Shares in UK Oil & Gas (AIM: UKOG) rose after publishing a “letter of support” from German energy giant RWE.
Shares were up over 20% in in early trading after RWE pledged to support the design and delivery of UKOG’s proposed hydrogen storage scheme in Dorset.
The German firm, which has its own plans to develop green hydrogen plants within the Solent Cluster, Didcot and Teesside, has also lent its name to UKOG as a “supporting party” in its application for government funding.
The AIM-listed firm brandished the letter which described UKOG’s hydrogen storage projects as being “potentially beneficial” to RWE.
UKOG is known for its oil and gas assets in the Weald Basin in southern England.
Through its subsidiary, UK Energy Storage (UKEn), it struck an agreement in 2022 to lease two sites at the former Royal Navy port in Dorset with Portland Port. It plans to develop an energy hub centred around a 1 billion cubic metre hydrogen-ready salt cavern gas storage facility.
UKOG plans to apply for support in the UK’s first hydrogen storage allocation round which is due to commence in the second-half of the year.
Japanese firm Sumitomo, which is developing a hydrogen scheme at Bacton, also supplied a letter of support (LOS) for UKOG’s plans in May.
Department of Energy Security and Net Zero (DESNZ) has stipulated applicants to the allocation round “will be required to furnish such LOS from identified hydrogen storage users and financial backers in order to be successful”.
UKOG said the letters will be used as required documentation for its future application for government hydrogen storage revenue support over the coming months.
It added that its storage projects are at an “early engineering design stage” and “there can be no certainty they will receive government revenue support”, but said it was “committed to furthering these projects which will remain as the focus of the company’s overall future strategy”.
UKOG CEO Stephen Sanderson said: “We are most grateful that RWE, a leading global electrical power provider and major player in the UK hydrogen space, has given its support to our projects.
“Their recognition of the potential benefits our storage could bring to RWE’s green hydrogen projects further underscores our project’s credentials and the significant impact they could have on the UK’s hydrogen economy and energy security.
“This LOS together with those from Sumitomo and SGN will help build both our application for government revenue support and provide identified potential strategic investors comfort that the projects can be successfully delivered.”
Panmure Liberum analyst Ashley Kelty explained the how the letters could work.
“While the LoS is encouraging, it doesn’t offer any practical or financial support for the project and merely indicates that the project could be of interest to likes of RWE if it was developed.
“However, the Government is likely to see it as a positive – although it remains unclear how much money will be available and the type of support for each type of renewables project.”
What does the letter say?
The letter from RWE UK’s head of hydrogen business development Jeremy Smith said:
“We see the operation of UKEn’s hydrogen storage projects as being potentially beneficial to RWE for the following reasons:
· It will enable us to offer firm hydrogen supply contracts and to manage production outages;
· It will allow us to optimise electricity cost and electrolyser operating regime in response to renewable generation capacity and wholesale market price signals;
· It will enable the efficient sizing of our optimised production facility to most efficiently meet our expected offtaker demand;
· It will help to smooth our hydrogen production profile with the store acting as a buffer.
“In support of this proposal, we have committed to working with UKEn to ensure that the design and delivery of the storage facility meets the needs of RWE and other potential industry users.”
“We are giving permission for you (UKEn) to reference RWE as a “supporting party” in discussions with government and your proposed submission for revenue support via hydrogen storage allocation rounds.”
Recommended for you
