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In June 2019, the UK Government committed to a target of achieving net zero greenhouse gas emissions by 2050.47 The UK Government’s overarching strategy for achieving this decarbonisation target is set out in the Clean Growth Strategy48 which sits alongside its modern Industrial Strategy.49 Each year both the UK Government and the Committee on Climate Change report to Parliament on the current progress to, and next steps for, achieving these targets.50
The UK Government stated that achieving net zero will require “a fundamental and sustained transformation of our whole economy – including in our homes, transport, land, businesses and industry, and how we generate and use electricity”51 and that “the recovery [from Covid-19] is a chance for us to build back better, build back greener … placing clean growth and our target to achieve net zero greenhouse gas emissions by 2050 at the heart of our economic recovery”52. The UK Government is pursuing a wide range of policies and initiatives to achieve decarbonisation and increasingly policy papers and initiatives show that clean hydrogen could have a role to play in reaching net zero in the UK.
In April 2022, in its British Energy Security Strategy, the UK Government announced its renewed target of up to 10GW of low carbon hydrogen capacity by 2030 (doubling its previous target), with at least half of this coming from electrolytic hydrogen53. The UK Government also stated its ambitions to have achieved 1GW of electrolytic hydrogen in construction or operation by 2025 and to finalise a decision on blending up to 20% of hydrogen into the natural gas grid.
On 30 March the UK Government announced a shortlist of low carbon hydrogen projects, targeted to receive funding or support under the hydrogen business model and Net Zero Hydrogen Fund. The shortlist contains a total of 408MW of electrolytic hydrogen production capacity, with support contracts to be awarded in Q4 2023 and the first projects expected to be operational in 2025.
On 11 April 2023, the UK Government launched its second round of funding applications for its Net Zero Hydrogen Fund (worth up to £240 million) for strand 1 (development, front end engineering, and post-front end engineering) and strand 2 (capital expenditure) projects. The application windows are due to close in Q2 of 2023. The UK Government has separately developed support models for Carbon Capture Use and Storage (“CCUS”), which will be key to the development of “blue hydrogen” projects.
A core takeaway of the UK government’s approach to hydrogen and CCUS development is the creation of “SuperPlaces” or industrial clusters, which will become the focal point for initial low carbon hydrogen and CCUS projects.
In August 2021, the UK government released its much-awaited Hydrogen Strategy alongside consultations on: (i) a low carbon hydrogen business model; (ii) the design of the Net Zero Hydrogen Fund; and (iii) a new low carbon hydrogen standard.
On 19 October 2021 the UK Government announced its Net Zero Strategy, which included the establishment of a new Industrial Decarbonisation and Hydrogen Revenue Support (the “IDHRS”) scheme to fund new industrial carbon capture and hydrogen business models. Simultaneously the government also confirmed that the HyNet and East Coast clusters have been confirmed as the first two industrial carbon-capture clusters to be prioritised for development.
Following a series of industry workshops in 2022, the UK Government published an updated heads of terms in December 2022 for the low carbon hydrogen business model (the “Low Carbon Hydrogen Agreement” or the “LCHA”). The regime is closely based on the latest Contract for Difference standard terms and conditions, where a private contract for difference is entered into by a government owned entity (such as the Low Carbon Contracts Company). There are additional risks for blue hydrogen producers because of the interdependencies with the CO2 transport and storage network; whilst the LCHA seeks to address these through its proposed terms, these remain under development. It is likely the full draft will be available for consultation in 2023. For more detail on the latest developments on the LCHA, read our note here.
On 30 March 2023, the UK Government shortlisted 20 projects to be taken forward to the Agreeing an Offer stage of the allocation process for the joint Hydrogen Business Model revenue and Net Zero Hydrogen Fund capex support. The shortlist includes projects totalling 408MW of capacity across England, Scotland, and Wales. The government expects to award contracts totalling up to 250MW of capacity from the electrolytic hydrogen allocation round (“HAR1”), subject to affordability and value for money. The aim is for the contracts to be awarded in Q4 2023, with the first projects becoming operational in 202555.
On 5 April 2023, the UK Government published the Hydrogen Net Zero Investment Roadmap, setting out key details of the UK policy framework and investment opportunities across the hydrogen value chain56.
The Hydrogen Strategy highlights the role for hydrogen within decarbonisation of heat, industry and transport in the UK. Until recently, the UK Government’s focus has been on research and development of hydrogen technologies and demonstration/feasibility projects throughout the hydrogen supply chain to explore the possibilities and cost consequences of using hydrogen for decarbonisation. Over time this has involved increasing commitments to grants and funding for innovation competitions, research and development.
In addition, the UK Government has stated any development of hydrogen would need to be alongside the development of carbon capture, usage and storage (“CCUS”) which has also seen increasing levels of commitment and attention from the UK Government in recent years and in August 2020, the UK Government published its response to a consultation on CCUS business models, which also considers the role of blue hydrogen in the UK’s future energy mix.
Whilst, on the face of it, the key motivation for the Hydrogen Strategy is the UK Government achieving its net zero target by 2050, it should be noted that the Hydrogen Strategy sits alongside the UK Government’s modern Industrial Strategy. In the UK, decarbonisation should be accompanied by economic growth and new industrial opportunity. Any uses of hydrogen need to be economically viable and competitive when compared to alternative solutions such as electronification. For example, as electrification of cars is growing, the documents repeatedly indicate that the use case for hydrogen is strongest for heavy vehicles (such as HGVs, buses and trains) where benefits of hydrogen fuel cells are greatest in comparison to electric battery power. In addition, this appears to be driving the focus at this stage on research and development to bring down the costs of hydrogen, to innovate and develop UK expertise and to build the information required to allow the UK Government to make the far wider reaching strategic decisions needed on infrastructure (in particular for electrification, hydrogen and CCUS) to allow the UK Government to achieve its 2050 targets.
HyNet North West is a hydrogen energy and CCUS project. The aim is to create a low carbon exemplar cluster to act as a UK model for clean growth. HyNet is based on the production of hydrogen from natural gas with a new hydrogen pipeline and CCUS infrastructure. HyNet is being led by Progressive Energy and has a wide range of partners/supporting companies from across the industry.
HyDeploy, a consortium led by Cadent, is demonstrating the feasibility of blending up to 20% hydrogen with natural gas in the gas network. The aim is to provide evidence that customers do not need to change heating/cooking appliances and that customers do not notice a difference when using the hydrogen blend.
The HySecure project, conducted by INOVYN as lead partner, Storengy and Element Energy, intends to demonstrate the deployment of grid-scale storage of hydrogen in a salt cavern. The proposed location of the hydrogen storage cavern is a site owned by INOVYN known as H325 on the Stublach Site of the Holford Brinefield.
The Committee on Climate Change (the “CCC”) is an independent, statutory body established under the Climate Change Act 2008. Its purpose is to advise the UK Government on emissions targets and to report to Parliament on progress made in reducing greenhouse gas emissions and preparing for and adapting to the impacts of climate change. The CCC’s report, ‘Reducing UK emissions: 2020 Progress Report to Parliament’, released in June 2020,57 “recommends that Ministers seize the opportunity to turn the COVID-19 crisis into a defining moment in the fight against climate change”58 and states that “Climate investments will help create jobs and stimulate economic recovery, while changing the course of UK emissions and improving our resilience to climate change for the coming decade and beyond”.
The report highlights five investment priorities:
In addition, the report notes the following opportunities to support the transition and recovery by investing in the UK’s workforce, and in lower-carbon behaviours and innovation:
In relation to hydrogen specifically, the report states that a clean hydrogen economy will be needed to service demands of industrial processes, vehicles, electricity and heating and that “by 2050, a new low-carbon industry is needed, with UK hydrogen production capacity of comparable size to the UK’s current fleet of gas-fired power stations.” The CCC stated in a March 2023 report, ‘Delivering a reliable decarbonised power system’, that hydrogen infrastructure will be required regardless of whether it will be used to heat buildings. The CCC also emphasised the importance of hydrogen in the power sector, stating that it could provide “flexibility options to manage both deficits and surpluses in supply.” 59
The UK Government has not explicitly adopted a preference from a policy perspective between blue hydrogen or green hydrogen. In its Hydrogen Strategy, reference is made throughout to “low carbon” hydrogen and development of CCUS is stated to play a key role in the supply of hydrogen. A Frontier Economics report on hydrogen business models60 also focuses on three technology groups:
Whilst the UK Government does not view these technologies as being an exhaustive list of clean hydrogen technologies, the UK Government clearly sees both green and blue hydrogen being an important part of the UK’s future energy mix. This thinking is consistent with the approach taken in the UK Hydrogen Strategy (see Part 4 below).
However, through the Hydrogen Supply Programme,60 the UK Government is funding initiatives for the supply of clean hydrogen and this includes a number of green hydrogen research and development projects (in particular, those associated with the development of offshore windfarm technologies).62
In addition, a number of the papers produced within industry highlight that the UK can be viewed as being uniquely well placed for green hydrogen with its focus on renewable electricity (again particularly from offshore windfarms).
On 17 August 2020 the UK government first released its much-awaited Hydrogen Strategy as part of its commitment to reaching net-zero carbon emissions by 2050. The Hydrogen Strategy sets out the UK Government’s use cases, the development of a full hydrogen value chain and the next steps to achieving a hydrogen economy. This has since been updated in July and December of 2022, and supplemented by the Net Zero Strategy, published on 19 October 2021; the British Energy Security Strategy, published on 7 April 2022; and the Hydrogen Net Zero Investment Roadmap, published on 5 April 2023.
Key takeaways of the Hydrogen Strategy as updated in 2022, and supplemented by the British Energy Security Strategy 2022; and the Hydrogen Net Zero Investment Roadmap 2023 are:
Innovation support: The UK Government’s Hydrogen Investment Roadmap provides a 2035 Delivery Plan to develop the UK hydrogen economy, which sets out key dates for funding rounds that will support hydrogen project. It noted that the UK Government has continued to fund hydrogen innovation, including through the £1 billion Net Zero Innovation Portfolio (NZIP).On 19 October 2021 the UK Government announced its Net Zero Strategy, key takeaways of which included:
Licensing
The Gas Act 1986 (“GA 1986”) is the primary source of legislation governing the licensing of the UK downstream gas industry, which includes the transportation, trading and sale of gas to end-users. The definition of “gas” in the GA 1986 expressly captures a substance in a gaseous state consisting wholly or mainly of hydrogen (section 48(1)). Therefore, the requirements and obligations set out in the GA 1986 would generally apply to hydrogen.
The GA 1986 does not require a licence to be held for the production of hydrogen or gas more generally, although various other legal requirements are relevant to the production of hydrogen (such as planning, permitting and environmental controls and safety legislation). See further below.
In the UK Government’s Energy Security Bill factsheet, last updated on 6 June 2023, the UK Government states the intention that it will enable a regulated asset base model for hydrogen pipelines to be implemented via gas transporter licences under the GA 1986, and this will include powers for the Secretary of State to grant and modify gas transporter licences in respect of hydrogen pipeline projects that are allocated a regulated asset base.
The Energy Bill also proposes, in section 126, to amend the GA 1986 to create a new gas system planner licence. The new gas system planner must carry out its functions in the way that it considers is best calculated to promote the net zero objective, the security of supply objective, and the efficiency and economy objective.
In addition, a hydrogen producer may also require one of the other licence categories set out in the GA 1986 (such as a gas shipper licence) depending on how the supply chain is structured. However, note that under section 7(3A) of the GA 1986, a licence authorising the conveyance of gas through pipes to any premises must not be granted to a gas producer, unless it is a condition of the licence that the person must not convey gas through pipes to 100,000 or more sets of premises. “Gas producer” is defined to mean a person who:
This latter category would be expected to cover the production of hydrogen.
The restriction in section 7(3A) of the GA 1986 is one aspect of the unbundling requirements, which involve separating the ownership and operation of the transmission network from other activities, including gas production and supply.
There are various pieces of UK legislation and regulation which require certain permits and permissions to be held in order to produce hydrogen. Key points to note include the following:
The fact that there is no simplified process for smaller and/or localised hydrogen production is a key challenge.
Safety and environment regulation
There are various safety and environmental regimes which apply to the production of hydrogen and which impose obligations on producers in relation to health and safety and environmental management.
Persons wishing to transport hydrogen through gas pipelines in the UK require a licence. The EU unbundling requirements also apply to prevent the holder of a gas transportation licence from also holding a gas shipper’s licence, a gas supplier’s licence or an interconnector licence. Various safety regimes also currently apply to the transportation of hydrogen via pipelines.
International regulations govern the carriage of dangerous goods by road, via the European Agreement concerning the International Carriage of Dangerous Goods by Road (“ADR”). In Great Britain, the ADR is applied by the Carriage of Dangerous Goods and Use of Transportable Pressure Equipment Regulations 2009.
There are no general route restrictions on vehicles transporting hydrogen in the UK. However, the UK authorities notified the United Nations Economic Commission for Europe (UNECE) of several categories of tunnel restrictions which came into force in the UK.
Certificates of Origin
The UK currently has no system of certification of hydrogen origin at a national level, as the Renewable Energy Guarantees of Origin (REGO) scheme has no direct impact for hydrogen due to the 0.1% maximum hydrogen concentration in the gas flow.
Hydrogen fuel cells
Hydrogen fuel suppliers in the UK are required to provide hydrogen which meets specific international standards and fuelling stations must meet minimum design, installation, commissioning, operation, inspection and maintenance requirements for the safety and performance of fuelling stations that dispense gaseous hydrogen.
Refuelling stations are also subject to certain additional planning and consenting requirements, including the requirement to conduct an environmental impact assessment and may also be subject to restrictions on location.
Injecting hydrogen into the existing natural gas network would alter the calorific value of the gas. Consequently, regulatory changes may be required to enable the blending of hydrogen into the existing natural gas network. It also seems likely that various contractual arrangements in the industry in relation to supply and billing will need to be amended, including potentially the charging methodologies that apply under the gas licences.
Injecting gas with a higher hydrogen composition into the gas-grid may require end-user gas equipment to be adapted or replaced, as many appliances are designed for conventional natural gas with differing calorific value. In the UK, gas appliances manufactured after 1996 have been designed to operate with a hydrogen mix of up to 20%, so it may be possible to increase the current limits without having to make full design changes.83
Section 114 of the Energy Bill proposes to modify schedule 2B of the Gas Act 1986 (the gas code) to introduce a “hydrogen grid conversion trial” scheme, which would enable trails to be conducted within certain trial locations for a fixed period, for the purposes of gathering evidence to assess the feasibility, costs and benefits of using hydrogen for heating or cooking. The Energy Bill would also impose a duty on the relevant gas transporter (or person conducting a hydrogen grid conversion trial) who is altering the properties of a gas being delivered to consumers to, without charge to the consumer, adjust or replace the burners at the relevant premises to ensure the gas can be burned safely and efficiently.
Section 115 of the Energy Bill enables the Secretary of State to introduce further regulations to ensure consumers in locations where hydrogen grid conversion trials are being conducted are properly informed, given adequate warning and provided with further protection. Such further regulations may also impose civil penalties in respect of a failure to comply.
In addition, Government has conducted a call for evidence on steps for enabling or requiring hydrogen-ready industrial boiler equipment. Many of the respondents to the call for evidence supported the idea of Government enabling or requiring hydrogen ready industrial boiler equipment and noted that technical standards and certification routes would be important in enabling the supply chain to develop.
In February 2023 the UK Government announced plans to introduce a globally recognised certification scheme, the UK Low Carbon Hydrogen Certification Scheme, to help verify the sustainability of low carbon hydrogen. The goal of this is to decarbonise the UK hydrogen sector and promote cross-border trade, whilst encouraging economic growth and job creation in the sector. Consultation with the hydrogen industry is currently underway, and the UK Government intend to introduce the certification scheme by 202584 .
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