A report issued yesterday by BEIS looking at the business models to incentivise low carbon hydrogen production has come out in favour of contractual payment models such as contracts for difference. They have been heralded as a success in offshore wind, are looking like they will be part of the solution to promote CCUS and now hydrogen. It is probably no surprise as not only are CFDs the chosen form of incentive from UK government at the moment, but it also means that the mechanisms across the Net Zero piece are kept consistent. The main benefit seems to be that CFDs are less likely to be subject to policy change because they are contractual and that gives investors confidence but also because they limit the cost to the tax payer.
With CFDs however, comes allocation and auctions and winners and losers and a drive to the lowest cost. That might sound great, but if the aim was a single minded initial drive to get hydrogen volume production going as quickly as possible the recommendation might be different. The UK is in a race right now to capture its share of hydrogen production, know how and the jobs and economy which flows from it. Other countries and blocks are being bold and we need to move at pace.
This report also focussed on how to incentivise large scale low carbon hydrogen production for supply to industry and recognised that demand side policies may also be needed. Is that leaving the door open for different incentives depending on demand uses for hydrogen?
CfD-style backing ‘may unleash UK hydrogen’