction-based model from the current bilaterally negotiated model.

Blue hydrogen updates

DESNZ also hinted at the process for future development of its low-carbon hydrogen production ambitions under the carbon capture, use and storage cluster sequencing process.

It said the next stage of the program included "further building out of the first two Track-1 clusters" of HyNet in the northwest of England and the East Coast Cluster around Teesside.

DESNZ plans to announce a project negotiation list for the Track 1 HyNet expansion process in spring 2025, after confirming funding for initial Track 1 projects in October and awarding an economic license and CO2 storage permit for the East Coast Cluster on Dec. 10.

"Further decisions for continued carbon capture, utilization and storage deployment, including for Track 2 clusters, will be taken in due course," it said.

The industry awaits clarity on Track 2 funding and timelines, as well as future cluster allocation rounds, to progress investment decisions.

Platts, part of S&P Global Commodity Insights, assessed the cost of producing hydrogen via alkaline electrolysis in the UK (including capex) at GBP6.62/kg ($8.40/kg) Dec. 17, based on month-ahead grid power prices. PEM electrolysis production was assessed at GBP6.82/kg, while blue hydrogen production by autothermal reforming was GBP2.57/kg (including capex, CCS and carbon).

Hydrogen transport and storage

DESNZ plans to share details of the first hydrogen transport and storage business models in 2025, opening applications "as soon as possible."

The first hydrogen transport business model round is intended to incentivize "the development of regional pipeline infrastructure to be in operation or construction by 2030."

The first storage business model aims to support up to two storage projects in operation or construction by 2030.

The new National Energy System Operator will take responsibility for hydrogen transport and storage strategic planning from 2026 from interim regulator Ofgem.

The government will also publish further details on the hydrogen-to-power business model in the spring, and will consult on hydrogen blending into the gas grid in the coming year.