Hydrogen CfD Costs
By Paul Homewood
In my post on hydrogen costings yesterday, I had forgotten that the government had already awarded CfDs for small hydrogen projects a few months ago:
Following the launch of the first hydrogen allocation round (HAR1) in July 2022, we have selected the successful projects to be offered contracts. We are pleased to announce 11 successful projects, totalling 125MW capacity.
HAR1 puts the UK in a leading position internationally: this represents the largest number of commercial scale green hydrogen production projects announced at once anywhere in Europe. This round will provide over £2 billion of revenue support from the Hydrogen Production Business Model, which will start to be paid once projects become operational. Over £90 million from the Net Zero Hydrogen Fund has been allocated to support the construction of these projects.
We have conducted a robust allocation process to ensure only deliverable projects that represent value for money are awarded contracts. The 11 projects have been agreed at a weighted average [footnote 1] strike price of £241/MWh (£175/MWh in 2012 prices). This compares well to the strike prices of other nascent technologies such as floating offshore wind and tidal stream.
My costings yesterday came to an estimate of £246/MWh, so I must have been on the right track!
The above projects appear to be largely reliant on buying up chunks of renewable energy from solar and onshore wind farms. Offshore wind would be dearer of course.
And what we also need to remember is that the aforesaid wind and solar power may already be heavily subsidised, so the price paid by these hydrogen projects probably understate the true cost.
Of course, just buying up existing renewable energy does not make the hydrogen “green”. The power will still come off the grid as a mixture from various sources. It is in effect just an accounting trick, a mirage. The only way they can claim it is “green” is if the electrolysers are directly linked to a wind or solar farm; in practice this would make the whole operation horribly intermittent and inefficient.
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NOT A LOT OF PEOPLE KNOW THAT 
“Value for money”! They are having a joke at out expense.
Department for Net Zero Energy Security.
Key sentence in the footnotes
The subsidy will vary relative to changes in the reference (natural gas) price.
There is a 34 page pdf on CFD price adjustments that requires a hot towel wrapped around the head. It is in any case incomplete.
For these toy projects the real economics barely matter. But the economics of large projects look very different, since you have to ask where the subsidy for input costs comes from, and whether hydrogen is being used to run electricity generation at the same time as electricity is being used to make hydrogen.
Actually using the hydrogen comes later . . . .
Someday. Maybe.
“…..if the electrolysers are directly linked to a wind or solar farm; in practice this would make the whole operation horribly intermittent and inefficient.”
Taking that point a step further “direct linking” would mean either a cable link to wherever the elecrolyser is located or co-locating the electrolyser with the wind farm which inevitably would be a remote windy location.
If the former then we need yet more wiring everywhere. If the latter then the hydrogen needs transporting to wherever the power plant using it is located. This hydrogen using power plant must be connected to the High Voltage transmission network to be of any national benefit. If only connected to the low voltage distribution network its use would still be restricted to local use – an exercise in futility.
Clearly nobody is actually thinking anything through at all and it seems that only extremely impractical people are involved. This is an expensive disaster just waiting to happen.
There already is a small electrolyser attached to the O2 Orbital tidal stream project on Orkney. Along with a vanadium flow battery its purpose is to stabilise the very flickery output. It’s really all expensive toys for the boys.
https://www.surfnturf.org.uk/page/introduction
I prefer my surf ‘n turf to be lobster and beef.
“Taking that point a step further “direct linking” would mean either a cable link to wherever the elecrolyser is located”
Exactly how the ‘Holyhead Hydrogen Hub’ is designed;
£ 36 million has already been spent on cable to link ‘tidal turbines’ near South Stack to the ‘elecrolyser’ at Holyhead.
Minor problems
1. No ‘tidal turbines’ ; Minesto have reaped the subsidy field & now moved away to farm subsidy’s elsewhere.
https://www.offshore-energy.biz/minesto-holyhead-assembly-hall-now-fully-operational/
2. No elecrolyser; just a bare site.
https://www.mentermon.com/en/prosiectau/hwb-hydrogen/
Anglesey is called ‘Energy Island’ … presumably because we import most of our energy !!!
Above the 45th parallel, solar is as useless as an ashtray on a motorbike
If the government morons had any awareness they would be seeing that hydrogen projects are floundering everywhere because the product they are creating is unaffordable.
And generally unusable – hydrogen cars and hydrogen home boilers won’t ever happen without unaffordable amounts of investment and certainly not via a renewables grid
HAR1 puts the UK in a leading position internationally
England telling everybody else they are better than them for 700 years.
HAR1?
Wot?
I could understand this better if it was HAR3.
Or HAR, HAR, HAR! Suck it up silly plebs!
Post of the month!
If AR6 CFD auction had been running to the best remaining timescale we would have had that announced today. The difficulty is that it leaves key decisions until right around the election. We can expect that it will instead operate on the slowest timetrack. But that will mean that one of Ed Miliband’s first jobs will be to enlarge the auction budget around the end of July. A month later he must decide whether to run with the result or re-run the auction.
Is the £241/MWhr the price for electricity fed into the grid from hydrogen created by electrolysis, stored and then burnt in a generator? And what figure have they taken for the price of gas which underpins this £241/MWhr?