UK Government Proposes Gas Shipper Obligation to Boost Hydrogen Production
Key Ideas
- The UK government is introducing the Gas Shipper Obligation (GSO) to support the Hydrogen Production Business Model (HPBM) and incentivize investment in low-carbon hydrogen production.
- The GSO will require gas shippers to contribute funds towards hydrogen producers through Low Carbon Hydrogen Agreements (LCHAs), with support allocated through Hydrogen Allocation Rounds (HARs).
- Two primary approaches under consideration for the GSO operation are Per Meter Point Charge and Volumetric Charge, with the government favoring the latter to align charges with actual gas consumption.
- The government is seeking input on the design of the GSO, including mechanisms for determining gas quantities, aligning obligation and collection periods, and mitigating risks of under-collection and overcollection.
The UK government is taking steps to advance its commitment to a low-carbon economy by proposing the Gas Shipper Obligation (GSO) to support the Hydrogen Production Business Model (HPBM). The GSO is a levy that gas shippers will pay to fund payments to hydrogen producers under Low Carbon Hydrogen Agreements (LCHAs). This initiative aims to bridge the cost gap between low-carbon hydrogen and traditional fossil fuels, encouraging investment in hydrogen production and usage. The government plans to administer the GSO through the Low Carbon Contracts Company (LCCC) with an initial focus on Great Britain and potential expansion to Northern Ireland.
The GSO will cover payments to hydrogen producers up to 2027, with funding allocated through Hydrogen Allocation Rounds (HARs). The government has closed the first round (HAR1) with 11 successful projects and is currently running the second round (HAR2). To determine how the GSO will operate, two primary approaches are being considered: Per Meter Point Charge and Volumetric Charge. The government prefers the Volumetric Charge method, as it aligns charges with actual gas consumption.
The consultation also addresses collection amounts, payment frequency, risk of default, and exemptions. Shippers will be required to provide credit support, and if a shipper defaults, a mutualization exercise will be conducted to recover outstanding payments. The government seeks input on various aspects of the GSO's design, including mechanisms for determining gas quantities, aligning obligation and collection periods, and managing under-collection and overcollection risks. This initiative reflects the UK's efforts to transition towards a more sustainable and environmentally friendly energy sector.
Topics
Utilities
Sustainability
Energy Transition
Energy Policy
Government Initiative
Low-carbon Technology
Business Support
Funding Mechanism
Environmental Economics
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