Frontier Economics was commissioned by BEIS to develop business models to support low carbon hydrogen production.
Our research focusses on incentivising near term investments to deliver largescale low carbon hydrogen production for supply to industry. It covers both green hydrogen (from renewables) and blue hydrogen (from methane reformation).
Based on a literature review, stakeholder consultation and case studies from other sectors, we developed a longlist of business models that could potentially be used.
Our assessment of these business models concluded that both contractual payments to producers (e.g. contracts for difference) or regulatory returns models could be designed to deliver low carbon hydrogen production in the 2020s.
We also found that including a split structure in the models (with separate compensation for fixed and variable costs) may be an effective way of managing demand risk for investors, while reducing the risk of excessive costs for taxpayers and consumers.
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