Chesterfield Special Cylinders Holdings (LSE:CSC) — Beyond 2050- UK Hydrogen Policy

0:05 My name is Rob Dell and I'm from a company called Beyond two thousand and fifty. I'm going to be talking briefly through the state of The UK Hydrogen policy. As a quick introduction as to who I am, Beyond two thousand and fifty is a hydrogen specialist, political engagement and communications agency. We have existed for about five years, and I myself have been working on hydrogen policy since 2016. Therefore, my claim is that within Westminster, I'm the first consultant lobbyist to begin working on hydrogen policy. Through that work across the last nine years, I've had a very fortunate experience of working with industry, politicians and civil servant officials as hydrogen has gone from a topic in The UK that very few people were talking about and those who were very much on the technical science side to something now that is featured in all major party manifestos in 2024.

1:09 And you have the prime minister and the chancellor of the exchequer regularly talking about hydrogen in key speeches here in The UK and also to a global audience as well. Beyond 2050 has that strong hydrogen niche. We also think we're quite good at being in consultants as well, and that's evidenced by us winning an award by the UK Lobbying Industry Trade Body last year for Small Consultancy of the Year. We're a team of 10, and as we continue to grow, we're on the verge of expanding our operations into the EU as well. And in terms of some of the clients we work with, this is a list of some of the organisations. And I think the key thing here of relevance to this presentation as well is we work across the full width of The UK hydrogen market.

1:56 And through this work, we speak a lot to the government in terms of ministers, officials and special advisors. We spend a lot of time in parliament. We spend a lot of time speaking to council leaders and mayors. So again, we have a very unique and strong frontline perspective of the shape of The UK Hydrogen market, where industry is seeing the opportunities, where some of the policy barriers are to progress. And it's through that insight that we gather through this work that I'll be applying through this presentation that will hopefully help the audience get a better understanding of the state of The UK hygiene policy market. I think it's fair to say that as we enter 2025, a lot of the hype that was in hydrogen three or four years ago, particularly during the Covid lockdown stages, has diminished somewhat.

2:58 We are now in a stage of needing to see plans on paper, MOUs, press releases turn into space in the ground and final investment decisions. The table on the right is taken from a Hydrogen Council report last year, and that shows the huge scale of an increase in the number of planned hydrogen projects that exist across the world. But you can see at the bottom of the bar chart how still relatively small the number of projects reaching final investment decision is. That gap between announced projects and those reaching final investment decision is one of the things that I understand from speaking to other people that operate in the city and spend a lot of time working on hydrogen clean energy projects is leading to share prices in hydrogen companies, not just in The UK, but across the world being at near five year lows.

4:00 There's a huge demand and need for this year to be about seeing more projects reach final investment decisions. In The UK, I think The UK is in a pretty strong place as headwinds towards hydrogen globally are increasing, The UK increasingly to me seems that it's standing out as one of the best markets for investment in hydrogen. I'll come onto that more specifically in the next slide about the hydrogen allocation rounds. But from a broader UK political perspective, as I said earlier, the Prime Minister and the Chancellor continue to talk up The UK's hydrogen potential.

4:46 Sir Keir Starmer, before the election, said in a speech at Labour Party conference, Some nation will be the first to win the race at hydrogen, why not us? And they also talk regularly about hydrogen in the context of creating jobs of the future. The chancellor also talked about hydrogen in her budget speech in 2024, and that doesn't happen by accident. Every word that goes into a chancellor's budget statement is strategic and is decided upon by her, her team. And so therefore, the fact that hydrogen for the first time ever was included in a Chancellor's budget speech is a significant moment in The UK, and it really underlines the strength of political support that exists for hydrogen in The UK. This is not just important from an investor and industry perspective, but also from an official and a parliamentarian side because they also pay close attention to what is said in these speeches.

5:49 And the officials that are working on hydrogen in the Department for Energy and Net Zero, which is about 400 now, which again, I think underlines the amount of work and the amount of resource that the UK government is putting into hydrogen. These words that come from the political leaders and especially Prime Minister and the Chancellor give them more space to operate, more resources, and more status within the civil service as working on a policy area that's got that high level of political support. So these are not just words from politicians in speeches. These are really significant strategic signals internally within government but also externally to the market that this government is very much backing the potential of hydrogen in The UK to deliver the missions primarily of economic growth and also the Clean Power Mission 2030.

6:45 The government also, as I say, talk about this in terms of jobs and another really critical part of Labour's manifesto. There were several references to plans to rebuild supply chains at home. And this was really personified by the quote from Sir Patrick Vallance, who some people watching this may remember from the COVID lockdown days here in The UK. He's now a minister in the science department. And he had a quote about The UK becoming the innovators and the implementers, designing net zero products that can be exported across the world. And he basically says we have a choice. We can either be those innovators in exports and reap the economic benefits from that, or we'll be reliant on importing these products internationally. And The UK has tried and let other market opportunities slip before, such as in batteries and wind technologies. We're very good at building wind farms, but most of the technology we're importing from other countries.

7:43 The government see hydrogen as one of the next big opportunities, where we can both be great at building hydrogen projects and moving hydrogen around, but also we can be great at scaling up the technology that goes into these projects and making sure that it is an economic and decarbonisation opportunity as well. So there's a huge amount of political signals from the very top of government moving in hydrogen's favour. Particularly on HOLD one, the hydrogen allocation rounds are probably best seen as the centrepiece of the government's hydrogen strategy. They are a scheme that's modelled on the auction rounds that we have in offshore wind, which have been largely seen to be a success in The UK.

8:33 And this is the government's way of incentivising green hydrogen producers to invest in building green hydrogen projects and the government providing them a subsidy for the hydrogen that they produce. In late twenty twenty three, the government announced the 11 projects that will be taken forward as part of the first hydrogen allocation rounds. And in December 2024, they announced the first three projects had signed formal contracts with the government to progress. We are expecting further contracts to be signed with developers over this quarter, And as a sign of the global interest that is in these hydrogen allocation rounds, I think if you pull out the shareholders in the three projects that signed those projects, it's a pretty powerful statement.

9:25 So the actual developers may not be known on such a global scale in terms of Sterega, Scottish Power and More Gem. But the people that are behind these companies such as Macquarie, Trafigura, SNAM, GIC big names who take a very global perspective, but they've looked at the approach that the UK government has made, or is taking the frameworks it's building and the design of the hydrogen allocation rounds. And clearly they're seeing something they like in the shape of all of that, which is why they're investing a lot of time, resource, and of course money into developing these projects as well. That was the hydrogen allocation round one, and the table on the bottom left shows the government's original timeline for the rollout of future hydrogen allocation rounds. Now, you will already see that they are slipping behind.

10:26 Partly this was due to the general election in the middle, but also it's fair to say that this has taken longer than the government originally expected to go through the process of validating projects, negotiating with developers over costs, and then getting to a point where legal contracts are being signed. The key point here is that the government remains committed to the idea of doing annual hydrogen allocation rounds, again just as we do in offshore wind. Viewers will be able to see how the scale of those hydrogen allocation rounds increases from hydrogen allocation round one and then stabilizes at around that seven fifty MW per year mark, year after year.

11:14 Key to enabling the long term success and sustainability of the hydrogen allocation rounds is of course a source of funding. So the first hydrogen allocation rounds would be funded by the Exchequer, so essentially coming from Rachel Reeves. But in 2023, the government passed a new energy bill, now Energy Act, and in that they gave themselves the power to introduce essentially a levy that would fund the business model, that would fund the hydrogen allocation rounds over the long term. The government have three options of how they fund that. They either maintain it in the Exchequer, and that's not really going to happen given the state of the government's current finances. They put it on household bills. Again, that's not going to happen in the context of lots of new MPs wanting to protect their majority, energy bills still being pretty high, and the Labour government actually promising to lower energy bills but struggling to do so. So they're not going to be sticking another £100 onto people's household bills in order to fund hydrogen projects.

12:23 So that means that the levy is going to be placed onto gas shippers, and a consultation was published about three weeks ago over the design and how that levy would work in practice. And it's significant to note there that it was called the gas shipper obligation consultation. So the government are very clear of where they are looking to source the funding from for this. But the fact that the consultation came out and we understand from DESNA's officials that it wasn't an easy thing to get out the door. It was something that number ten and the treasury were both interested and looked over before it was published. The fact that they're doing this is a really significant signal that the government is again putting in place the required frameworks to enable the long term development of the green hydrogen market and the broader hydrogen market here in The UK as well.

13:21 This progress of the consultation is part also of unlocking the shortlist of the projects that will be taken forward in the hydrogen allocation round two process. We understand that the applications for HAR2 were massively oversubscribed. HAR2 is eight seventy five MW and there were around 2.6 GW of projects submitted to that. So again, it further underlines the strength of the hydrogen allocation rounds and the global interest that there is in being part of that. We are expecting that shortlist to potentially come out in Q2 this year, but there's no formal confirmation of that. It was formally due to be announced before Christmas last year, but the government are now officially saying it would be out soon or quote in due course.

14:18 But we think that will come out in Q2. Following that, the government is then going do a market engagement plan on hydrogen allocation round three, and this will be where they do a fairly significant redesign of the scope of projects and the type of projects they're looking to come forward. And I think, particularly from a CHESTERFIELD CYLINDERS perspective, this will be moment, as well as other companies in The UK technology supply chain. Because with this new government in place, and obviously it's the previous government that designed hydrogen allocation round one and hydrogen allocation round two, With this new government in place in the context, as we discussed on previous slides, of wanting to rebuild supply chains at home, see more UK content going into clean power projects, we think the design of R3 will have a much bigger lean or nudge towards encouraging green hydrogen production developers to be looking to use higher levels of UK UK made technology, and UK made goods in the projects that they are designing.

15:28 We see moving, and we see this similar in steps that have been taken by the European Commission as well to try and develop their supply chains as well. Other key policy commitments that are due this year in terms of The UK hydrogen market, we are going see a legislative change potentially come through this month or next month to enable hydrogen powered tractors and construction vehicles to travel on public roads. These vehicles are able now to be used on construction sites or in farms, but they can't travel on the public roads to get from site A to site B. And these will be one of the earlier use cases for hydrogen given the state of the development of that technology. And there are many projects looking to use these vehicles such as Lower Thames Crossing, HS2, and projects like that. The government is going be also bringing forward the business models, the subsidy to support the storage or the use of hydrogen in in terms of transporting through pipelines, storage, and also in hydrogen to power. There is a consultation due soon on placing hydrogen through the transmission pipelines, and then there will be a decision on whether or not to go ahead with that.

16:47 The UK government is looking at this from two perspectives. One, lots of developers are saying they want to be able to blend into the gas work in order to provide an off take of last demand for their hydrogen projects. To help get projects over the line to help get more FIDs. But also, Europe has plans to blend hydrogen into the transmission network as well. Given that we import gas from Europe, it's not the decision on whether or not we blend in The UK is not just based on how we help develop the hydrogen market in the earlier stages, but it's also about security of energy supply. Because if we don't do that, it will mean we end up having to de blend hydrogen as we imported from Europe, which will add cost and complications and therefore can potentially impact our energy security as well.

17:40 We are expecting a decision on the future potential use of hydrogen in domestic heat. This will be not a decision on large scale rollout, but it will be a decision of whether to continue investing in projects to develop R and D and build the evidence case for it. And a big milestone, just for hydrogen, but across the whole UK economy, is going be the publication of industrial strategy. But many aspects of the consultation for that industrial strategy again point to hydrogen having a key role in it, because green energy and advanced manufacturing are two of the key eight pillars for that plan that the government have produced so far.

18:29 The final slide is just to come back to some international examples to say, whilst The UK continues to look good from an international hydrogen perspective, other countries and other companies are definitely not shying away from it. The picture on the left the Spanish Prime Minister see to Donald Trump's comments about Drill baby drill with green baby green, and Spain almost doubling down on some of its hydrogen production projects. Spain is one of the biggest winners of projects that came out of the Hydrogen Bank. Across Europe, they continue to roll out plans for a hydrogen refuelling station every 200 kilometres and this will be an essential backbone of refuelling stations for trucks, coaches, potentially buses, particularly vehicles, bigger vehicles, fleet vehicles.

19:22 Also other companies such as ITM are also looking optimistically at the year ahead. Their chief executive recently did interviews off the back of their results, and again talking about seeing an increased potential for final investment decisions across 2025. So they're the end of my slides. Hopefully that's been a useful summary of the state of The UK hydrogen market, where it sits in a global perspective, and hopefully signs of good news to come across the rest of this year. Thank you.