Hydrogen Allocation Round 2 applications due in this week- some thoughts on next steps

This Friday sees the deadline for applications for the second Hydrogen Allocation Round and it promises to be a competitive round.  Applicants will be putting the finishing touches to their applications and making sure that they meet the eligibility criteria.   

Assuming a project meets the eligibility criteria, it will proceed on to be evaluated by DESNZ.  Huge emphasis is put on deliverability (40%) and cost (30%) in the marking.  By the very nature of these projects, they will still be in development stage, so developers will be navigating various options with the projects whilst showing that substantial progress has been made on for example, design, supply chain, offtakers and electricity supply.

DESNZ has made it clear that; 

The quality of evidence is critical in reviewing the application. Lack of evidence, poor quality evidence, or large quantities of evidence that isn’t directly relevant to what is sought in the valuation criteria may negatively impact the assessment of the projects.

As well as the contracts with counterparties one of the key aspects of deliverability is a funding plan. The funding in many cases, will not have been secured, but DESNZ will be looking to the track record and credibility of the project and its sponsors in delivering funding through CVs of individuals and previous track records.

It promises to be a busy week for many so “good luck”, but after the team has taken a short break from the application it is probably worth considering the following;

• In the blur of application preparation, parties can be forgiven for not looking at or refreshing their memories on the actual Low Carbon Hydrogen Agreement that they are applying for.  Even if you understand it, your potential funders may not, so a refamilarisation with it would be no bad thing.  Quite apart from anything else you will need to be passing down some of its terms and obligations to your preferred suppliers and offtakers.
• There might be a temptation to sit back and wait to hear whether you have been shortlisted but cost permitting, it is sensible to continue to progress the project and the contracts and discussions with counterparties in the interim.  You will have submitted MOUs or Expressions of Interest and perhaps heads of terms for offtakers, suppliers, landowners etc. and moving these on will be important should a project reach the shortlisting phase because there is a due diligence process that follows.  If limited progress has been made between April and the autumn it may conflict with any project delivery plans you submitted as part of the application but may also paint a picture of inertia compared to other shortlisted projects.  DESNZ makes it clear in the application process that it may;

request additional information from Projects, and other parties involved in the project such as delivery partners and offtakers, on all aspects of their submissions, including with respect  to technical, legal, financial and commercial matters

         There is also the practical reality that to deliver to HAR timescales is generally tight anyway, so each month matters as the HAR1 projects will attest. 

• Progressing the discussions above will also assist in further crystalising the costings for the project should you get to a point of negotiation/best and final offer with DESNZ.
• Lastly and without meaning to sound negative, if the project is unsuccessful in being shortlisted it will give it a head start should you wish to bid into future allocation rounds.  We can expect quite a few of the HAR1 disappointed projects to be bidding in this time around having learned lessons and developed the project further.

Ross is Deputy Chair of the Hydrogen Energy Association and he and the team at Burges Salmon have been advising on green hydrogen projects through HAR1 and now in HAR2.

The UK government has also launched the second hydrogen allocation round (HAR2) with an aim to support up to 875 MW capacity, subject to affordability, value for money, and quality of projects.

https://www.offshore-energy.biz/uk-reveals-winners-of-first-hydrogen-allocation-round/