Funding the Future: Gas Shipper Obligation for Driving UK Hydrogen Production
Key Ideas
  • The Gas Shipper Obligation (GSO) is proposed as a funding mechanism under the Energy Act 2023 to support the Hydrogen Production Business Model (HPBM) in the UK.
  • The GSO will levy natural gas shippers to ensure revenue certainty for supported hydrogen producers, similar to schemes for renewable energy generators.
  • DESNZ aims for the GSO to cover the costs of Low Carbon Hydrogen Agreements (LCHAs) and administrative expenses, promoting affordability and industry alignment.
  • The consultation seeks stakeholder input on the design of the GSO to balance consumer affordability, industry stability, and future adaptability in the evolving hydrogen sector.
The UK government is taking steps to drive the growth of the hydrogen sector by introducing the Gas Shipper Obligation (GSO) as a funding mechanism under the Energy Act 2023. The GSO is proposed to support the Hydrogen Production Business Model (HPBM) by levying natural gas shippers. This funding approach aims to provide revenue certainty for hydrogen producers, similar to existing schemes for renewable energy generators like the Contracts for Difference (CfD) and Dispatchable Power Agreement (DPA) schemes. The GSO will require natural gas shippers to contribute towards the costs of Low Carbon Hydrogen Agreements (LCHAs), ultimately impacting gas consumers by increasing gas bills. The Department for Energy, Security and Net Zero (DESNZ) is seeking stakeholder input through a consultation process on the design of the GSO. The key objectives include ensuring revenue sufficiency for hydrogen producers under LCHAs, maintaining affordability for consumers, and aligning with industry standards. It also aims to prevent unintended consequences such as fuel poverty, cost escalation in hydrogen production, or market destabilization. DESNZ plans to commence the GSO in 2027, with the first Hydrogen Allocation Round (HAR1) to be funded through this mechanism. Future rounds are also expected to be financed via the GSO to cover administrative costs and support the growth of the hydrogen sector. DESNZ is considering various factors in designing the GSO, emphasizing scalability, simplicity, and flexibility to adapt to future changes in the hydrogen market. The consultation process will shape the final structure of the GSO to balance the needs of the industry, consumers, and sustainability goals in the UK's hydrogen economy.
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