Developers and investors at Tamarindo’s Power-to-X Leadership Council called for greater clarity from the UK Government about the weighting of strike prices and preferred sectors for low-carbon hydrogen growth in the upcoming Hydrogen Allocation Round 3 (HAR3) tender.
The UK Government is changing the rules for the next tender in its Hydrogen Allocation Round (HAR) regime — and developers are calling for clarity on those rules to maximise their chances of success.
On 10th June, Tamarindo held the latest meeting of the Power-to-X Leadership Council in London. This working group brings together leading power-to-X developers, financiers and off-takers to discuss the complex challenges facing green and low-carbon hydrogen projects in Europe and beyond.
This time, changes in how the UK ‘s industry-leading HAR process is evolving was top of the agenda. The HAR tender regime is key to the delivery of the industry-leading Hydrogen Production Business Model.
The UK Government’s Department for Energy Security & Net Zero (DESNZ) shortlisted 27 green hydrogen projects totalling 875MW in England, Scotland and Wales on 7th June in Hydrogen Allocation Round 2 (HAR2). The projects are now going through due diligence and cost analysis.
Developers of the shortlisted projects included Carlton Power, Lhyfe, RWE and Scottish Power, and final winners are due to be announced in early 2026. The winning projects will be awarded 15-year contracts for by the Low Carbon Contracts Company (LCCC) next year.
The UK is also set to launch its Hydrogen Allocation Round 3 (HAR3) tender process this year after consultation, but developers in our Leadership Council said they need more clarity about how DESNZ is going to pick winners. Specifically, they said they wanted clarity on which sectors the government’s preferred off-takers would come from, and how important the project strike price would be in the final decision.
For example, one developer said they won support for a project in HAR2, but needed DESNZ to give clarity over which uses for low-carbon hydrogen it wanted to prioritise in HAR3.
The UK Government is looking to accelerate use of low-carbon hydrogen in some industries, particularly in hard-to-abate sectors, and it is set to include discussion of preferred sectors in its upcoming HAR3 consultation.
“DESNZ does appear to have views on which sectors should use green hydrogen and which should be electrifying,” the developer said. There is a risk that companies will be caught off-guard if they have been working on a project for the last year with an off-taker that the government deems unfavourable. This is important as the UK is looking to award support for 1.5GW of projects between HAR3 and HAR4 tenders.
Some companies have already been affected by this uncertainty. One developer that won support for a project in HAR1 in December 2023 said it had been unsuccessful in HAR2, which it said was partly due to DESNZ being unclear about sectors it wanted to focus on for its green and low-carbon hydrogen rollout.
The industry needs DESNZ to fix this uncertainty if developers are to successfully restructure projects that were not shortlisted in HAR2 to improve their chances of success in HAR3. But there is little point in doing this work if a project will fall foul because its hydrogen off-taker is in a non-priority sector.
The overall strike price is also set to be a bigger priority in HAR3.
DESNZ changed the weighting of success factors between its HAR1 and HAR2 processes. It awarded support for projects in HAR1 based on three concerns — price, deliverability and economic benefits — but changed its weighting of these different factors in HAR2 to make strike prices a bigger focus.
One Leadership Council attendee said: “The overall percentage associated with the strike price was bigger in HAR2 than in HAR1. I expect the strike price to be a bigger consideration in HAR3, but perhaps they’ll look more at deliverability and use case.”
They said this would have an impact on which use cases look most attractive because, for example, hydrogen road vehicles are expensive to operate compared with alternatives such as electric vehicles, and will look less attractive if strike prices play a bigger role. One participant argued hydrogen was unattractive for short-distance transport uses, but could be more appropriate for use in long-distance trucks and aircraft.
Overall, developers said they see plenty of opportunities for green and low-carbon hydrogen, particularly in hard-to-abate sectors. Success in HAR3 will rely on DESNZ providing the clarity these companies demand.
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