Hydrogen Production Revenue Support (Directions, Eligibility and Counterparty) Regulations 2023

Baroness Blake of Leeds Excerpts

Monday 18th December 2023 Grand Committee

On a personal note, I have decided to stand down at the end of this year as spokesperson on energy and climate change for the Lib Dems. Despite the Minister’s huge admiration for Liberal Democrats, I have very much enjoyed working with him. Over my time in the role, I perceive that he may have become even more dedicated to the subject than he was at the beginning. I have genuinely enjoyed our interactions and I wish him well. I am not retiring from the place and will stay involved in these issues, but not from the Front Bench. It has also been my great pleasure to work with the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, on legislation in similar areas to this.

[Baroness Blake of Leeds (Lab)]

My goodness. I was not expecting that announcement and have not been party to that information. I am sorry: I was not clear from the noble Lord’s comments whether he meant the end of this year. Perhaps he has secret information about when this Parliament might come to an end.

[Lord Teverson (LD)]

I meant this year.

--- Later in debate ---

[Baroness Blake of Leeds (Lab)]

Can I just put on record my appreciation for the incredible contribution that the noble Lord, Lord Teverson, has made in this area? I certainly benefited enormously from our working closely on the Energy Bill, and going forward from that.

I also echo the Minister’s comments on the progress that has been made; during the passage of the Bill, there were times when we wondered how we were going to get through it. I assure the Minister that the announcement of the first funding round, with its 11 successful green hydrogen projects, has been noted and is welcome. I certainly look forward to hearing about their progress.

I want to make a few comments on the regulations before us. As we have heard, this statutory instrument is one of the first to follow from the 2023 Act and we know that there are more to come. The regulations cover, in particular, the process whereby the hydrogen low-carbon business plan will be implemented during the initial allocation period of contracts for hydrogen producers; all of this goes towards the target of 10 gigawatts of hydrogen production.

As I understand it, schemes will be identified and quality-assured by the Minister, who will then direct the hydrogen counterparty—it is identical in structure to the low-carbon contracts company—to provide contracts for companies that have been deemed eligible. All of that is absolutely fine and the right thing to do, especially when we consider the initial allocation process.

The Explanatory Memorandum states that the initial allocation will give way to a competitive tender process later on. Some more detail on that would be useful as we go forward; perhaps it will be forthcoming. However, at this moment in time, we are considering the initial allocation process, which is to be informed by the centrepiece of the SI: the low-carbon hydrogen standard, which has been outlined for us today. This refers to a detailed document setting out the greenhouse gas emissions and sustainability criteria that programmes applying for an allocation contract should follow.

I note the stringent qualifying criteria for a project’s eligibility. Of course, they require a project not to exceed a certain level of carbon emissions and to measure fugitive hydrogen—that is, the process whereby hydrogen is produced and all the implications around hydrogen—for its duration. It is a system-wide standard for the low-carbon nature of that hydrogen. For a project to get a direction from the Minister, it must comply with the standard when it receives agreement to proceed.

I just want to pick out that point. As we understand it, the standard will evolve. Indeed, the standard to which the SI refers is version 2 of the UK low-carbon hydrogen standard; that evolved from the initial standard, which was produced immediately after the Act was passed. Version 2 has emerged from consultation with the correction of various elements of the initial standard that could have caused difficulties. It has tightened up several matters that were uncertain, difficult or in need of clarification. It is absolutely clear in the documentation and the Explanatory Memorandum that it is intended that the standard will evolve; this means that the department envisages that it will produce further iterations of the standard in future. The low-carbon hydrogen standard as it currently stands is therefore likely to change. Does the Minister think that this will present some difficulties for those companies that have had their contracts approved? Clearly, although they will be signing up under version 2, they may not necessarily comply if we move on to versions 3 or 4—or more. It would be good to get some assurances around what the implications will be for companies in the earlier rounds.

There needs to be a bit of thought about whether those companies could be disadvantaged as we go forward. Will the Minister have some discretion in considering this? Of course, it could go either way, although it is very unlikely that there would be a relaxation of the carbon emission standards, but there is something to pick up there. Is it possible that, with these changes, companies might be put in a place where there are more costs, expense and planning? It would be useful to have more understanding of the methodology that will be used to determine whether companies are continuing to adhere to the standard once it is set in the contract. From the initial comments, I understand that the Minister is satisfied that this will work well. Could he expand on some of the changes that might come along?

During the consultation, some respondents suggested that further information could be published in a contract register, including outturn volumes, CO² capture rates and CO² capture quantity. It is obvious that a balance needs to be struck between transparency and what useful information is kept confidential but, as making this information public seems like it would have a positive impact, is it that the impact is not deemed significant enough to lower confidentiality? Alternatively, is it that there are further drawbacks to publishing this information that have led the Government to proceed with the initial approach? A bit more clarification around that decision-making would be welcome. On the other hand, 10 of the 23 respondents disagreed with information that the Government are proceeding with publishing, primarily due to the financial aspects. Could the Minister please elaborate on the decision-making process there?

I welcome the progress that has been made and look forward with interest to see how we can move forward in the area of hydrogen, which seems to be fairly fraught—I note the comments of the noble Lord, Lord Naseby. I am also interested in the response on the review. It is very noticeable that that is missing, because of the process. But, in such a new departure, a review would be useful and welcome.

[Lord Callanan (Con)]

I thank all noble Lords for their contributions to the debate. Low-carbon hydrogen will be an essential part of our future energy mix, and the hydrogen production business model seeks to address one of the key barriers to its deployment: the higher cost of low-carbon hydrogen, compared to higher-carbon counterfactual fuels. The Government remain committed to delivering on our hydrogen ambitions—first, those to help support energy security, but also our decarbonisation goals.

The message from the 2023 progress report from the Climate Change Committee was the need to deliver policies to enable deployment at scale of new industries such as hydrogen. I think that sentiment is widely recognised across this House and by industry. Last week’s announcement represents a major step forward in helping producers to deliver a fuel of the future today, backing some of our fantastic businesses here in the UK to go greener. These regulations are vital to enable those contracts to be awarded, so that projects can take the investment decisions that will kick-start the deployment of low-carbon production in all parts of the United Kingdom. But we are not stopping there. A new second round of funding is already available for producers to apply for, so that they can develop the next round of projects and then subsequent ones that help to build on that success. I will deal with some of this in more detail as I go through the questions raised by noble Lords.