Clean Industry Bonus and Hydrogen

With the announcement of the Government’s Industrial Strategy and alongside it the Clean Energy Industries Sector Plan, come a number of policies to promote the development of clean hydrogen in the UK. One of these was the announcement that the Government is considering expanding the Clean Industry Bonus (CIB) (which currently applies to offshore wind) to hydrogen in the future. So, what does this mean for hydrogen and for those developers involved in the hydrogen sector- what is the Clean Industry Bonus Scheme?

The CIB was designed to help promote investment by clean energy developers into the UK supply chain and increase sustainability within the industry. Currently, the CIB only applies to UK offshore wind, and it is closely linked to the Contract for Difference (CfD) application and price support mechanism.  So effectively, the first round of the CIB is being tested in this CfD Allocation Round 7 (AR7). There is a CIB budget set aside by Government which can be accessed by the developers for their initiatives (see link below).

One would imagine that any CIB relating to hydrogen will be applied in a very similar way to the offshore wind model i.e it will become linked with the Low Carbon Hydrogen Agreement (itself a form of CfD). If that is the case, the following key things need to be considered. 

• Participation in the CIB is not optional and will likely become one of the qualification criteria for being able to bid into, or apply for, a low carbon hydrogen agreement.  Hydrogen developers will need to commit to “minimum standards” which are likely to equate to a minimum level of investment in the UK hydrogen supply chain and investments into sustainable means of production, such as procuring equipment from suppliers that have rigorous approaches to emissions reduction. 
• Taking the offshore wind example, there is also likely to be an opportunity, once you have met the minimum standards, to go further. Current CIB wind generators can make extra proposals that are assigned a score, then each CIB proposal is ranked to determine the allocation of the available CIB funding. 
• The CIB also has teeth. So, if there is a failure to meet the commitments which generators have submitted relating to either the minimum standards or CIB extra proposals, they may not be compensated from the CIB allocated budget and a project can face performance-related penalties under the CfD (for hydrogen of course, the Low Carbon Hydrogen Agreement). 

Implications

We have yet to see how the CIB will play out in the context of offshore wind in AR7.  The UK Government has been quick to publicise their belief that developers have embraced the concept and made material commitments. (See below).

For a developing sector like green hydrogen, one of the key selling points to Government has been the industry’s potential ability to capitalise on UK jobs, technology and skills, so we might imagine that falling under the CIB would be welcomed and could potentially help hydrogen developers fund UK supply chain development.  We must also remember that the Low Carbon Hydrogen Agreement application process has always had a way of recognising UK content (though it is arguable how effective it has been).

However, given the early stages of building the strength and breadth of the UK hydrogen supply chain, one might understand why some developers and the industry as a whole, would be nervous about contractual commitments which, if not fulfilled, could prejudice the price support under the Low Carbon Hydrogen Agreement. The nervousness won’t just be confined to the developers either;  funders to hydrogen industry projects will look closely at how a project’s revenue support on which they are basing their funding, could be adjusted.

How this plays out in the context of offshore wind and AR7 should be carefully monitored by the hydrogen sector and now is the time to be engaging with Government in a positive way about the intended support for the UK supply chain, whilst also building adequate flexibility and protections into a CIB if a developer’s commitments cannot be met through no fault of their own.

Funding boost for Clean Industry Bonus as bids smash expectations - GOV.UK