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H too? BEIS report considers adding green hydrogen projects to CfD rounds

Updated: Sep 10, 2020

A report commissioned by the Department for Business, Energy & Industrial Strategy (BEIS) has concluded that large-scale hydrogen projects fuelled by renewable energy could be included in future rounds of government Contracts for Difference (CfD) auctions. The report, published on August 17th, was written by consultants Frontier Economics and may be instrumental in progressing the government’s desire to scale up green hydrogen technologies.

The Committee on Climate Change’s regular assertion that hydrogen will play a “non-optional” part in the UK reaching its target of net zero carbon emissions by 2050 has focused government attention on this renewable energy. Entry into the CfD auctions would represent a significant milestone by attracting investment on a scale not yet seen.

The biennial CfD auctions were introduced in 2015 and have been instrumental in bringing offshore and onshore wind production to the forefront of UK energy generation. The producer strikes a price for their energy which BEIS tops up if it falls short of the market price whereas BEIS is reimbursed by the producer if the market price is less than the strike price.

Frontier Economics’ report points out that including green hydrogen in the auctions – the next of which will be in 2021 – is the best system to stabilise prices for both producers and consumers. In 2019, the third round of CfD auctions saw the strike price for wind power reach a new low and a recent report envisioned these prices dropping still further to undercut the wholesale price thereby reducing consumer bills.

Hydrogen is highly attractive to both the green economy and the government as it is a clean fuel which is produced from a variety of domestic resources such as natural gas, nuclear power, biomass, solar and wind power. It is an ideal fuel option for transportation and electricity generation applications and can be used in cars, homes, and for portable power.

It is evident that hydrogen is having a moment. Green hydrogen – made from renewable sources – is the purist’s choice of fuel and the falling costs of solar and wind power make it ever cheaper. “Grey” hydrogen is mainly made from natural gas which generates significant carbon emissions but “blue” hydrogen is a cleaner version since the carbon is captured and re-used.

An ambitious proposal to install the biggest facility in the world for making hydrogen from natural gas was announced recently by Equinor for the Humberside area.


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