The UK government has officially shelved a proposal to introduce a £120-a-year ($152) levy on households to fund hydrogen subsidies, officials have confirmed, instead shifting the charge “further up the supply chain” to gas pipeline operators and other sectors that could end up using H2.
This means that while the household energy bills will be spared a direct charge, there could still be indirect levies applied to those connected to the gas network, while those deemed potential future consumers of H2 could also find themselves subsidising a hydrogen rollout.
The proposal has been revised in the enabling legislation, the Energy Bill, at the behest of the Department of Energy Security and Net Zero (DESNZ) and energy minister Grant Shapps, who has spent the past few months walking back the government’s commitment to the household levy after it received significant public backlash.
“Our changes to the Energy Bill put fairness at the heart of our plans to drive forward low-carbon hydrogen, which will boost energy security and help lower bills in the long term,” a spokesperson for DESNZ told Hydrogen Insight.
“The new levy would be aimed at the gas shipping industry and will help to ensure those who benefit from hydrogen can support the UK’s growing hydrogen economy,” the spokesperson added.
This would mean that gas network operators, which are allowed to invest and collect revenue under a regulated asset base (RAB) model in the UK, will be able to pass the charge on to consumers using the existing gas network, via the energy utilities which buy their services.
However, Hydrogen Insight understands that the levy will not be confined to gas network operators alone, and officials are working on a way in which to shift the levy “higher up the energy supply chain”, with costs “spread to sectors expected to benefit most from early hydrogen deployment”.
The levy is most likely intended to finance the government’s subsidy programme for hydrogen, the so-called “Hydrogen Business Model”, a de facto contracts-for-difference scheme in which the government pays operators the difference between the “strike price” representing the cost of green hydrogen production and the “reference price” for the market price of grey H2 made using unabated fossil gas.
The levy could also potentially finance the development of blue H2 and carbon capture and storage (CCS) projects in the UK, which are currently competing for funding from a £1bn pot.
A consultation is now planned to refine the revised levy proposal ahead of the final passage of the Energy Bill, currently in the advanced stages of completion in the UK’s lower house, the house of Commons, having already passed through the Lords.
The Bill is next due for consideration by Parliament next week, after which it will be submitted for the final reading ahead of consideration of amendments and, ultimately, royal assent.