I will be speaking at the Hydrogen Energy Association Annual Conference later this month on the topic of  “Getting the First HAR1 (Hydrogen Allocation Round) Projects Built”.

Those projects successful in HAR1 will hopefully have moved on from the legal building blocks in getting electrolytic hydrogen built such as the real estate, permitting and consenting and corporate structuring of the project.  They may also have the grid connections for power although as we all know, grid connections for any energy project, seem to be a moveable feast. 

We are now in a phase where the first projects have a Low Carbon Hydrogen Agreement (LCHA) contract in their hands and so I will be discussing what we are seeing as the key legal tasks for the next level of building blocks on the path to funding, build out and production.  

An absolutely fundamental aspect of these projects from the legal and practical side, is going to be the inter-relationship between the LCHA terms and the hydrogen offtakes, the green electricity supply to the electrolyser and the supply chain contracts.  All of these areas overlap and need to mesh together and if financing is required, it will be the key area of scrutiny.

In forthcoming posts, we will look at the green electricity supplies, offtakes and supply chain contracts, but just concentrating for one moment on the LCHA.  The key headlines to consider are:

  • To even get the support under the LCHA, a project needs to be compliant with the Low Carbon Hydrogen Standard (LCHS).  That, itself, imposes obligations, which need to be fed through into the green electricity supply contracts and involves stepping down obligations onto the supply chain. It will be crucial to your offtakes, who will want the assurance that they are getting green hydrogen.
  • The LCHA throws the volume risk of hydrogen production well and truly onto the producer.  This has implications for the other contracts and areas we highlight above, but what it means is, if you do not produce and supply the green hydrogen, you do not get the LCHA business model top-up available.
  • The LCHA imposes obligations, which will need to be passed down into your contracts for the project, including such things as audit rights and access to data.  This is not insurmountable but needs to be ticked off.
  • The LCHA imposes a sales cap on the amount of hydrogen that can be produced and sold annually and over the 15 year term.  This has implications for your offtake contracts.
  • The term of the LCHA, is 15 years.  Ideally this term needs to be matched with your other project contracts.

All of the above can and will, have to be managed by the first projects.  There will also be lessons to be gleaned for those who have recently applied into HAR2.