Net Zero Hydrogen Fund: which UK Hydrogen projects can get funding?

United Kingdom

In August 2021, as part of the UK Hydrogen strategy, the Department for Business, Energy & Industrial Strategy (“BEIS”) launched its consultation on the Net Zero Hydrogen Fund (“NZHF”) – a proposed £240 million fund to be delivered between 2022 and 2025 (the “NZHF Consultation”).

On 8 April 2022, BEIS published a raft of low-carbon hydrogen (“Hydrogen”) related updates, including:

We summarise the key takeaways and timelines of the NZHF Consultation Response and Funding Allocation Consultation here. For our commentary on the Business Models Response, LCHA Heads of Terms, Hydrogen Standard Response and Draft Guidance, please see here.

How will funding be allocated?

To support the government’s newly increased ambitions of deploying 10GW Hydrogen production capacity by 2030 (as stated in the April 2022 energy security strategy), different funding “strands” will be available. The amounts of award for strand 1 projects range from £80,000 to £15 million, and £200,000 to £30 million for strand 2 projects. Amounts for strand 3 and 4 projects are not yet specified.

BEIS is also consulting on a joint allocation process through which electrolytic Hydrogen producers could apply for both revenue (via the business model) and capex (via the NZHF) support. BEIS have indicated capex support of up to 20% co-funding through the NZHF may be available. The four strands are:

Strand

Support/project type

Funding window opening date

Funding window closing date

1

Development support for Front End Engineering Design (“FEED”) studies.

25 April 2022

22 June 2022

2

Capex for projects that donotrequire Hydrogen business model support.

25 April 2022

6 July 2022

3

Capex for projects that require Hydrogen business model support and not part of the Phase 2 cluster sequencing process.

Late June/early July 2022

TBC

4

Capex for CCUS-enabled projects that require Hydrogen business model support and are part of the Phase 2 cluster sequencing process.

Summer 2022

Full application: 2023

TBC

Projects eligible for funding

Projects applying for NZHF funding must satisfy the following eligibility criteria:

  • be located in the UK;

  • achieve COD by end of 2025;

  • utilise core technology that has been tested in a commercial environment, with Technology Readiness Level of at least 7 (i.e. Prototype near or at planned operational system, requiring demonstration of an actual system prototype in an operational environment);

  • be a new build, electrolytic Hydrogen production facility;

  • have identified at least one offtaker;

  • have identified an electrolyser supplier;

  • meet the Low Carbon Hydrogen Standard; and

  • have demonstrated access to finance.

Eligible applicants will be assessed (weightings in %) for their deliverability (30%), cost considerations (20%), economic benefits (20%), emissions (15%), market development and learning (10%) and additionality of electricity source (5%).

Comment

NetZero image  

The government’s 2035 hydrogen delivery plan (figure above) shows the pace and scale of ambition now that the UK has committed to one of the largest low-carbon hydrogen production targets in Europe. The government favours supporting domestic hydrogen production and the NZHF is in line with its ambition to have hydrogen projects in construction or operating by 2025. Notably BEIS expects a significant proportion of the NZHF budget to be allocated to strand 2 projects (i.e. ones not applying for a Low Carbon Hydrogen Agreement) and given the intended timescales, it is likely to be dominated by ‘green’ rather than ‘pink’ hydrogen projects. However, the role that hydrogen will play in decarbonising heating and how any hydrogen produced may be moved around the country or beyond remains unanswered.

Next steps

Competition briefs for strands 1 and 2 (projects seeking NZHF capex co-funding alone) will be published by UKRI on 19 April 2022 and the NZHF opens on 25 April 2022.

The Funding Allocation Consultation closes on 6 May 2022. Projects who wish to engage should respond via Citizen Space or attend one of the workshops taking place between 21 and 28 April.