Britain is on a mission to become a Clean Energy Superpower, delivering on its legally binding pledge to hit net zero by 2050. At the heart of this transformation is low-carbon hydrogen, a potential game-changer for hard-to-electrify industries. It can replace fossil fuels like natural gas for high-temperature heat and swap out ‘grey’ hydrogen in chemical processes, cutting emissions where it’s hardest.
There are many ways to produce hydrogen, but for now, let’s focus on electrolysis – the process of chemical decomposition of water into its constituent hydrogen and oxygen parts using an electric current.
For produced hydrogen to achieve low carbon status, the most critical factor is input electricity. Guaranteeing a reliable, cost-effective, and low-carbon electricity supply that can respond to the production needs of hydrogen offtakers is a significant challenge. That’s where we can help.
Government Support for Hydrogen
To provide the clarity of direction and commitment required to invest in this strategic technology, the UK government has created a support scheme in the form of the Hydrogen Production Business Model. At the core of this is a Low Carbon Hydrogen Standard, which details the requirements producers must meet to prove that their hydrogen is sufficiently low carbon to align with the country’s net zero ambitions.
The government looks to allocate support to eligible projects through Hydrogen Allocation Rounds. These are auctions, similar to the Contracts for Difference (CfD) scheme successfully used to support renewables like offshore wind in the UK over the last decade, where prospective projects must bid in and compete for limited funding, with the goal being that only the most competitive and innovative are successful.
Hydrogen projects must have found reliable offtakers and must comply with stringent emissions and reporting standards. For those that are successful in the auction and remain compliant, the government will top up their sales to a fixed strike price (in £/MWh) for a period of 15 years, giving viable economics to produce low-carbon hydrogen in the UK.
The trading entity of Centrica group
Managing more than 17 GW of renewable and flexible power assets across Europe and the UK, our portfolio is unique and diversified, and capable of delivering a supply of green, cheap electricity for hydrogen projects. Nonetheless, there are still times where the sun doesn’t shine and the wind doesn’t blow, and that creates a problem for low-carbon hydrogen producers who still need to supply their offtakers with hydrogen.
That’s where low-carbon baseload comes into the picture, and it’s where we offer a strategic advantage to producers: with our portfolio of nuclear and biomass power. We hold a 20% interest in the UK’s portfolio of existing nuclear power stations, including Heysham 1 & 2, Hartlepool, and Torness which were recently extended for an additional 1 to 2 years. This year we also announced a strategic 15% equity stake in Sizewell C and later an agreement with X-energy to develop Advanced Modular Reactors at the Hartlepool site, scheduled to come online in the mid-2030s following regulatory approval.
Through this mixed portfolio of renewable and low-carbon baseload power, we are able to support hydrogen producers with securing Low Carbon Hydrogen Standard-compliant (LCHS) power in flexible, bespoke structures that accommodate their specific needs. Structures can range from fixed price baseload to fully flexible floating price. We also have the in-house capability to optimise electrolysers for producers, leveraging the asset’s optionality to trade on its power demand right up until delivery.
Going beyond traditional power supply agreements, our unique value proposition lies in our ability to deliver power that meets the stringent requirements of the LCHS, making us an integral part of the hydrogen project ecosystem. Our expertise and portfolio allow us to tailor power supply agreements that align with the operational and compliance needs of hydrogen producers, rather than offering standard PPAs.
Hydrogen Strategy and Gas Origination
Our offering in this regard ties directly into our broader hydrogen strategy, and the evolving role of our gas origination team. As hydrogen moves more towards becoming a traded commodity, with physical flows, offtake agreements, and price risk, it mirrors many of the commercial and operational dynamics of gas.
The gas origination team is already deeply experienced in structuring long-term supply agreements, managing commodity risk, and navigating complex regulatory environments, all of which are essential for the nascent hydrogen sector. Furthermore, gas origination’s work in the hydrogen space supports Centrica’s strategic investments in this technology, such as plans to redevelop Rough into a hydrogen-ready gas storage to boost UK energy security and to transition the Easington terminal into a low-carbon hydrogen hub.
Centrica Energy’s Unique Position
Leveraging our expertise in gas markets, our access to a large and diverse portfolio of low-carbon power, and our ability to optimise electrolysers in real time, Centrica Energy is uniquely placed to support hydrogen producers in meeting the Low Carbon Hydrogen Standard and delivering commercially viable projects.
If you have a hydrogen project in the UK and are looking to procure power that can keep you compliant with the Low Carbon Hydrogen Standard, do not hesitate to reach out to the team.
