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UK’s Hydrogen Strategy Confirms the Launch of a Hydrogen Production Subsidy Scheme in 2023 and Expects Hydrogen Demand to Grow Twenty-Fold by 2050, Higher than Aurora’s High Scenario

  • The UK government published its long-awaited hydrogen strategy on 17th August 2021. This follows from the Ten Point Plan for a Green Industrial Revolution released in November 2020 and Scotland’s hydrogen strategy published in December
  • The strategy outlines up to £961 million of funding for hydrogen-related projects, of which one-third is for hydrogen production projects and one-third for end-users in the industrial sector
  • The government opened a public consultation into hydrogen production business models, which could be modelled on renewable power contracts for difference (CfDs). Launch of the scheme is due in 2023
  • The UK government expects a more than doubling in hydrogen demand by 2030, roughly in line with Aurora’s central scenario. This growth is due to come from industry followed by power and transport. By 2050 the government is more ambitious, expecting a near 20-fold increase in demand, which is 25% higher than Aurora’s High scenario
  • The UK re-iterates its target for 5GW of installed hydrogen production capacity. According to Aurora’s electrolyser database, the United Kingdom pipeline of electrolyser projects by 2030 is close to its 5GW target, at 4.06GW
  • The strategy includes a table of assumed levelised costs for hydrogen (LCOH) production for a few business models, and the government’s assumed LCOH for grey hydrogen in 2050 hints at its strongly bullish view on carbon costs
  • The United Kingdom will introduce its own standard for low-carbon hydrogen in 2022. Aurora expects this standard will be less stringent than the EU Taxonomy, in order to include blue hydrogen
  • Next steps: the hydrogen strategy sets out many ambitious milestones over the next four years, most notably its 2022 low carbon hydrogen standard and 2023 launch of its hydrogen production subsidy scheme

Further details in the attached slides.

Anise Ganbold, Global Energy Markets Lead at Aurora Energy Research commented:

“The UK’s hydrogen strategy re-confirms the government’s commitment to green and blue hydrogen to decarbonise the UK economy, and gives a timeline of hydrogen subsidies and funding that market players can expect to see between now and 2026. For example, it confirms it is considering a subsidy scheme for hydrogen producers similar to offshore wind contracts for difference but will wait until 2022 to give details. It also indicates it will define what counts as ‘low-carbon’ hydrogen next year.

The strategy is very ambitious in terms of its hydrogen demand growth- higher than Aurora’s High scenario by 2050. Given where it assumes the cost of ‘grey’ hydrogen, produced using fossil fuels, will be in the 2050s, this suggests the government expects carbon costs to be significantly higher than they are today.”

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