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The Energy Security Bill will provide DESNZ with wide powers to incur expenditure and provide long-term financial assistance to support the development of hydrogen infrastructure in the UK . In particular , the Energy Security Bill introduces the ‘ Hydrogen Production Business Model ’ which provides the framework for entry into a Low Carbon Hydrogen Agreement between a government appointed counterparty ( potentially the LCCC ) and a hydrogen producer to provide price-certainty to producers , similar to a CfD .
3.9 What are the main sources of financing for the development of green hydrogen projects in your jurisdiction ?
The financing of green hydrogen projects in the UK remains at a nascent stage . However , in June 2022 , the new publicly owned UK Infrastructure Bank announced its strategic plan to deploy £ 22 billion of capital to tackle climate change and boost regional growth and a central pillar of that plan was to accelerate the deployment of new technologies such as hydrogen . In addition , in July 2022 the UK government announced the opening of the Net Zero Hydrogen Fund , which will provide up to £ 240 million of grant funding for low-carbon hydrogen production projects . The primary issue for financing green hydrogen projects on a limited recourse basis remains the lack of a longterm identifiable revenue stream .
3.10 What is the legal and regulatory framework that applies for clean energy certificates / environmental attributes from renewable energy projects ?
The Renewable Obligation scheme applies to large-scale renewable electricity projects in the UK creating a market for the sale of environmental attributes . The scheme obliges UK electricity suppliers to source an annually increasing proportion of the electricity supplied to customers from renewable sources .
Ofgem issues Renewable Obligation Certificates ( ROCs ) to qualifying renewable generators in respect of the electricity they generate . Such generators can then sell those ROCs to suppliers or traders as tradeable commodities . Different renewable types receive different numbers of ROCs depending on their costs and size . Suppliers are then obligated to meet individual targets by purchasing ROCs either from renewable generators directly or from traders and brokers in the ROCs market . Ultimately , ROCs are used by suppliers to demonstrate that they have met their annual obligation .
This scheme closed to all new generating capacity on 31 March 2017 . Projects that have been accredited before this date will be supported until 20 years from the date of accreditation or 31 March 2037 , whichever is earlier .
3.11 Are there financial or regulatory incentives or mechanisms in place to promote the purchase of renewable energy by the private sector ?
The Renewable Heat Incentive ( RHI ) is a financial incentive to encourage the uptake of renewable heat by businesses , public sector and non-profit organisations and homeowners . The non-domestic RHI was introduced in 2011 , with the domestic RHI following in 2014 . The schemes are designed to help bridge the gap between the costs of fossil fuel heating technologies and low-carbon alternatives . Participants receive a tariff , set in pence per kilowatt hour of heat used , for either seven ( domestic RHI ) or 20 years ( non-domestic RHI ), which is set at a level to cover the additional costs of the renewable heating system . However , the non-domestic RHI scheme closed to new applicants on 31 March 2021 and the domestic RHI scheme closed to new applicants on 31 March 2022 .
3.12 Is there a mandatory ( or a developed voluntary ) carbon emissions trading market in your jurisdiction ?
The UK has a mandatory carbon emission trading market known as the UK Emissions Trading Scheme ( ETS ). The ETS is a cap and trade system that caps the total amount of greenhouse gas emissions that certain sectors ( including power generation , aviation and heavy industry ) are allowed to emit . Each participant is allocated a number of permits ( an ‘ allowance ’), and each participant is permitted to emit one tonne of carbon dioxide equivalent under each allowance . These allowances are to be reduced each year to align with the UK ’ s net zero targets . Those participants that emit less than their allowances can sell their surplus allowances to those that emit more than their allowances .
There is also an increasingly sophisticated voluntary carbon trading market in the UK . This allows participants to buy carbon certificates to voluntarily offset their carbon emissions beyond what they are required to do under law . Carbon certificates are issued by verified projects across the globe that reduce , remove or abate greenhouse gas emissions . These certificates can be sold by the developers to generate revenue for their projects and can be traded by investors on a number of established carbon trading platforms . The International Emissions Trading Association has recently published model form trading documents ( with English law as the governing law ) which is a key step to standardising the carbon trading arrangements and indicates the maturity of the voluntary carbon market .
3.13 What is the legal and regulatory framework applicable to the development of carbon capture and storage projects ?
The Energy Act 2008 established the regulatory regime ( as supplemented by further regulations ) and introduced a licensing requirement for carbon capture , usage and storage ( CCUS ) projects . The storage of carbon dioxide also requires a permit .
The North Sea Transition Authority is responsible for approving CCUS licences and storage permits , and applications for a CCUS licence may only be made in response to a formal invitation from this authority in respect of a specific area .
CCUS developers will also be required to apply to the Crown Estate for relevant transportation and storage rights .
3.14 Are there financial or regulatory incentives available to promote investment in carbon capture and storage projects ?
Under the Energy White Paper , in 2020 , the government established a £ 1 billion fund to support the development of CCUS infrastructure named the Carbon Capture and Storage Infrastructure Fund ( CCSIF ). The CCSIF is to be used to finance the construction of CCUS facilities and associated infrastructure , such as pipelines and storage facilities . The government has also launched an Industrial Clusters Mission , which aims to support the development by 2030 of up to four CCUS clusters , creating ‘ SuperPlaces ’ in areas such as the North East , the Humber , North West , Scotland and Wales . In addition to providing the above funding to support the development of these clusters , further regulatory and permitting support will also be provided .
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