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Hydrogen Production Revenue Support (Directions, Eligibility and Counterparty) Regulations 2023

My Lords, these regulations were laid before the House on 8 November this year. On 26 October, the Energy Act 2023 received Royal Assent. The Act provides a legislative framework for hydrogen, including provisions relating to the hydrogen production business model—a funding model to support the production and use of low-carbon hydrogen in the United Kingdom. Delivering this policy will be essential to kick-start the hydrogen economy and move towards the Government’s ambition to have up to 10 gigawatts of low-carbon hydrogen production capacity by 2030, as set out in the British Energy Security Strategy.

Under the business model, projects will be paid a subsidy for the hydrogen produced through a revenue support contract, similar to the highly successful contracts for difference for low-carbon electricity production. The business model, contracts for hydrogen, will be managed by a hydrogen production counterparty. Initial projects are to be selected through allocation rounds run by the Department for Energy Security and Net Zero. To receive business model support, a project must be an

“eligible low carbon hydrogen producer”.

Where such a project is allocated support, the Secretary of State will issue a direction to the hydrogen production counterparty to offer to contract with that project.

I hope noble Lords noticed that, last week, we announced 11 major new electrolytic hydrogen projects across the UK that will be offered support under the hydrogen production business model. This represents the largest number of commercial-scale green-hydrogen production projects announced at once anywhere in Europe. These new projects, stretching all over the country from the south-west of England and south Wales to the Highlands of Scotland, will invest over £400 million up front over the next three years, in a major boost to the UK’s green economy. In addition, CCUS-enabled hydrogen projects have also been shortlisted through the track 1 phase 2 cluster sequencing process.

I turn now to the detail of the regulations and their important role in all this. Fundamentally, the regulations satisfy the duty in Section 66(4) of the Energy Act 2023 by determining the meaning of “eligible” in relation to a low-carbon hydrogen producer. They tell the world who can be eligible for support.

The regulations set out that only new hydrogen production facilities, or existing hydrogen production facilities adding new production capacity, that can demonstrate that their proposal for the production of hydrogen is capable of complying with the UK low-carbon hydrogen standard, will be considered eligible. This will ensure that eligibility keeps pace with how the Government define low-carbon hydrogen. I recall that a number of amendments tabled during the passage of the Energy Act 2023 sought to ensure that regulations on eligibility made reference to the low-carbon hydrogen standard, so I hope that the Committee will welcome these provisions.

The regulations also set out the process by which the Secretary of State may direct a counterparty to offer to contract with an eligible low-carbon hydrogen producer. This follows a similar approach to contracts for difference, with which industry is very familiar. Similarly, the regulations include requirements for a counterparty to publish the full contracts entered into and establish a public register of key information. As noble Lords would expect, such publication is of course subject to redaction of confidential information and personal data. The regulations also set out various requirements in respect of Secretary of State directions to a counterparty. They include the circumstances in which directions cease to have effect and enable the Secretary of State to revoke a direction before it has been accepted.

Furthermore, the regulations require a counterparty to promptly notify the Secretary of State if it is, or considers it likely to be, unable to carry out its functions. Your Lordships may think such a provision sounds familiar, and indeed it is; it is very similar to the approach taken by the Nuclear Regulated Asset Base Model (Revenue Collection) Regulations 2023, which I am sure the Committee is following very closely.

The department has considered the content of these regulations extremely carefully. We carried out a full public consultation earlier this year, seeking views on the principles enshrined in the regulations and satisfying the statutory requirement to consult, as set out in the Energy Act 2023. We received 28 responses from various organisations and members of the public. We carefully

considered all of them, although I am pleased that the majority supported our proposals. Accordingly, in our government response, which we published on 30 October, we set out plans to proceed largely as proposed, albeit with some amendments made in response to the feedback that we received.

This secondary legislation represents an essential step for implementing the hydrogen production business model to ensure that we can support the deployment of low-carbon hydrogen projects to achieve those 2030 ambitions, to improve our energy security and to help achieve net zero. I therefore commend these draft regulations to the Committee.