Referral of Net Zero Hydrogen Fund scheme by the Department for Energy Security and Net Zero

The Subsidy Advice Unit (SAU) has published a report providing advice to the Department for Energy Security and Net Zero (DESNZ) concerning the proposed Net Zero Hydrogen Fund subsidy scheme.

From:
Competition and Markets Authority
Published
5 October 2023
Last updated
15 November 2023 — See all updates
Case type:
SAU referral
Case state:
Closed
Market sector:
Energy
Opened:
5 October 2023
Closed:
15 November 2023

Administrative timetable

Date Action
15 November 2023 Final report published
25 October 2023 Deadline for receipt of any third party submissions (submissions after 5pm on this date cannot be taken into account)
5 October 2023 Beginning of reporting period

Final report

15 November 2023: The SAU has published its report providing advice to DESNZ concerning the proposed Net Zero Hydrogen Fund subsidy scheme. The report sets out our evaluation of DESNZ’s Assessment of Compliance of its proposed scheme with the requirements set out in the Subsidy Control Act 2022.

Request from DESNZ

5 October 2023: The SAU has accepted a request for a report from DESNZ concerning the Net Zero Hydrogen Fund scheme. This request relates to a Subsidy Scheme of Particular Interest (SSoPI).

The SAU will prepare a report, which will provide an evaluation of the DESNZ assessment of whether the scheme complies with the subsidy control requirements (Assessment of Compliance). The SAU will complete its report within 30 working days.

Information about the subsidy provided by DESNZ

The Net Zero Hydrogen Fund (NZHF), worth up to £240 million, forms part of a suite of measures designed to support at-scale deployment of low carbon hydrogen production during the 2020s. The NZHF provides development expenditure (DEVEX) and capital expenditure (CAPEX) grants to support the development and construction costs of low carbon hydrogen production facilities.

A consultation seeking views to inform the design of the NZHF was launched in April 2021 to October 2021. Following analysis of stakeholder feedback and responses to the consultation, a decision was taken to split the NZHF’s grant allocation into four distinct strands.

Feedback to the NZHF consultation indicated that a significant number of electrolytic projects wish to apply for both revenue support via the Hydrogen Production Business Model (HPBM) and capital support through the NZHF. In response, government designed a joint NZHF and HPBM Electrolytic Allocation Process (also known as Hydrogen Allocation Round 1 or HAR1) whereby CAPEX grant funding through strand 3 of the NZHF, will be delivered in tandem with time limited revenue support via the HPBM.

In HAR1, applicants could apply for HPBM revenue support only, or for joint HPBM revenue support and CAPEX support through the NZHF. This subsidy control assessment is focused on Strand 3 of the NZHF, which provides CAPEX funding alongside HPBM revenue support in HAR1. The maximum grant funding intensity level (CAPEX %) for this allocation round is set at 20%. Projects were able to apply for a CAPEX % up to 20% of the CAPEX costs associated with the construction costs of hydrogen production facilities. The grant funding intensity level was consulted on via a market engagement exercise launched by DESNZ from April to May 2022 and government considered the 20% maximum CAPEX % alongside HPBM support will enable electrolytic projects to take Final Investment Decision (FID).

Beneficiaries must be a UK registered business of any size. A business is defined as an enterprise undertaking economic activities. Academic institutions, research and technology organisations (RTOs), public sector organisations or charities cannot lead or work alone.

In order to be eligible for the first allocation round, projects were required to meet the following criteria:

  • Production plant located entirely in the United Kingdom and the Project Representative’s business being registered in the UK
  • Commercial Operation Date by end of 2025
  • Technology Readiness Level 7 or more
  • New build hydrogen production facilities
  • Electrolytic hydrogen production facilities
  • Has identified at least one qualifying offtaker
  • Has identified an electrolyser supplier(s)
  • Minimum hydrogen production capacity of 5MW
  • Meets the requirements of the Low Carbon Hydrogen Standard (LCHS)
  • Demonstrated access to finance

Successful projects in HAR1 will receive:

  • Ongoing contractual revenue support via the HPBM – this is expected to provide price support through a variable premium model, with volume support provided indirectly via a sliding scale approach
  • Where relevant, an offer of capital grant support through the NZHF to help overcome the high upfront costs and risks associated with initial electrolytic hydrogen production projects

Information for third parties

If you wish to comment on matters relevant to the SAU’s evaluation of the Assessment of Compliance concerning the Net Zero Hydrogen Fund scheme, please send your comments before 5pm on the date stipulated in the timetable above. For guidance on representations relevant to the Assessment of Compliance, see the section on reporting period and transparency in the Operation of the subsidy control functions of the Subsidy Advice Unit.

Please send your submissions to us at sau-hydrogenfund2023@cma.gov.uk copying the public authority: hydrogenproduction@energysecurity.gov.uk

Please also provide a contact address and explain in what capacity you are making the submission (for example, as an individual or a representative of a business or organisation).

Notes to third parties wishing to make a submission

  1. The SAU will only take your submission into account if it can be shared with DESNZ. The SAU will send a copy of your submission to DESNZ together with its report. This is to allow the public authority to take account of the submission in its decision as to whether to grant or modify the subsidy or its assessment. We therefore ask that you provide express consent for your full and unredacted submission to be shared. We also encourage you to share your submission directly with DESNZ using the email address provided above.
  2. The SAU may use the information you provide in its published report. Therefore, you should indicate in your submission whether any specified parts of it are commercially confidential. If the SAU wishes to refer in its published report to material identified as confidential, it will contact you in advance.
  3. For further details on confidentiality of third party submissions, see identifying confidential information in the Operation of the subsidy control functions of the Subsidy Advice Unit.

Contact

Updates to this page

Published 5 October 2023
Last updated 15 November 2023 + show all updates

  1. Final report published

  2. First published.

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