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Neil Donoghue

Neil Donoghue is a partner in the Firms’ Energy Mining and Infrastructure Practice with over 30 years of experience throughout Europe, Middle East, Africa and Asia. Neil is Head of Baker McKenzie’s Global Nuclear Energy Practice.

In the run up to the United Nations Climate Change Conference (COP26), the UK has published its first ever Hydrogen Strategy. The strategy promises to deliver 9,000 jobs, GBP 4 billion in investment and new export opportunities by creating a thriving low-carbon hydrogen sector in the UK over the next 10 years and beyond. It builds on the prime minister’s determined Ten Point Plan for a Green Industrial Revolution by depicting how the UK government will work with industry to meet its ambition for 5 gigawatts of low-carbon hydrogen production capacity by 2030.

The UK Government has reinforced its commitment to achieving the country’s sustainability goals in a series of recent policy statements. Clean hydrogen forms a significant part of the Government’s ambitious plans. In this post, we help you navigate the recent UK policy developments to the extent they relate to hydrogen, as well as highlight the opportunities such developments present to hydrogen market players.

“Big Picture” Plan
In November 2020, the UK Government announced the Ten Point Plan for a Green Industrial Revolution – a precursor to more detailed plans that followed in December 2020. The Ten Point Plan supports the Government’s sustainability goals and focuses on clean energy, environment protection and emissions reduction.

The second point of the plan is aimed at driving the growth of low carbon hydrogen and developing 5 GW of low carbon hydrogen production capacity by 2030. While some of the market participants do not consider this target to be very ambitious in light of what they believe is achievable in the UK, it is an important firm commitment on the part of the Government. Notably, the Government demonstrated its commitment to supporting the growth of clean hydrogen financially and promised that a range of measures will support it, including a GBP 240 million Net Zero Hydrogen Fund and new hydrogen business models, including a revenue mechanism to attract private sector investment. The Government expects that driving the growth of low carbon hydrogen could deliver over GBP 4 billion of private investment in the period up to 2030.

The Government stated, “Producing low carbon hydrogen at scale will be made possible by carbon capture and storage infrastructure, and we plan to grow both of these new British industries side by side so our industrial ‘SuperPlaces’ are envied around the world. We will also build on our success in offshore wind and other renewables, to bring forward the zero-carbon hydrogen of the future.”

The plan sets out the following target milestones:

2021: Publish its Hydrogen Strategy and begin consultation on the Government’s preferred business models for hydrogen.

2022: Finalise hydrogen business models.

2023: Work with industry to complete testing necessary to allow up to 20% blending of hydrogen into the gas distribution grid for all homes on the gas grid.

2023: By 2023, the UK Government will support industry to begin hydrogen heating trials in a local neighbourhood.

2025: The UK Government hope to see 1 GW of hydrogen production capacity.

2025: Will support industry to begin a large village hydrogen heating trial and set out plans for a possible pilot hydrogen town before the end of the decade.

Energy White Paper: Powering our Net Zero Future
In December 2020, the Ten Point Plan was reinforced by the Energy White Paper: Powering our Net Zero Future, which contains more detail on how the UK will achieve its sustainability goals, including the role of hydrogen in this process.

The paper discusses the process for decarbonising the UK energy system over the next 30 years by replacing fossil fuels with clean energy technologies such as renewables, nuclear and hydrogen and it includes further commitment on the part of the Government to invest in new hydrogen technologies. It reiterates the pledge made in the Ten Point Plan for the UK Government to work with the industry to develop 5 GW of low carbon hydrogen production capacity by 2030. It also contains further promises of funding, including GBP 1 billion investment in the UK’s energy innovation programme, to develop the technologies of the future such as advanced nuclear and clean hydrogen. Specifically, the paper mentions:

up to GBP 170 million of the Advanced Nuclear Fund being dedicated to an R&D programme on Advanced Modular Reactors – the next generation of nuclear technologies. These reactors could operate at over 800°C and the high-grade heat could unlock efficient production of hydrogen and synthetic fuels;

investing GBP 20 million next year in freight trials to pioneer hydrogen and other zero emission truck technologies to support industry to develop cost-effective, zero emission HGVs in the UK; and

the launch of a GBP 20 million Clean Maritime Demonstration Competition, which will support the UK design and development of clean maritime technology, including hydrogen.
The UK Government also undertakes to identify and utilise synergies between hydrogen and the deployment of offshore wind and touches upon the role of biomass in hydrogen production. Decarbonising the shipping and transportation sector will also play a role in decarbonising the UK. Finally, the paper reiterates the commitment to consider hydrogen as an option for heating homes and workplaces and to develop plans for a possible pilot hydrogen town before the end of the decade, but it acknowledges that the practicalities and cost of safely converting or replacing existing networks and appliances to operate with pure hydrogen need to be fully evaluated.

Finally, the paper recognises the importance of carbon capture and storage business models for the development of the clean hydrogen market and promises to bring forward details in 2021 of a revenue mechanism to bring private sector investment into industrial carbon capture and hydrogen projects.

Sixth Carbon Budget Report issued by the Climate Change Committee
This budget report, required under the Climate Change Act, provides ministers with advice on the volume of greenhouse gases the UK can emit during the period 2033-2037. Every country signing up to the Paris Agreement set out a target, a “nationally determined contribution” (NDC), for reducing greenhouse gas emissions by 2030. The report recommended that the UK NDC set at least a 68% reduction from 1990 to 2030 (previously, the UK aimed for an NDC of 53%).

The report cements the UK Government’s stance that hydrogen has a significant role to play in reducing emissions and includes an array of interesting statistics and forecasts to prove the point. For example, in its “Balanced Net Zero Pathway” scenario, it forecasts that the UK could see 90 TWh of low carbon hydrogen production by 2035. It assumes 25% of hydrogen supply from electrolysis in 2035, rising to 45% by 2050. It sees blue hydrogen as supporting the creation of a mass market for hydrogen and highlights hydrogen application across different sectors. It also states that in industry, hydrogen use could reduce emissions by 7 MtCO2e per year by 2035, increasing to 14 MtCO2e by 2045.

Checks and Balances: Audits, Reviews and Inquiries
It is clear that the UK Government endeavours to get its hydrogen facts and strategy right – after all, decarbonising the country clearly ranks very high on its agenda. A series of audits, reviews and inquiries accompany the policymaking.

National Audit Office (NAO): Achieving Net Zero Report

This report is aimed at supporting parliamentary and public scrutiny of the Government’s arrangements for achieving net zero. It uses the words “colossal challenge” to describe the ultimate goal of achieving net zero by 2050. It raises the question of the cost of achieving net zero and raising investment to fund it, but admits that the cost of not achieving it would be even greater. From a hydrogen market participant’s perspective, one of the key points in the report is the confirmation that hydrogen will indeed play a role in reducing emissions in shipping, surface transport, industry and buildings but that role is not quantified. The reports states, “the extent of hydrogen production required will depend on strategic choices made in the coming years.”

Net Zero Review: Interim Report by the UK Treasury

Some of the NAO’s concerns about the challenges of achieving net zero by 2050 were echoed in the UK Treasury’s interim Report on the Net Zero Review, which stated, “the costs of the transition to net zero are uncertain and depend on policy choices.” This report gave examples of challenges facing the UK as it seeks to reach net zero by 2050, including:

viability of hydrogen production being dependent on whether carbon capture usage and storage can be deployed at scale on a cost-competitive basis. It is seen as an unproven technology at scale, but there is a level of confidence in its viability;

hydrogen heating and hydrogen boilers both have upfront capital costs and have high operating costs that will continue to be incurred after 2050, which means that policy will have to artificially ensure lower costs to encourage uptake by the public. Similarly, the rollout of heat pumps or heat networks that will also incur high capital costs will dissuade the public without intervention to reduce cost;

a range of policy levers will be needed to address multiple market failures and support decarbonisation. Carbon pricing is an important lever, but should be supplemented with other policies to ensure balanced, equitable contributions from the public; and

a clear policy framework will be needed to set out the Government’s approach to addressing and, ultimately, reducing risks and uncertainties. In new technologies where risks are higher, policymakers may need to provide more direct support.
The final report is expected to be published in Spring 2021.

UK Parliament Inquiry: The Role of Hydrogen in Achieving Net Zero

The UK Parliament’s Science and Technology Committee has opened an inquiry into the role of hydrogen in achieving net zero, calling for evidence in relation to, among others:

the progress of recent and ongoing trials of hydrogen in the UK and abroad, and the next steps to effectively build on this progress;

the engineering and commercial challenges associated with using hydrogen as a fuel, including production, storage, distribution and metrology, and how the Government could best address these;

the infrastructure that hydrogen as a net zero fuel will require in the short- and longer-term, and any associated risks and opportunities;

a cost-benefit analysis of using hydrogen to meet net zero and the potential environmental impact of technologies required for its widespread use; and

the relative advantages and disadvantages of hydrogen compared to other low carbon options (such as electrification or heat networks), the applications for which hydrogen should be prioritised and why, and how any uncertainty in the optimal technology should be managed.
Presently, the results of the inquiry have not been published, but please watch this space.

Clearly, the above is not the end of the UK hydrogen policy development. The key area where fast progress in policy development is required is around hydrogen business models and market mechanisms to support them. Evidently, there are technological, cost and funding challenges. However, it appears that currently the UK Government is on course to overcome these challenges.