The final report on the proposed CCUS (Carbon Capture, Utilization, and Storage) within the Net Zero Hydrogen Fund (NZHF) highlights significant insights into the UK’s efforts to scale up low-carbon hydrogen production.
The report details the strategic deployment of capital expenditure (CAPEX) to build hydrogen production facilities equipped with CCUS technologies, targeting challenging sectors to electrify.
Hydrogen’s Role in Decarbonization
Hydrogen, especially low-carbon hydrogen produced using CCUS, is critical for decarbonizing the UK’s power sector. The government aims to establish at least 10GW of low-carbon hydrogen production by 2030, a goal that aligns with the Climate Change Committee’s Carbon Budget advice. The report asserts that CCUS-enabled hydrogen will play a central role in achieving the UK’s Net Zero commitments by 2050, particularly by reducing greenhouse gas emissions by 78% compared to 1990 levels by 2035.
Market Failures Addressed
The report identifies several market failures that hinder the private sector’s investment in low-carbon hydrogen. These include investment uncertainty due to high capital and operating costs and a lack of coordinated market demand. The NZHF program seeks to bridge this gap through CAPEX co-funding, making it economically viable for companies to invest in hydrogen production technologies and infrastructure.
Competitive Selection Process
Two hydrogen projects were selected under Strand 4 of the NZHF: Hynet Hydrogen Production Plant 1 (HPP1) and bpH2 Teesside. Both are based in industrial clusters connected to CO2 transport and storage networks. They are expected to become operational by the end of 2027 and contribute significantly to the hydrogen production capacity required for the UK’s decarbonization strategy.
Environmental Benefits
The Scheme supports environmental sustainability by reducing the reliance on fossil fuels and ensuring long-term emissions reductions. According to the report, the projects selected will contribute to displacing high-carbon fuels across multiple industrial sectors. Additionally, CAPEX support aims to lower hydrogen production costs and minimize the ongoing revenue required through the Hydrogen Production Business Model (HPBM), resulting in better value for money for both the government and future consumers.
Potential Risks and Competition
The report also acknowledges potential risks such as competition impacts, particularly on grey hydrogen producers and suppliers of alternative fuels. However, it concludes that the subsidy provided through NZHF is unlikely to crowd out private investment due to the high upfront costs and risks associated with early-stage hydrogen production.
Recommendations and Next Steps
The report advises a more detailed consideration of the economic and environmental counterfactuals, ensuring that future assessments provide clearer comparisons. Additionally, the report suggests that DESNZ explore alternative policy measures, such as enhanced carbon pricing, to complement the subsidy scheme. This would ensure a comprehensive market structure for low-carbon hydrogen, further accelerating its adoption.
The NZHF’s strategic focus on CCUS-enabled hydrogen projects represents a crucial step in transitioning the UK toward a cleaner, hydrogen-based energy economy. However, continued investment and policy refinement will be necessary to fully realize hydrogen’s potential in decarbonizing hard-to-electrify sectors.
