Gas blending excluded from initial hydrogen subsidies

The first wave of government-backed contracts to subsidise low-carbon hydrogen production will not include support for blending into the gas grid, the government has said.

In a document setting out how its proposed business model for hydrogen will work, the Department for Business, Energy and Industrial Strategy (BEIS) stated that hydrogen has a less valuable role to play in heating than in other areas like industry, heavy transport and power generation.

The government is due to make a decision by next year on whether to blend hydrogen into the gas grid at rates of up to 20%.

The document released on Friday (8 April) outlined the government’s feedback to a consultation carried out last summer on its proposed business model for hydrogen production.

The response said there may be “significant value” in blending to help kickstart the hydrogen economy but BEIS currently views it as a “transitional option only”, which will have a “limited role” in heat decarbonisation as part of the move away from natural gas.

Hydrogen is expected to play a “more valuable” role in other parts of the economy, such as industry, heavy transport, or power generation, it explained: “While we recognise the value of blending as a demand-sink for hydrogen producers facing volatile, or temporarily unavailable demand, we will be looking to ensure that blending does not displace supply of pure hydrogen to those end users who require it to decarbonise.”

BEIS’ assessment of hydrogen blend will not happen in time for the award of the initial hydrogen business model contracts, the response said: “Given the timescales for wider policy decisions on blending, we anticipate that support for blending hydrogen into the gas grid will not be included in initial business model contracts.”

However, re-opening contracts to include support for blending may be possible once BEIS has carried out this assessment, it said.

Under its proposed support mechanism, producers will be awarded subsidies for the difference between a ‘strike price’, which reflects the cost of producing hydrogen, and a ‘reference price’, which reflects the market value of hydrogen.

The response also said the government does not see a “compelling case” for introducing a separate business model to support small-scale hydrogen projects.

Dr Kiara Zennaro, head of heat at the Association for Renewable Energy and Clean Technology (REA), said the doubling of the government’s hydrogen production target to 10GW by 2030 was one of the “positives” to emerge from last week’s government’s energy security strategy

But she expressed “disappointment” that blending had not been included in the business model or that the government had not provided a separate support scheme for smaller projects.

The government also confirmed on Monday (11 April) that gas networks’ powers of entry will be amended to enable its plans to trial the conversion of a whole village to hydrogen.

Furthermore, it said consumers should not pay more to use hydrogen than they would for natural gas if they are living in the village selected for the trial, which is due to take place in 2025.