Creating a new market from scratch: the UK hydrogen strategy

How do you create a market for low-carbon hydrogen from scratch?

The UK's Hydrogen Strategy sets out a roadmap to grow low-carbon hydrogen production and use from practically non-existent now to potentially forming 35% of UK's total energy supply by 2050.

THE GOOD

It's no easy task and a lot of thought has clearly gone into the Strategy. It looks at the whole hydrogen value chain: production, end use, infrastructure, how to create a market, the international picture. It has a set of Principles that will guide future policy decisions and government action, so investors and users have clarity on future policy direction. (Although one is "Keeping options open, adapting as the market develops" so maybe there's only so much clarity they can give.)

The Government has taken a holistic whole system approach. So any decisions or actions are informed by broader objectives and plans for the UK energy system, environment, economy and society. We also now have a Roadmap out to 2030, when the Government aims to have 5GW of low carbon hydrogen production capacity (as set out in the Ten Point Plan), and beyond.

But we are starting from a very low base here. What do we even mean by low carbon hydrogen? There isn't an industry standard definition yet, but there will be as alongside the Strategy BEIS launched a Consultation on a UK Low Carbon Hydrogen Standard.

THE DISAPPOINTING

We were perhaps naively hoping for some key decisions that would massively impact and kick-start the hydrogen economy, but we can understand why these have been put off for now. The key one is whether to replace natural gas with hydrogen in heating our homes. This will now be decided in 2026, following trials of first a neighbourhood in 2023, then a village in 2025, finally in the late 2020s (tbc) a whole town. In the meantime, to meet our carbon budgets, electric heat pumps look like the way forward. By the time a decision is made, it might be too late for hydrogen to catch up.

The other major decision is whether to blend hydrogen into the gas grid so that it makes up 20% of the mix. This would stimulate demand and so encourage more production. The Government is looking at the safety case and whether blending is value for money and if so, blending could start by the end of 2023.

THE CHALLENGES 

The Strategy identifies a number of challenges and how it will overcome them in order to produce and use hydrogen at scale in the UK.

FILLING IN THE GAPS

So there's a lot we now know, such as the principles underpinning policy development, an outline Roadmap and the beginnings of a market framework. But the detail still needs to be filled in, like how to fund the hydrogen business model, what the production strategy will look like, and a sector development action plan. Look out for regular updates from the Government as the policy develops, with the first in early 2022.

Addleshaw Goddard are currently advising SGN on the H100 Fife project referenced in the Strategy as a case study; and Aberdeen City Council on its procurement of a strategic partner for the Aberdeen Hydrogen Hub, also mentioned in the Strategy.