The UK's hydrogen sector is developing rapidly as UK industry seeks to ramp up decarbonisation efforts and the UK government pushes on with introducing a regulatory framework. Where are we now and what is coming up?

There is a widely used spectrum of 'colours' of hydrogen generation. For instance:

  • Blue hydrogen is produced from natural gas and the emissions are captured and stored
  • Green hydrogen is produced without carbon emissions from renewable energy
  • Black hydrogen is produced using unabated bituminous coal
  • White hydrogen is hydrogen occurring naturally underground
  • Pink hydrogen is produced using nuclear energy.

In the UK, the current focus is on the production of blue hydrogen and green hydrogen.

Government targets and initiatives

There is a focus in the UK on models for transporting hydrogen and for storing it. The UK government has a target of up to 10GW of hydrogen being produced by 2030 – with 60% of that coming from green hydrogen and 40% from blue hydrogen. The government has estimated that up to 35% of the UK's energy consumption could be met by hydrogen by 2050. There are also up to 27GW of potential UK hydrogen projects that have been identified by the UK government through to 2037.

The UK Energy Act 2023 placed some of the key parts of the framework for hydrogen in the UK on a statutory footing.

For the production of green and blue hydrogen, there will be a revenue support model based broadly on the contracts for difference used in offshore wind. In simple terms, this sets a benchmark price through regular allocation rounds. So what does this mean for businesses?

Successful applicants will receive a subsidy up to top up to that benchmark should their actual sales prices fall below it and, conversely, money is repayable to the government counterparty to the extent that the actual sales price is above the benchmark. This is intended to provide certainty of revenue over a fixed period to make projects more attractive for investment.

The first hydrogen allocation round was launched in 2023 and resulted in shortlisted awards to 125.2MW of projects. The second hydrogen allocation round has launched in 2024 and could see awards made up to 875MW of projects. The UK government envisages further awards of up to 1.5GW of capacity via the third and fourth hydrogen allocations rounds in 2025 and 2026 respectively. There will be further rounds in 2027, 2028 and 2029.

The UK needs stability before projects get off the ground

Most new hydrogen generation projects emerging in the UK are either situated near an anchor customer, which will receive the bulk of the generated hydrogen, or are located strategically near industrial clusters with the capacity to host carbon capture and storage networks under a separate UK regime. Despite this, the overriding consideration for all these projects is that there has to be a stable and long-term offtake.

Incorporating hydrogen into the national gas network could emerge as a crucial aspect of the UK's hydrogen landscape. The UK government is examining the safety, practicality and economic viability of this blending. If approved, this integration could lay a robust foundation for the development of additional hydrogen projects in the future.

Upcoming milestones to keep in mind

The models for the transportation and storage of hydrogen are trailing behind the business model for production but the UK government hopes that these will be completed during 2025 albeit with the first allocation round being launched before that in late 2024. There is a pressing need for clarity amongst those interested in developing transportation and storage activities which is prompting calls for accelerated progress.

What else is coming up? Highlights include the design of the market for hydrogen to power, for which the consultation has closed. The UK government will also be deciding in 2026 whether hydrogen will be permitted in heating.

Clearly, the landscape for the hydrogen market in the UK is developing rapidly. Developers, investors, off-takers and the supply chain will need to keep a close eye on UK government activity as it continues to build out the hydrogen framework at pace.