The REA final responses to BEIS consultations on a business model for low carbon hydrogenlow carbon hydrogen standard and the Net Zero Hydrogen Fund can be found below.

Links to download the responses and key highlights from them can be found below.

Low carbon hydrogen business model

·      We are supportive of a producer-led subsidy but believe that the added complexity of a contractual approach risks adding market entry barriers for new and smaller players in the market.

·      We have therefore called for an interim, bridging simpler mechanism that avoids the overcomplexity of the proposed revenue scheme in the early years, when the market is still immature but with the aim of transitioning to a more conventional CfD mechanism (or variable premium price approach) once the market is more established.

·      If this is not possible, BEIS may wish to consider developing a parallel ‘decentralised business model’ that is more suited to support the deployment of distributed, smaller scale projects, alongside the proposed ‘centralised’ model (more geared toward large scale projects).

Net Zero Hydrogen Fund

·      We welcome the fund as it will help accelerate the deployment of hydrogen by overcoming barriers to entry that a subsidy mechanism alone would not be able to do.

·      However, we recommend the fund is targeted towards tackling barriers to entry for hydrogen and that it is not a substitute to ongoing support mechanisms. We also highlight that the NHZF boundaries should include the storage, transportation, and the use of hydrogen as without these will be a risk that production technology is advanced, but the success of hydrogen is limited by the inability to transport, store, and use the fuel.

Low carbon hydrogen standard

·      The REA is highly supportive of the Government commitment to develop a standard and the associated methodology for carbon accounting of hydrogen production and supply chains that can underpin investment in low carbon hydrogen.

·      The standard will need to be sufficiently robust to only encourage the development of hydrogen production and distribution pathways that can genuinely deliver low or zero carbon emissions.

·      We also firmly believe that the level of GHG emissions allowed will need to decline over time to be aligned with the Government trajectory to meet its Net Zero Target by 2050. We acknowledge that the standard needs to be set at a level above zero initially, however this threshold cannot be kept flat over time up to 2050, as doing this will undermine efforts to achieve our Net Zero targets.

·      We couldn’t achieve a consensus on whether the standard should include multiple labels/categories or a single threshold but, in general, there is a strong appetite for a mechanism or a combination of mechanisms that incentivises greater GHG emission savings (ie above the minimum threshold).

·      Most members support the principle that downstream emissions (e.g. for distributing hydrogen to the point of use) should be included in the standard, with some also supporting inclusion of emissions from the use of hydrogen.

·      On the proposals around low carbon electricity and additionality, our key points are that:

o    Any rules to account for energy inputs to low carbon hydrogen production need to be workable and pragmatic, and they should not constrain sector growth, especially in the initial years of sector development. These should look at electricity as well as fossil gas used to produce hydrogen.

o    When setting rules on low carbon electricity, the Government must recognise the strong role of electrolytic hydrogen as a key route to enable the development of additional renewables and the integration of increased shares of renewables in the energy system.

o    In terms of proving that electricity used for low carbon hydrogen production is low carbon, we do not support the option based on physical links, as it is highly restrictive both in terms of load factor and geographical location. However, we support the option of allowing electrolysers to plug into the grid under certain conditions (subject to meeting a carbon intensity threshold) and traded activities (use of PPAs backed by GoOs). We have however highlighted some challenges on PPAs and GoOs that need further consideration.

o    On temporal correlation, Government should consider the extent to which this degree of temporal correlation is actually needed in order to align electrolytic hydrogen production with periods of ‘excess’ renewables. We would note that electrolysers are already exposed to price signals on low or negative pricing, which already gives them some incentive to respond accordingly. We would expect the strength of those signals to increase over time, while the average GHG emissions of the electricity grid will reduce. If such rules are introduced, these need to be pragmatic and further granularity can be adopted later when the tools to evidence it become available.

·      On additionality, in our view this principle needs to be considered within the wider energy policy context as it is discriminatory to scrutinise only the electricity that is used to produce electrolytic hydrogen. The principle should apply to all new electricity demand, including that required for power, electrification of heat and decarbonisation of transport (EVs). These risks are best managed at the macroeconomic policy level rather than by individual hydrogen producers.

Further detail can be read in the full responses above. Please contact Kiara Zennaro ([email protected]) if you require any clarification.