UK’s Low-Carbon Hydrogen Agreement: a Pioneering Move Towards a Green Energy Economy

By August 11, 2023 2   min read  (337 words)

August 11, 2023 |

UK Government e1691768106811

The UK Government has unfurled the roadmap to a new era in energy with its low-carbon hydrogen agreement (LCHA), a crucial blueprint outlining the Tnation’s commitment to greener energy sources. The LCHA is an innovative step in fueling the production of low-carbon hydrogen through electrolysis and carbon capture methods, setting the stage for a hydrogen-driven green energy surge.

The LCHA Business Model: Bridging the Financial Divide

The LCHA’s core mission is to provide financial assistance to hydrogen producers, helping close the operational cost gap between low and high-carbon fuels. Encompassing 15-year contracts, this initiative emphasizes the importance of nurturing the early stages of electrolytic hydrogen ventures and carbon capture-enabled projects.

Targets and Commitments: A Vision for 2030

The UK’s ambitions are high, with the target to achieve 10 GW of hydrogen capacity by 2030. This staggering goal includes an estimated 50% capacity derived from electrolytic hydrogen, affirming the nation’s dedication to cleaner energy.

Policy Framework and Subsidy Model: A Thoughtful Approach

The LCHA is a significant addition to the UK’s hydrogen policy arsenal, following the recent update of its hydrogen strategy. Taking cues from contracts for difference in renewable energy, the model compensates hydrogen producers for price disparities between actual sales of low-carbon hydrogen and a set strike price, grounded by natural gas prices.

The strike price serves as the yardstick for producers, covering production costs and a fair return on investment. Tailored to individual projects, it acknowledges the variability in technological pathways.

Production Costs and Considerations: A Nuanced Outlook

Experts have analyzed hydrogen production costs through varied methods, including:

  • Alkaline electrolysis: GBP5.54/kg ($7.06/kg)
  • Proton exchange membrane electrolysis: GBP6.48/kg
  • Blue hydrogen through auto thermal reforming: GBP3.72/kg

These figures take into account capital expenditure, carbon capture, and storage costs, offering a nuanced perspective on hydrogen’s economic landscape.

The LCHA also caters to contingencies, like disruptions to carbon storage facilities or unexpected CO2 emissions, implementing calculated waivers and payment obligations.



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