UK green hydrogen, offshore wind CFDs ‘should be harmonized’: ITM Power – S&P Global

Highlights

Storage solution to power price risk: Cooley

Green H2 premium 'can be levied on power price'

Aiming for Eur0.5 million per MW installed

London The UK needs a contracts for difference mechanism for green hydrogen that is harmonized with the existing CFD for offshore wind, ITM Power CEO Graham Cooley told S&P Global Platts Feb. 2.

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Linking the two would offer vital synergies as part of a well-defined net zero policy, Cooley said.

"The fourth CFD round later this year is seeking around 12 GW [likely to be mainly offshore wind]. There is no protection in that auction against negative pricing. If you join the dots you see that energy storage is your instrument for dealing with that risk," Cooley said.

"The way the CFDs work for offshore wind and hydrogen need to be harmonized so one provides the solution for the other. That mechanism is key to a green H2 strategy in the UK."

For hydrogen, the contracts would act to bridge the cost gap between conventional (grey) and green hydrogen "so we can replace its use in industry", the electrolysis manufacturer said.

"The difference between grey and green can be levied on the electricity price," Cooley said.

In December, the government announced a 10-point climate plan, which included a 5 GW target for low carbon hydrogen by 2030 - without specifying production pathways.

UK funding to date, however, has tended towards support of large blue hydrogen projects based on natural gas-based reforming with carbon capture and storage, such as HyNet North West and H2H Saltend.

The Gigastack project on Humberside (Orsted, Phillips 66 and ITM Power) is a rare example of a UK-supported, large-scale green hydrogen project.

A more detailed UK hydrogen strategy is due in the first half of this year, government officials said in January.

"There needs to be a well-articulated difference in the incentives for blue and green hydrogen," Cooley said.

"Green hydrogen is net zero, blue is not. I think you will find that any deployment of blue hydrogen will be towards the end of the 2020s. By that time green hydrogen will be lower-cost and blue hydrogen will be a stranded asset," he said.

While the bulk of green hydrogen production costs related to the cost of renewable energy, Cooley had a positive message on capital costs.

"For 10 MW and above, we are now lower than Eur0.8 million per MW ($960,000/MW)," he said, referring to the all-in cost of an electrolyzer, including systems for power, gas, water and controls.

By 2023-2024, when ITM Power expects to be supplying up to 100 MW systems, the cost will have fallen to around Eur0.5 million a MW, he said.

The company's new manufacturing facility at Bessemer Park, Sheffield has just opened. It will have an annual capacity of 300 MW per annum from opening, expanding to 1 GW per annum by 2024.

"A decision on a second factory will be event-driven," Cooley said. "When we get to 60% capacity in the existing factory, we pull the trigger on a second factory."

Analysts expect ITM Power to be cash positive around 2024.

The company's tender opportunity pipeline currently stands at GBP434 million ($592 million), up 34% since October 2020.

The figure refers to the total number of commercial tenders for which ITM Power has submitted firm bids for turnkey electrolysis projects, including balance of plant, over the last 12 months.

Of the GBP434 million value, GBP284 million is attributable to ITM Power, representing 423 MW of potential awards. The residual value relates to engineering, procurement and construction services provided by ITM's partner, Linde, which has a 17.3% stake in the UK company.

On Jan. 13 Linde said it would build, own and operate a 24 MW ITM Power-supplied PEM electrolysis plant at its Leuna chemical complex in Germany. Production at the unit, the largest in the world to date, is due to start in the second half of 2022.

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UK green hydrogen, offshore wind CFDs 'should be harmonized': ITM Power - S&P Global