NEWS

Tamarindo convenes hydrogen discussion with UK shadow energy minister

On Thursday 20th July, Tamarindo was honoured to host a meeting between Dr Alan Whitehead MP, the UK’s Shadow Minister for Climate Change and Net Zero, and our community of green hydrogen developers. This allowed developers to share the challenges they are facing in getting green hydrogen projects underway and indicate how a future Labour government could help navigate these growing pains.

ISABEL HULL

July 27, 2023

Indecision and uncertainty hamper green hydrogen projects say UK developers

On Thursday 20th July, Tamarindo was honoured to host a meeting between Dr Alan Whitehead MP, the UK’s Shadow Minister for Climate Change and Net Zero, and our community of green hydrogen developers. This allowed developers to share the challenges they are facing in getting green hydrogen projects underway and indicate how a future Labour government could help navigate these growing pains.

The conversation highlighted that while several early projects are ready to be constructed in the UK utilising existing infrastructure, their deployment is threatened by delays caused by political indecision, policy uncertainty and technical bottlenecks.

Here’s a summary of the key points from the meeting:

Government funding for projects needs to speed up

Developers said they were broadly supportive of the current UK government’s Hydrogen Business Model and Net Zero Hydrogen Fund (HBM/NZHF), but want to see the process sped up, scaled and simplified to get the first wave of projects up and running as soon as possible. Developers shortlisted for the UK government’s first HBM/NZHF funding round, which will support 250MW of green hydrogen projects, said they have no idea when the final selection will be announced. This impacts those waiting on a decision in the first round and delays those applying in round two.

Limited grid capacity is a critical challenge

As with pure wind and solar projects, limited capacity on the electricity grid has the potential to hamper or delay green hydrogen projects. Developers noted that they have been able to secure grid connections for initial projects, which are on a smaller scale, but suggested that it won’t be as easy as projects grow in scale. As a key component in delivering net zero, it is essential that the grid be fit for purpose.

Support for a dedicated offshore hydrogen strategy  

Offshore wind developers shared that they plan to use dedicated pipelines on the seabed to transport hydrogen to shore, allowing them to bypass the grid entirely. They indicated, however, that grid constraints are impacting offshore hydrogen production. This is because the Crown Estate has scaled back seabed lease auctions for offshore wind sites in England and Wales to reflect grid capacity. Offshore developers stated that a dedicated offshore hydrogen strategy from government could help tackle this issue.

Off-takers want certainty about the hydrogen reference price 

Developers noted that hydrogen off-takers are concerned about natural gas being used as the reference price for green hydrogen because of the variability in gas prices over recent years. Potential green hydrogen customers worry that committing to a 15-year off-take contract, with the price linked to natural gas, will leave them exposed to high prices. Developers stated that the UK government has not yet announced what the actual price will be and off-takers want certainty before making substantial decisions on capital expenditure. Developers suggested that they would like to see the price metric for hydrogen linked to the electricity price, not the natural gas price.

Indecision on long-term financing spurs uncertainty 

Developers touched on the ongoing debate around the hydrogen levy and the lack of clarity from the government on how the Hydrogen Business Model will be financed in the long term. Developers noted that delays in decision-making are creating uncertainty across projects and the supply chain, from investors to off-takers. One developer suggested that continued indecision could prompt investors to look toward other markets.

Time to get on with it

The underlying message from developers was clear: it’s time to get on with it. UK developers have green hydrogen projects ready to be constructed and need government funding to be released and final decisions made in order to move forward. As one developer noted, getting the first wave of projects underway will likely provide a sense of impetus and incentive to the rest of the industry. The collective concern, however, is that ongoing indecision will not only push back the start point for project execution but spread doubt across the supply chain.

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