By Paul Homewood
In my post on hydrogen costings yesterday, I had forgotten that the government had already awarded CfDs for small hydrogen projects a few months ago:
Following the launch of the first hydrogen allocation round (HAR1) in July 2022, we have selected the successful projects to be offered contracts. We are pleased to announce 11 successful projects, totalling 125MW capacity.
HAR1 puts the UK in a leading position internationally: this represents the largest number of commercial scale green hydrogen production projects announced at once anywhere in Europe. This round will provide over £2 billion of revenue support from the Hydrogen Production Business Model, which will start to be paid once projects become operational. Over £90 million from the Net Zero Hydrogen Fund has been allocated to support the construction of these projects.
We have conducted a robust allocation process to ensure only deliverable projects that represent value for money are awarded contracts. The 11 projects have been agreed at a weighted average [footnote 1] strike price of £241/MWh (£175/MWh in 2012 prices). This compares well to the strike prices of other nascent technologies such as floating offshore wind and tidal stream.
My costings yesterday came to an estimate of £246/MWh, so I must have been on the right track!
The above projects appear to be largely reliant on buying up chunks of renewable energy from solar and onshore wind farms. Offshore wind would be dearer of course.
And what we also need to remember is that the aforesaid wind and solar power may already be heavily subsidised, so the price paid by these hydrogen projects probably understate the true cost.
Of course, just buying up existing renewable energy does not make the hydrogen “green”. The power will still come off the grid as a mixture from various sources. It is in effect just an accounting trick, a mirage. The only way they can claim it is “green” is if the electrolysers are directly linked to a wind or solar farm; in practice this would make the whole operation horribly intermittent and inefficient.