Following the recent publication of the UK Hydrogen Strategy, the UK Government has now published its Net Zero Strategy. As expected, low carbon hydrogen development is central to this strategy. The Government acknowledges that not all sectors can rely on electrification to reach net-zero and outlines the role that hydrogen will play in providing low carbon energy.
At the core of the strategy is an ambitious goal of fully decarbonizing UK power systems by 2035. The Government has built in some flexibility on timing by stating that the UK will be powered entirely by clean electricity by 2035 “subject to security of supply.” Carbon capture usage and storage (CCUS) and hydrogen are expressly mentioned as part of UK’s future power system. There is a commitment to have 40GW of offshore wind generation by 2030, with more onshore wind, solar and other renewable energy sources.
The strategy reiterates the Government’s ambition for 5GW UK low carbon hydrogen production capacity by 2030 as well as the intention to implement the GBP 240 million Net Zero Hydrogen Fund and finalize the Hydrogen Business Model and the Low Carbon Hydrogen Standard in 2022, pending ongoing consultations and following on from the UK Hydrogen Strategy.
The Government stated that it has already set up the Industrial Decarbonisation and Hydrogen Revenue Support (IDHRS) scheme to fund UK’s new hydrogen and industrial carbon capture business models. It has pledged to provide up to £140 million to fund the scheme, including up to GBP 100 million to award contracts of up to 250MW of electrolytic hydrogen production capacity in 2023 with further allocation in 2024.
In relation to CCUS, the Government has pledged to deliver four CCUS clusters, capturing 20-30 MtCO2 across the economy, including 6 MtCO2 of industrial emissions per year by 2030. According to the strategy, these clusters could have the opportunity to access support under government’s CCUS program, which includes the GBP 1 billion CCS Infrastructure Fund and revenue support mechanisms. Following the Phase 1 of the cluster sequencing process, the HyNet and East Coast Clusters have been successful in their bids to become the first two carbon CCUS developments in the UK, with the North East of Scotland becoming a “reserve cluster.”
In relation to home heating, the Government stated that it will make a decision in 2026 on the role of hydrogen heating following a “Hydrogen Village” trial.
In addition to public funding, the Government expects to leverage up to GBP 90 billion of private investment by 2030 (although this figure appears to relate to all net zero efforts rather than hydrogen alone). For fuel supply and hydrogen, the strategy mentions mobilizing public and private investment of GBP 20-30 billion by 2037. For decarbonizing industry (including by means of CCUS), the Government cites a further figure of at least GBP 14 billion of public and private investment by 2037. “Approximately GBP 200 billion” of public and private investment has been mentioned in the context of home heating. How much of this amount will be available for hydrogen heating options will depend on the Government’s decision expected in 2026 on the role of hydrogen for home heating.
Overall, the Government’s Hydrogen Strategy is another significant step in the development of the UK hydrogen economy, and contains very significant policy and state funding support for the industry. However, the details around the Net Zero Hydrogen Fund, the Hydrogen Business Models and the Low Carbon Hydrogen Standard are crucial for attracting private investment into the sector. We, like many market participants, eagerly await publication of the results of the Government’s consultations on these 3 critical areas. The consultations closed on 25 October 2021 and we expect the results to be published in 2022.
With over a dozen significant policy papers issued by the UK Government over the past year (including announcements of a number of funding schemes), the UK hydrogen policy is developing fast and is becoming increasingly complex. Our regulatory and transactional expertise positions us to assist market participants in navigating this emerging regulatory framework (including accessing available funding) and in executing transactions in the fast-growing UK hydrogen sector.
