Labour’s Hydrogen Subsidies Will Drive UK Energy Bills Ever Higher
On August 31st, The Telegraph reported that Labour’s new plan to introduce yet another ‘green’ levy, this time for subsides to create hydrogen storage facilities, will do little except push our energy bills even higher than they already are
The article states:
Labour is set to load a new green levy on to household energy bills to help subsidise hundreds of millions of pounds for clean hydrogen projects. The gas shipper obligation (GSO), which will be introduced in 2027, will initially add up to £7.10 to average gas and electricity bills.
The money raised will be used to fund an initial round of 10 green hydrogen schemes, aiding Labour’s efforts to replace fossil fuels with clean power. Another 27 projects have already been shortlisted, meaning the levy’s costs will keep rising to fund them.
The GSO will also join a raft of other green levies being added to power bills, threatening Andy Burnham’s pledge to tackle the cost of living crisis by reducing household energy costs.
The Prime Minister has vowed to save families £45 a year by removing VAT from electricity bills but these savings are set to be wiped out by Ofgem’s price cap, which will rise by £60 from October.
Britain’s biggest energy companies have frequently blamed green levies as one of the main factors driving bills higher. The GSO will start off small but its costs are expected to surge as green hydrogen production scales up to industrial levels.
It will be imposed on companies moving natural gas through the UK distribution system, which will then be able to recoup the costs from domestic and commercial energy bills.
A report from the Joint Office of Gas Transporters, an industry body, said: “The gas shipper obligation costs will ultimately be passed to consumers based upon their consumption so will have an effect on existing gas consumers and will entail a large number of consumers incurring this additional cost.”
The GSO money will fund the first “hydrogen allocation round (HAR1)”, under which an initial 10 trial schemes will get about £150m for projects to generate 115 megawatts (MW) worth of green hydrogen.
Officials are already preparing to expand the GSO subsidy schemes to help fund more projects in the coming years. In a second hydrogen allocation round (HAR2), households will help bankroll 27 projects with a capacity of 875MW.
Government documents show that subsequent subsidy rounds could increase this to 10 gigawatts (GW) – roughly equating to 10 of the UK’s existing nuclear power stations.
However, industry experts suggest that hydrogen subsidies will eventually add around £40 to average annual domestic bills if the Government decides to commission the full 10GW of capacity.
The GSO will be in addition to the raft of other levies that collectively make up about 30pc of average domestic bills.
The Office for Budget Responsibility has warned that the green levies added to energy bills will rise from £10.5bn in 2025 to £18.5bn in 2030.
This is in addition to the sharp rises in standing charges needed to cover the estimated £110bn cost of upgrading UK grid networks by 2031.
See the Telegraph article here.
Some Fact Checking
The Telegraph states:
industry experts suggest that hydrogen subsidies will eventually add around £40 to average annual domestic bills if the Government decides to commission the full 10GW of capacity.
The £40, however, applies to the first tranche, HAR1 and 2, totalling 1 GW. The long term target of 10 GW will, naturally be much higher.
HAR1’s ten projects have current strike prices of about £295/MWh, which compares with the official projection of natural gas prices for 2030 set at 72p/therm or £24.56/MWh. Even the currently inflated prices, the market price is still only around £58/MWh.
In any sensible world, hydrogen would be a non-starter. It is expensive, extremely fuel inefficient and creates insurmountable storage problems on any large scale rollout.
The full 1 GW of the first tranche will be enough to produce less than a terawatt of hydrogen. The UK consumes 700 TWh a year.
The subsidy for that 1 GW will cost £1.8 billion a year, equivalent to £66/household. Some of this will be added to gas bills, but some will also filter through into electricity bills via increased gas generator costs. (Assuming projected 2030 gas prices).
The Government has already set a subsidy budget of £2.3 billion for the first ten projects, spread over 15 years. That is, however, at 2022 prices, so will now be close to £3 billion. You can multiply that by ten when HAR2 is thrown in.
Finally I must respond this rather silly comment about nuclear power in the article:
Government documents show that subsequent subsidy rounds could increase this to 10 gigawatts (GW) – roughly equating to 10 of the UK’s existing nuclear power stations.
I’m not sure what the relevance is in comparing hydrogen with nuclear, as the former does not create any energy – it merely stores it.
But it is a reminder that all of this hydrogen needs a lot of energy to create it. Yes – ten nuclear plants, plus more to fuel the wasted energy in the electrolysis process.
This begs the question; where will we get all that power from?
See more here notalotofpeopleknowthat
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