Government backs RAB for hydrogen transport

The Regulated Asset Base (RAB) model is the most suitable approach for supporting the build-out of hydrogen transport infrastructure, the government has said.

The minded-to decision is included in the long-awaited response to a consultation on business models for hydrogen transport and storage infrastructure, which closed in November 2022.

It details the government’s support for a revenue floor as the best design for hydrogen storage projects, with an initial focus on geological storage.

The decisions were published on Wednesday (2 August) as the Department for Transport announced £8 million funding for two hydrogen projects in the north east.

One is based at Teesside airport and will see the development of hydrogen vehicles such as tow trucks and runway sweepers by ULEMco. Meanwhile, Element 2 has been backed to create four new hydrogen refuelling stations.

In its summary of minded-to positions on hydrogen transport and storage, the Department for Energy Security and Net Zero (DESNZ) set out its initial thoughts on business models and contracts that would underpin a hydrogen economy.

For transport infrastructure, its initial focus is on large-scale onshore pipelines which will be supported by RAB with an additional external subsidy mechanism to allow transport providers to make a “reasonable return” while not loading too much cost onto users and networks. This mechanism would be delivered through private law revenue support contracts between the transport providers and a counterparty, likely to be the Low Carbon Contracts Company, which already perform the same role for the Contracts for Difference scheme.

In reaching its decision DESNZ said there was a clear need for a large integrated and resilient network to transport hydrogen regardless of the government’s 2026 decision on the role the gas will play in home heating.

For hydrogen storage, DESNZ proposes a revenue floor to mitigate demand risk for storage providers, an incentive to maximise sales to users and a mechanism to give the subsidy provider a share of the ‘upside’. The initial focus will be on geological storage with the option to support above-ground storage where it faces similar market barriers. This model would also be delivered through a private law contract, lasting 15 years.

The document says the Future System Operator should eventually take on a central strategic planning role in hydrogen transport and storage but that in the meantime government and Ofgem should provide early strategic direction for the build-out of infrastructure.

The government has also pledged to publish a hydrogen networks pathway to set out the next steps in the development of hydrogen infrastructure and a response to its recent consultation on offshore hydrogen regulation.

Meanwhile a consultation on hydrogen blending will be released “shortly” ahead of an intended policy decision before the end of the year.