'We are ready to take a final investment decision on the first blue hydrogen project in the UK this year'
CEO of developer EET hints to Hydrogen Insight that blue H2 set to receive government subsidies is 'considerably cheaper' than green — but still 'more expensive than first thought'
The HyNet carbon capture and storage (CCS) cluster’s Hydrogen Production Project (HPP1) is ready for a final investment decision (FID) in September, developer EET’s CEO Joe Seifert told the Reuters Hydrogen conference in Amsterdam yesterday.
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Such contracts are also being awarded to green hydrogen projects via the separate HAR auctions, the first of which announced a strike price of £241 ($305) per MWh for 15 years — about £9.49/kg — for 125MW of electrolyser capacity. A second round, for 875MW, is expected to award final contracts in 2025.
However, the government will ultimately spend £2bn from its coffers for the first round — and Seifert argued that at this rate, reaching a 6GW target by 2030 will cost the taxpayer £96bn, although this assumes no future cost reductions.
For comparison, the National Grid estimates that £58bn would need to be invested in upgrading the UK’s electricity networks by 2035 to cope with extra renewables and widespread electrification.
“We’re going to have to be a lot more pragmatic about what’s actually achievable,” Seifert told the conference.
Progressive Energy — which owns 10% of Vertex Hydrogen, the joint venture vehicle with EET that is developing HPP1 — initially estimated in 2021 that the facility would deliver a levelised cost of hydrogen (LCOH) of £43.46 per MWh, or £1.44 per kg.
“Everything is more expensive than we first thought,” Seifert said on the sidelines, adding that initial cost estimates for green and blue hydrogen — as well as post-combustion industrial carbon capture — have all been optimistic based on the results of the subsidy rounds.
Seifert also notes that blue hydrogen benefits from a business model that buys natural gas and sells hydrogen at the price of gas — which means that as long as the government covers the operating costs, any fluctuations in the cost of feedstock are automatically hedged.
Meanwhile, green hydrogen producers have to buy electricity on long-term contracts and sell at the highly volatile price of gas, adding to their costs if the strike price is insufficient.
Seifert also noted that the average size of a green hydrogen project awarded in the first HAR auction is only 11MW, compared to 350MW for HPP1, or 500MW for the other blue hydrogen project shortlisted for Phase 2 cluster sequencing, BP’s H2 Teesside project.
Seifert admitted that because it was the first of its kind, HPP1’s timeline was extremely slow, noting that planning consent — which the project received in January this year — took two years rather than six months that an industrial facility of its scale would normally see.
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