Getting the First UK (HAR1) Hydrogen Projects Built (Part 2)

My colleague Ross Fairley will be speaking at the Hydrogen Energy Association Annual Conference later this month on the topic of  “Getting the First HAR1 (Hydrogen Allocation Round) Projects Built”, focussing on what we are seeing as the key legal tasks for the next level of building blocks on the path to funding, build out and production.

An absolutely fundamental aspect of these projects from the legal and practical side is going to be the inter-relationship between the Low Carbon Hydrogen Agreement (LCHA) terms and the hydrogen offtakes, the green electricity supply to the electrolyser and the supply chain contracts.  All of these areas overlap and need to mesh together and, if financing is required, will be the key area of scrutiny.

Our recent post set out some of the headline considerations in the LCHA.   Moving on to the project’s electricity supply arrangements, some key points to consider are:

• The requirements of the Low Carbon Hydrogen Standard (LCHS) – in particular how will you provide the relevant evidence needed in respect of your low carbon energy supply in respect of, what the LCHS calls:
  • Energy attributes: This can be demonstrated by REGOs being registered and retired on the REGO register
  • Low carbon electricity generation sourcing attributes: Proof of a link to a low carbon generation source via one of a number of routes – private wire supply, a corporate PPA structure, a wholesale contract with a specific generator or via a licensed supply
  • Temporal correlation between generation and consumption: Metering data per 30-minute settlement period that correlates with the production of hydrogen 

Whilst some of these elements are already well understood in the electricity market, the temporal correlation requirement is not yet a common one and hydrogen producers will need to ensure they are liaising with their electricity suppliers to ensure they have the requisite evidence needed under the LCHS.

• The requirements of the project’s hydrogen offtaker(s) - if you are working with generators with intermittent technologies (solar, wind), how are you intending to smooth that supply in a way that is LCHS compliant and how does this feed into any requirements from your hydrogen offtaker(s) in terms of the delivery profile they need for the hydrogen?
• If a licensed supplier is helping the project manage these risks (via, e.g. a sleeving or optimisation arrangement) what does the risk-share look like under this arrangement?
• Are there are licence exemptions that may be relevant to your electricity supply (for example, do you need to consider on-site supply licence exemptions in terms of how you structure any private wire supply)?

In our experience it is important to take a holistic view and ensure that your electricity supply arrangements support the project’s wider requirements under the LCHA and your hydrogen offtake contract(s).  

Look out for our next blog on supply chain contracts.