Jamie is a consultant at Helmsley Energy, supporting political risk analysis, communications strategy and legislative engagement.
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The UK Government has pledged significant support for hydrogen production and technology development, seeing it as a key fuel for the Net Zero economy. In the UK’s recent Energy Security Strategy - produced in response to the Russia-Ukraine crisis - ambitions for domestic production of hydrogen were doubled. A raft of new policy and funding announcements have given some more indications as to where the UK’s hydrogen sector will develop, but there remain a number of questions to answer.
The UK administration is currently pursuing a twin-track approach to its hydrogen ambitions, leaving space for the development of ‘blue’ and ‘green’ hydrogen simultaneously (see ‘Hydrogen Rainbow’ below).
The recent British Energy Security Strategy raised the UK’s previously stated ambition for low-carbon hydrogen production, from 5GW up to a new target of 10GW by 2030, of which half will come from electrolytic production. The government will be hoping that this delivers even greater benefits than its previous forecast of a hydrogen economy worth £900 million by 2030, and supporting over 9,000 jobs.
Although the previous target was presented as ambitious, it was actually seen as ‘low-ball’ by industry insiders. The new target of 10GW looks more of a stretch, but is still achievable with the right market structures in place.
“We’re going to produce vastly more hydrogen, which is easy to store, ready to go whenever we need it, and is a low carbon superfuel of the future.”
- UK Prime Minister Boris Johnson, British Energy Security Strategy, 7th April
The UK is not alone in setting out ambitious plans for the future of Hydrogen production. The European Union is concentrating on developing significant resources of green hydrogen as part of its sweeping ‘Fit for 55’ climate package. If all goes to plan, this will involve:
Hydrogen offers an impressive array of applications across heat, power, transport, industry and others, though there are many big questions still to be answered, both by industry and policymakers.
On the heat front, the use of hydrogen in the gas grid looks set to compete with electrification, but there are strong signals that government and network companies plan to repurpose the gas grid.
For electricity, the role of hydrogen will likely be in energy storage and transport, though substantial market reforms will be needed.
For transport, much of the discussion so far has revolved around hydrogen cars versus electric vehicles, but the future of hydrogen as a transport fuel looks more likely to lie in heavy vehicles or the hard-to-decarbonise sectors of shipping and aviation.
Industry provides an important fourth vector, where the versatility of hydrogen and the need for low-carbon alternatives for important chemical processes could provide the biggest opportunity for hydrogen producers.
Hydrogen can be industrially produced using many methods, each with drastically different cost, climate and usage profiles. The leading methods have been given a generally accepted colour code. These are:
Grey hydrogen: The most common form of current hydrogen production, this uses steam methane reformation to extract hydrogen from natural gas or methane. However, it also produces large amounts of greenhouse gases.
Blue hydrogen: The same as grey hydrogen, but with carbon capture and storage added to the process. This means that the greenhouse gases produced are captured rather than emitted into the atmosphere.
Green hydrogen: Uses clean electricity from surplus renewable energy sources (e.g. wind or solar) to electrolyse water, splitting it into its components of hydrogen and oxygen and producing zero carbon dioxide during production or usage.
Other colours are more disputed, but the more common are pink (created by electrolysis powered by nuclear energy, also sometimes labelled purple or red), black/brown (powered by black coal or lignite respectively), and turquoise (not yet proven at scale, this involves using methane pyrolysis to produce hydrogen and solid carbon).
There is currently heated debate amongst industry and the policy community about the merits of various hydrogen use-cases. One notable contribution comes from industry analyst and commentator Michael Liebreich - the ‘Hydrogen Ladder’ (see image).
The Hydrogen Ladder offers a ‘best use’ framework for policymakers and investors to understand the relative merits of different hydrogen applications. Consistent with many other policy commentary in the UK, the Ladder prefers industrial and heavy transport uses above smaller-scale uses and heating.
The British Energy Security Strategy doubled the UK’s previous target for low-carbon hydrogen production, aiming for 10GW by 2030, of which at least half will come from electrolytic production. This updates the Hydrogen Strategy (2021) and Net Zero Strategy (2021), which set a target of 5GW by 2030.
The UK has decided to pursue a “twin-track” approach to its hydrogen ambitions, simultaneously encouraging the production of green hydrogen from renewable electricity and blue hydrogen from natural gas with carbon capture attached.
In 2020, the UK consumed 0.7 million tonnes (Mt) of hydrogen, with virtually all used as an industrial feedstock in the chemical industry and in oil refineries. By 2050, the government expects that hydrogen will be able to deliver 20-35% of the UK’s energy consumption, with use in sectors ranging from heavy industry to power, and heating to land, air and maritime transport.
There is very little hydrogen-specific legislation and regulation in the UK so far. Currently, hydrogen regulation falls under the Gas Act 1986, with the Office for Gas and Electricity Markets (OFGEM) as the regulatory body and issuer of licences. Under the existing legislative framework, anyone engaging in gas supply, shipping or transportation must have a licence to do so, and also comply with the applicable industry codes (such as the Uniform Network Code, Independent Gas Transporter Uniform Network Code, Supply Point Administration Agreement, Retail Energy Code).
The Government does not expect an initial regulatory framework for hydrogen to be fully in place until 2025 at the earliest.
Public and private funding for Hydrogen
The UK Government has announced various funding mechanisms for hydrogen-related projects, with the two most important being the Net Zero Hydrogen Fund and the Hydrogen Business Model. The May 2022 Queen’s Speech committed the Government to bringing forward legislation on low-carbon hydrogen business models.
Net Zero Hydrogen Fund:
Hydrogen Business Model (HBM):
Industrial Decarbonisation and Hydrogen Revenue Support scheme:
In addition to public funding commitments, the Government is looking to ‘crowd in’ private capital. As part of the Hydrogen Investment Package released in April 2022, BEIS published a Hydrogen Investor Roadmap offering guidance and support for private investment in hydrogen.
BEIS has acknowledged that further policy work and analysis is needed in a number of areas, including: determining and indexing the reference and strike prices for the subsidy mechanism, designing the sliding scale for volume support, and designing a fair and workable long-term funding model for hydrogen support.
Defining “low-carbon” hydrogen
Immediately following the Energy Security Strategy, the Government set out detailed guidance on what it means by “low-carbon hydrogen” in its response to the Low Carbon Hydrogen Standard consultation. Hydrogen projects must comply with the Standard in order to be eligible for support. The proposed policy design includes decisions on: thresholds for GHG emissions, scope of the standard, consideration of different primary energy inputs and feedstock emissions, further GHG methodology / calculation considerations, and delivery and administration of the standard.
The Government expects to tighten the Standard over time in line with the pathway to Net Zero.
Clusters and CCUS
The UK is pursuing a cluster approach to its CCUS and hydrogen policy, hoping to leverage the network and agglomeration effects of different industries located side-by-side to spur investment. Hydrogen is a crucial part of these plans, but until recently the more detailed policy work has come in the CCUS space, funded most notably by the £1 billion CCS Infrastructure Fund.
BEIS aims to identify two CCUS clusters for deployment by the mid-2020s, with a target of four by 2030. The East Coast Cluster and the HyNet North West cluster are currently proceeding through Track 1 of the process, with the Scottish Cluster in reserve. This reserve status has raised significant political consternation in Scotland.
Jobs in a much-expanded hydrogen economy will likely be concentrated in these cluster regions, with accompanying political benefits for the Government’s ‘Levelling Up’ (regional development) narratives. The UK Hydrogen Strategy estimates that the UK’s hydrogen sector will support over 9,000 jobs by 2030, increasing to a potential 100,000 jobs by 2050. If the Government’s new ambitions in the British Energy Security Strategy are realised, these numbers may be even higher.
In April 2022, the Government published a Hydrogen Investor Roadmap, seeking to encourage private investment into the UK hydrogen economy. The Roadmap sets out the Government’s Delivery Plan to 2035 - reproduced below:
Hydrogen-related policy and regulatory frameworks are in relatively early stages of development. There are several strands of policy under deliberation, and the wider energy market is also in flux. Along with the geopolitical threats arising from the Russian invasion to Ukraine, this means that there are several “unknowns” and political risks in relation to hydrogen-related policy. We highlight some of these below.