DESNZ Consultation: Securing Financial Viability for UK Hydrogen Sector
Key Ideas
  • The DESNZ consultation on the Gas Shipper Obligation (GSO) is a critical step for the Hydrogen Production Business Model (HPBM) in the UK.
  • The GSO aims to provide revenue certainty for hydrogen producers by ensuring payments through a levy on natural gas shippers.
  • The funding mechanism will be funded through gas consumers, with plans to come into effect in 2027 for the first Hydrogen Allocation Round.
  • DESNZ is seeking input on various aspects of the GSO design to ensure simplicity, affordability, and scalability while avoiding unintended consequences.
The Department for Energy, Security and Net Zero (DESNZ) in the United Kingdom has initiated a consultation on the Gas Shipper Obligation (GSO) with the aim of securing the financial viability of the Hydrogen Production Business Model (HPBM). The HPBM, established under the Energy Act 2023, is a revenue support regime intended to support hydrogen producers by ensuring revenue certainty through top-up payments. The GSO will operate as a levy on natural gas shippers, with the costs ultimately borne by gas consumers rather than electricity consumers. DESNZ is planning to fund the Low Carbon Hydrogen Agreements (LCHAs) through the GSO starting from the first Hydrogen Allocation Round (HAR1) in 2027, transitioning from general taxation. Key features of the GSO's design include simplicity, affordability, scalability, and alignment with industry standards to support the growth of the UK hydrogen sector. Stakeholder input is being sought on aspects like cost calculations, market share determination, and risk mitigation to ensure the effectiveness and fairness of the funding mechanism. The consultation, closing on April 9, 2025, plays a crucial role in establishing a sustainable funding mechanism that will provide revenue certainty for hydrogen producers, encouraging investment and innovation in the emerging hydrogen industry in the UK.
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