The UK Government has recently clarified the "additionality" requirements for renewable hydrogen under the Renewable Transport Fuel Obligation (RTFO) scheme. More hydrogen projects should now be eligible for support.
Context: the RTFO
The RTFO is a UK scheme to encourage the production and use of renewable transport fuels that do not damage the environment. Suppliers of relevant transport fuels in the UK have to show that an increasing percentage of the fuel they supply comes from renewable and sustainable sources. They do this by buying and redeeming Renewable Transport Fuel Certificates (RTFCs), which are issued to renewable transport fuels.
There are two types of hydrogen which get RTFO support: renewable fuels of non-biological origin (RFNBO) hydrogen produced by electrolysis powered by renewable electricity; and biohydrogen produced from biological feedstocks, mainly biomethane via reformation are eligible for RTFCs. In fact, they have attracted development fuel certificates (dRTFCs) since 2018. (dRTFCs have a higher value than the main RTFCs.)
RFTO consultation March 2021
The UK Government ran a consultation in March 2021 only lasting a month on various changes to the RTFO. It included the treatment of hydrogen and how to prove that it is "renewable", looking at the concept of "additionality". Additionality means that hydrogen production should not be diverting renewable energy from existing applications, but should have its own source of renewable energy specifically built for that purpose. Otherwise it would not be saving carbon emissions.
Up to now, the only way to show this was to have a renewable power source co-located with and directly connected to the hydrogen production facility, without having to import electricity through the national electricity grid. This has been a major headache for hydrogen transport schemes as it is not always feasible to build a renewable electricity generation plant next to the hydrogen electrolyser. If the electrolyser uses electricity from the grid, it was not classed as renewable and was not eligible for RTFO support.
The response to some aspects of the consultation came out in July 2021 but not the part about renewable hydrogen and numerous projects have been waiting for the outcome of the consultation to finalise their business cases. This was finally published in July 2022. A draft Order to give full legal effect to the changes should come into force around September, but new Guidance is already in place.
RFNBO Hydrogen
The new RTFO Guidance applies from now, even though the Order amending the RTFO legislation has not yet come into force. It means that renewable hydrogen projects have more flexibility in proving that they are renewable and so eligible for RTFO support, which can be a valuable revenue stream.
Comment
The new additionality requirements give more flexibility to green hydrogen plants. Being able to use PPAs as evidence that suppliers have purchased renewable energy will allow renewable energy generation and fuel production to be located in the most optimal locations, i.e. they no longer need to be co-located.
This set of measures will support RFNBO producers by allowing more flexibility in the financial models which underpin renewable hydrogen projects. This will unlock a number of final investment decisions for new hydrogen production facilities in the short term and in the longer term should lead to renewable hydrogen becoming an economical alternative to traditional fuels. This long awaited confirmation of the definition of renewable hydrogen together with the up and coming hydrogen business model funding round, signals a sea change in the opportunities for investors and developers of renewable hydrogen projects.
