The UK’s Department for Energy Security and Net Zero (DESNZ) has indicated a “direction of travel” for government support for hydrogen transport and storage, under plans to grow the hydrogen industry and decarbonise heavy industry.
The government has been consulting on business models for transporting hydrogen via a new pipe network and on building other infrastructure such as hydrogen stores. It is acknowledged that a new hydrogen industry would require financial support in the early stages.
Under a regulated asset base (RAB) business model, financial support for a hydrogen network would be aligned with that for gas, electricity and water. But DESNZ notes that at the start there will be few users of a hydrogen network, making charges prohibitively high if they were expected to cover costs.
The government is proposing an external subsidy, alongside the RAB, to allow hydrogen transport providers to make a reasonable return on investment. This would be delivered through private law revenue support contracts between a counterparty and the hydrogen transport provider receiving the subsidy.
DESNZ said that pipelines would be “the most cost-effective way of scaling-up” and suggested potential market interventions to support hydrogen’s use in power generation.
As regards hydrogen storage, DESNZ is looking at a revenue floor to mitigate demand risk for storage providers, an incentive to maximise sales to users, and a mechanism to give the subsidy provider a potential share of the ‘upside’. That would be delivered through a private law contract lasting at least 15 years.
DESNZ’s consultation on hydrogen regulation closed in May. A response is due to be published later this year.
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