Another £2 Billion Handed Out To Subsidise Hydrogen
By Paul Homewood
I missed this announcement just before Xmas:
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.
Government delivered HAR1 to time, and we expect that first projects will become operational from 2025. Combined with our commitments to further Hydrogen Allocation Rounds, this gives hydrogen developers, investors and supply chain companies the certainty they need to commit to the UK.
The CfD prices of £241/MWh compare to the current wholesale cost of natural gas at around £34/MWh.
The amount of hydrogen these projects will make is miniscule, about 1 TWh even if they work at 100% capacity. UK consumption of gas is over 800 TWh annually. £2 billion is a lot of money to pay out for so little, and presumably will be added to our gas bills, in the same way that subsidies for wind power are added to electricity bills.
What is interesting is that the strike prices will be flexed to changes in the market price of gas:
The schemes all appear to be electrolysers, and they all claim that only renewable electricity will be used, an absurd assumption! None of them say what they will do when there is not enough wind and solar power to meet demand – will they idle their plants, or will they carry on as usual taking whatever power the grid can supply?
How the DESNZ can claim it represents value for money is a mystery! And to pretend they are nascent technologies is also untrue, because electrolysis is a well established process.
But it’s our money they are spending, not their own, so why worry?
Above all though, this lifts the lid on just how horribly expensive green energy is. Remember too that the renewable power they claim they will use is already subsidised heavily. So £241/MWh understates the true cost.
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NOT A LOT OF PEOPLE KNOW THAT 
It just goes to show that the all the main parties are socialist.s They are rapidly running out of other people’s money to waste.
The last time there was a remotely Conservative party in the UK was November 1990.
The only “value” associated with this project, is the “value” of the CBEs or Climate Bribes Extraordinaire, that Ministers and Civil “Service Experts” will trouser, laughing all the way to the bank.
We all know that the other “benefits” are entirely illusory.
Floating offshore wind,I read recently,I can’t recall where,that the ones in the North sea are being towed to Norway for massive refit after only seven years.
I read in the annual reports for Kincardine floating wind farm that they have had to have 2 out 5 turbines towed to port for repair, each being out for almost a year, and that is rather newer than Hywind. They are also using bigger 9.5MW turbines which are plainly more problematic.
The Siemens bug strikes again. Equinor seem to be a tad optimistic if they think they can get this done in 4 months IMHO.
If they can’t find enough customers for this expensive hydrogen, will they shove it into the gas grid to get rid of it?
There’s that word again ‘Robust’, generally means nothing of the sort.
£2 billion here, £2 billion there . . . pretty soon, you’re talking real money.
Generate renewable electricity to produce hydrogen, which impinges on the scant renewable electricity required for consumers, so hydrogen can be used to produce electricity when the wind isn’t blowing, in the hope that the wind blows soon to make hydrogen for when the wind doesn’t blow again.
Subsidise it all so the consumer can pay for it on the bills they won’t get because renewable electricity is devoted to producing hydrogen.
Makes complete sense.
It’s when they start burning the hydrogen to make electricity to keep the electrolysers operating to make hydrogen when there isn’t enough wind that we know they have truly entered the asylum.
The madness continues, The strike price £241/MWh is justified thus ” This compares well to the strike prices of other nascent technologies such as floating offshore wind and tidal stream.” That means it is just as crappy as everything else.
Anyway here is a link to rather good critique of the hydrogen policy.
https://open.substack.com/pub/davidturver/p/weird-scenes-inside-the-energy-gold-mine?r=8t75y&utm_campaign=post&utm_medium=email
I am rapidly of the opinion that the Climate Change Committee is rather like Fujitsu.
…or is thatthe other way round, or both.
Ministry of Silly Walks?
What is this green hydrogen for? Not for heating, presumably, as the public refused even to pilot such schemes. Is it to be for the Royal Society’s batty idea of storing green hydrogen underground (at 300 bar pressure) in thousands of salt caverns, to burn to create electricity at 41% efficiency? I can see large parts of the planet being blown off and into the atmosphere. Or is it to turn lorries into potential bombs on the road?
That is the indictment of the entire hydrogen scheme. It is entirely supply side. There is no demand, and their schemes do nothing to create demand.
The end product is caverns full of hydrogen.
This is page 4242 in the playbook on how to squander the wealth of a nation.
It is amazing how many ways there have been, and new ones pop up like weeds in my garden.
“we have conducted a robust allocation process that represents value for money”
Oh, how we laughed!
I’m afraid I don’t understand the quoted prices. Are they the costs to create H2 or just the price of any power it produces when used?
Sadly, it would be just the input price if it were used to generate electricity, which would then cost something like £550/MWh.
Worse still, with plans to use offshore floating wind as input to the electrolysis process in future, starting out at £176/MWh in 2012 money, or about £244/MWh today, which would give hydrogen at around double the price – and double it again to get the electricity back. Utter madness.
This is even more daft that the previous unreliables schemes. I looked at the biggest beneficiary HyGen who tell us they will produce enough hyrdogen to power the local bus fleet which urghh is investing heavily in new battery buses. Dont fear though it will also have facilities for car owners to refuel as well – umm last time i looked there aren’t any on the market.
‘HAR1 puts the UK in a leading position internationally’
There are many things where being in a leading position internationally is nothing to get excited about. Germany is leading at destroying its manufacturing base and making the population poorer so perhaps they will drop down from their current 15th place in the ECB EU average wealth list. Hydrogen is another one. We covered electolysis in chemistry at grammar school.
Very few of the selected proposals will get to their final investment decision (FID), and very possibly none of them. The government knows this and is happy to splash the headline £2bn when little or none of it will be spent.
A proposer will be over a barrel if it does not have terms for equipment supply and energy supply fully locked-in (contracted price, schedule, and performance guarantees). A proposer holds one of these contract offers without this contractual certainty will be over a barrel. Their suppliers will take all the project value, leaving all the risk for no return to the proposer. This will never get past FID and the contract offer will lapse.
So what’s this all about then, if not to deliver these expensive decarbonisation gems?
The clue is in the statement: “this lifts the lid on just how horribly expensive green energy is”.
Of course it it. And of course it does. That’s exactly what Government wanted.
The government now has the evidence it wants to assert that decarbonisation of fossil fuels is horribly expensive, so it can now select Sizewell C and wash its face on state aid conditions. Notice how Sizewell C’s FID is being announced around today. Mission accomplished.
The sleight of hand is the assumption of decarbonisation in the economics. Nuclear is a hopeless laggard compared to “unabated” coal and gas as energy carriers. But it is not being compared with unabated.
Nuclear only is as bad as it is because we insist on pandering to the French rather than procuring faster, cheaper options from Korea or Japan. The Finns claim even so that Olkiluoto is firing up electrons for around €60/MWh so they got the French to swallow a good chunk of the cost overrun to €11bn for 1.6GW, compared with £33bn+ for 3.2GW at Hinkley Point. But 5.6GW for $25bn at Barakah is a much better bargain.
Or how about China’s new 4th generation reactor that has just started but perhaps we should give a year or so for it to prove itself.
Maybe Olkiluoto demonstrates what can happen when the public sector takes risk in nuclear operations. Finns happy. French taxpayers …. less so.
Another thing worth looking into. As I write this on a very cold January day, UK wind is down to 3GW (7%). At the same time, UK nuclear generation is down to 2.5GW, or about half installed capacity. Did somebody say something about nuclear being firm and reliable? Why would half the UK nuclear capacity drop off the bars when margins are going to be at some of the tightest this year? Something to do with operational security maybe?
Finns probably not happy with the delays – it’s at least a decade late. Too early to tell how reliable it will be as an EPR, but the problems at Taishan are not a good omen.
The present problems were triggered by a problem with a steam valve at one of the Heysham reactors: others have been shut down to check that they aren’t also suffering, on top of one reactor that was out for refuelling and at Torness, statutory shutdowns. It’s an inevitable hazard with kit that is near end of life that problems will crop up more frequently, although perhaps the wider shutdown is just the ONR being over-cautious. It’s also a good reason for staggering a nuclear building programme, so you don’t end up like the French with so many reactors being old all at once. Probably not quite the disaster, as we seem to be managing without maxing imports thanks to coal and gas, and also the return to economic viability of biomass CFDs. Even so, there seem to be risks of bigger frequency excursions again.
Jordan,
“Did somebody say something about nuclear being firm and reliable?”
Quite a lot of people, I imagine. Load factor is something like 80% worldwide, less in the UK. 90% is exceeded across the whole US and China. And Slovenia, Slovakia and Finland. And even Germany before they were shuttered for non-technical reasons. And they don’t depend on the weather.
“Why would half the UK nuclear capacity drop off the bars when margins are going to be at some of the tightest this year?”
Well, I think that is a good question. Right now there has been a steam valve failure at one reactor. So several other reactors have been deliberately shut down just to have a look at their steam valves too. That’s a matter of operational choice, and I’m no expert, but did they really have to do that simultaneously and right now?
More to the point at least one of the reactors is being re-fuelled. These things are hardly like a car that just dies by the road when the tanks empty, and they run for 18 months or so between refuelling. Why choose the middle of a cold snap to do it?
I can’t see why EDF would shut down plant when they can probably make the best money out of it unless they had to, but it does seem odd.
Thanks for responses IDAU and Stuart:
I raised the question because there is a tendency to declare nuclear as some kind of ultra-reliable antidote to intermittency. I wanted to give today’s experience as a way to help quell that enthusiasm.
Nice to see those dilapidated old units at West Burton still doing what they were intended to do though! What lessons will we learn from this? We can only hope.
The nukes will be offline for a few days, as there is a minimum period needed to recover reactivity. Specifically Xenon poisoning on shutdown – there is a really good YT video by some Prof. on that topic.
On weather dependency Stuart, I have seen nukes (and others) shut down due to risk of lightning strikes on the network. Anything likely to provoke a trip (often called “full load rejection”) can result in a management decision to take a unit off to protect it. Full load rejection is bad for lifetime of components, and it often breaks something. This is not specifically a nuclear point, but the 3 day minimum shutdown period is.
I was wondering if it could be a factor in decisions to take nukes offline today, if peak demand looks like a particular risk of disruption to the network. This doesn’t mean those other grounds for shutdown are incorrect, but maybe “convenient”.
Refuelling is a fair point – the final decision to start a refuel would have been made at very least days ago.
So two things to keep in mind:
Weather conditions can influence managerial decisions to shut down units, and peak demand can be linked to these times (a practical point people probably don’t take into account).
Nukes have a minimum 3 day shutdown period, which means when they are taken off, they don’t immediately come back.
The answer is diversity of generating plant in all sorts of ways, including location, technology, fuel, and size. And to maintain a healthy “supply margin” of capacity over peak demand. The drive to NZ seems to be ignoring these realities, and it looks like we’ll all have to re-learn this lesson by experience.
Sorry guys … I meant Ratcliffe in my last comment.
Another thing I meant to add was the 1500MW EPR units come with a lot of risk of “single infeed loss”. When network conditions look a bit dodgy, it seems likely that managers or the ESO will reduce their export. Given their size and possibly operating philosophy as nuclear units, they might not provide quite the level of security of supply as the “number on the tin”.
Diversity is a key point again.
Note that according to Professor Dieter Helm, Hinkley Point C would have been half the cost if the Government had borrowed the money itself at 2% instead of borrowing from the Chinese at 9%. So this would have meant electricity from Hinkley at £64/MWhr (2023 prices) and far less than the AR6 fixed offshore wind at just over £100/MWhr (2023 prices). Even EDF have quoted the HoC ES&NZ Select Committee below £64/MWhr for subsequent EPR reactors, such as Sizewell C. But we will see…Then there is also RR SMR who quoted the same HoC Committee £50-£70/MWhr. All these nuclear prices are well below AR6 fixed offshore wind and if reliable power is required from wind needs to be doubled to £200/MWhr using stored hydrogen according to the Royal Society report, a report which makes the bold claim that the round trip efficiency will double to 40% by 2050…
Hinkley Point’s 3.2GW would produce around 25TWh a year at 90% utilisation. At 10% amortisation/capital charge the £33bn gives a cost of £132/MWh plus fuel and O&M, compared with the current CFD value of £128.09/MWh (which assumes the discounted strike price contingent on Sizewell C). Clearly that cost could have been halved with sensible financing. And quartered by choosing a cheaper technology. Even now, something like £4,500/kW should be achievable at say 6% capital charge which is about £35/MWh plus fuel and O&M at 90% utilisation – comfortably under £50/MWh all in.
Hahahahaha!
I am so old I remember all the rockets that GB was going to conquer the world with, never mind TSR2. Long history of mismanagement, waste and corruption. Waste 200 million pounds and it is so easy to filch a few millions. We laugh at the US but gee does the UK need a Trump? You betcha!!!!
‘rocks in their head’
It is not 1 April but the EU funding a £2.5m project to put mirrors in orbit to direct sunlight onto solar panels when there is no sun is something most people would expect to see then. Absolutely mental. You worry about the state of mind of people who think this is a worthy idea. To be charitable you might think that those involved in this can see that the morons with the money can easily be duped into funding them to keep them busy for a few years. Another sad waste of resources.
Are they using cucumbers to trap the rays?
The author permitted to see the grand academy of Lagado.
…
I was received very kindly by the warden, and went for many days to the academy. Every room has in it one or more projectors; and I believe I could not be in fewer than five hundred rooms.
The first man I saw was of a meagre aspect, with sooty hands and face, his hair and beard long, ragged, and singed in several places. His clothes, shirt, and skin, were all of the same colour. He has been eight years upon a project for extracting sunbeams out of cucumbers, which were to be put in phials hermetically sealed, and let out to warm the air in raw inclement summers. He told me, he did not doubt, that, in eight years more, he should be able to supply the governor’s gardens with sunshine, at a reasonable rate: but he complained that his stock was low, and entreated me “to give him something as an encouragement to ingenuity, especially since this had been a very dear season for cucumbers.” I made him a small present, for my lord had furnished me with money on purpose, because he knew their practice of begging from all who go to see them.
I went into another chamber, but was ready to hasten back, being almost overcome with a horrible stink. My conductor pressed me forward, conjuring me in a whisper “to give no offence, which would be highly resented;” and therefore I durst not so much as stop my nose. The projector of this cell was the most ancient student of the academy; his face and beard were of a pale yellow; his hands and clothes daubed over with filth. When I was presented to him, he gave me a close embrace, a compliment I could well have excused. His employment, from his first coming into the academy, was an operation to reduce human excrement to its original food, by separating the several parts, removing the tincture which it receives from the gall, making the odour exhale, and scumming off the saliva. He had a weekly allowance, from the society, of a vessel filled with human ordure, about the bigness of a Bristol barrel.
Johnathan Swift, Gulliver’s Travels
Interesting….I wonder, are they planning to direct a beam of light to a space-bound PV or to an Earth-bound one? If it’s to the latter can you imagine getting caught by the beam. This is a scam. Someone in the EU is buying a huge villa and the EU is paying.
For £2bn the Government could have bought instead a RR SMR to test out the technology which RR claim will provide electricity between £50 and £70/MWhr depending upon the funding and far cheaper than chaotically intermittent AR6 wind at just over £100/MWhr (2023 price) for fixed offshore wind and £242/MWhr (2023 price) for floating offshore wind. Even for onshore wind the AR6 price (2023) is £88/MWhr.
Look, chaps, green hydrogen can’t be green if it is generated by windmills that are are partially supplying a grid. All they are doing is enlarging the proportion generated by hydrocarbons. Unless the entire demand is filled by windmills – give me a call when.
And where will that £2Bn go? The GWPF estimate it will cost the UK £3Tn to reach net zero by 2050 – that’s £100k per household
Trying to produce hydrogen at scale, using renewable power without unaffordable, unsourceable storage, just won’t happen and even if it would, pumping it into gas boilers is sheer stupidity, the next Govt scandal waiting to happen