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Linklaters
Part 2

Hy-Politics – political considerations shaping the evolution of clean hydrogen policy

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. 

 
Summary of UK use case

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.

 
Examples of feasibility/demonstration projects in the UK

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.

UK industry perspective on the use case

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:

  1. low carbon retrofits and buildings that are fit for the future;
  2. tree planting, peatland restoration, and green infrastructure;
  3. energy networks must be strengthened;
  4. infrastructure to make it easy for people to walk, cycle, and work remotely; and
  5. moving towards a circular economy.

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:

  1. reskilling and retraining programmes;
  2. leading a move towards positive behaviours; and
  3. targeted science and innovation funding.

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 

Green vs. blue

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:

  • methane reformation with CCUS, either via steam methane reformation (SMR) or autothermal reformation (ATR);
  • biomass gasification with CCUS; and
  • electrolysis using proton exchange membrane (PEM) or alkaline.

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).

Part 4

Hy-Achieving – creating a suitable incentive regime

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: 

  • Hydrogen targets: The UK Government doubled its ambition to up to 10GW hydrogen production target by 2030. It  launched the £240 million Net Zero Hydrogen fund in early 2022 which selected 15 successful applicants in April 2022 to receive first round funding. The UK Government will finalise the Hydrogen Production Business Model in late 2023, with first contracts likely to be awarded in Q1 2024.
  • Blue and Green Hydrogen: The strategy covers both “blue” hydrogen (i.e. hydrogen derived from natural gas through the process of steam methane reforming (SMR), with the associated carbon dioxide captured through CCUS technology) and “green” hydrogen (i.e. mainly produced by water electrolysis using renewable electricity, with no associated carbon emissions). Unlike the EU, which has a clear preference for “green” hydrogen, the UK sees both “green” and “blue” hydrogen being an important part of the UK’s future energy mix (i.e. a “twin-track” approach). The UK is geographically well-placed to develop CCUS projects and therefore “blue” hydrogen is likely to be key in the UK alongside green hydrogen production.
  • Technology neutral: The UK Government has sought to remain technology-neutral in terms of the support which will be offered. The strategy recognises that a range of technologies will play a future role in hydrogen production, noting that costs for some technologies are currently cheaper (such as CCUS technology) and will be needed to scale-up production in early years.
  • Contractual support model: The UK Government has proposed a contractual support model to incentivise hydrogen production, borrowing heavily from the UK’s CfD regime for renewables. By utilising a contractual support mechanism similar to the CfD regime for renewables, the UK Government hopes that it will see a clean hydrogen revolution, akin to the success and rapid expansion of renewable power generation in the UK. Under this model, the UK Government has sought to mitigate two key risks: (i) market price risk (the risk that production costs are high compared to the market price achieved); and (ii) volume risk (the risk that producers cannot sell enough hydrogen to cover their costs).
  • Market price risk: The UK Government has considered three methods for dealing with price risk, its preferred option appears to be the “variable premium” model. Similar to the CfD regime for renewables, the proposed “variable premium” model will aim to mitigate market price risk by topping-up producers’ revenues up to an agreed “strike price”. Where the hydrogen reference price exceeds the “strike price”, producers will be required to repay revenues down to the agreed “strike price”. The effect of this is to provide producers with a stable revenue stream.
  • Volume support: The UK Government has considered a number of volume support options, including: (i) availability-based payments (i.e. a split payment model where the production plant receives a payment covering fixed costs simply for being available and a separate variable payment based on the volume of hydrogen produced); (ii) or acting as a backstop purchaser of last resort where a producer has been unable to sell minimum quantities due to low demand. The UK Government’s preferred approach to provide volume support is through sliding scale price support. This would involve higher price support where volumes sold are low. Sliding scale support would divide production levels into tranches, with different price support levels for each tranche – the aim being to achieve a minimum economic return at lower volumes sold.  
  • Reference price: In order for the “variable premium” model to work, there needs to be a reference price for hydrogen against which the agreed “strike price” can be compared. The UK Government’s view is that the reference price should ideally reflect the market value of the product. However, until there is a market price for hydrogen, a proxy needs to be developed. The UK Government has proposed a number of alternatives, but its “minded-to” position is that: 
  • in the longer-term, a market reference price will be developed, which represents the value of low carbon hydrogen in the market; and
  • in the shorter/medium-term, the reference price will be the higher of the natural gas price and the average achieved sales price at each plant. This option gives pricing power to the producer to incentivise end users to switch to hydrogen. The inclusion of the natural gas price as a floor is because it is the most common fuel from which end users would switch so are likely to be willing to pay at least that price for hydrogen. UK Government also proposes a gainshare mechanism or periodic payment linked to achieving a certain price threshold. This is to incentivise producers to increase the achieved sales price.
  • Indexation: In the draft heads of terms for the Low Carbon Hydrogen Production Business Model published on 16 December 2022 (and the latest draft agreement dated 18 May 2023), the UK Government sets out two methods for strike price indexation, which depends if hydrogen production is through electrolytic facilities or CCUS-enabled facilities:
    • for electrolytic facilities, indexation is to be inflation-linked (to CPI); and 
    • for CCUS-enabled facilities, indexation of the natural gas component of costs is to be linked to a gas reference price, and indexation of all other components of the strike price is to be linked to CPI.
  • Contract length: The UK Government acknowledged precedents set under the CfD regime (15 years) and the industrial CCUS contract (10 years); and in its latest proposed heads of terms, has now proposed a fifteen (15) year contract length for its Hydrogen Production Business Model. 
  • Allocation: Whilst in the short term, the proposed business model will be allocated bilaterally, the UK Government has acknowledged broad support to transition to a competitive price auction process in the medium-term (similar to the CfD regime for renewables). Its stated aim is to move to the auction process by 2025, as soon as regulation and market conditions allow.
  • Funding the business model: A difficult question which has not yet been answered is how the business model will be funded. Revenue support for electricity has been funded by passing the costs onto electricity consumers; however, the issue is more complex for hydrogen, where the end-consumers of hydrogen are more varied. It is not clear therefore whether the costs will be funded by both gas and electricity consumers. However, as part of the Net Zero Strategy 2021, the UK Government stated that from 2025 at the latest, all revenue support for hydrogen production is to be levy funded, subject to consultation and legislation.  
    • The version of the Energy Bill dated 25 April 2023 (the “Energy Bill”) provides for the Secretary of State to designate an entity to be the counterparty to the hydrogen production revenue support contracts. The Energy Bill also provides for the Secretary of State to appoint a hydrogen levy administrator, to collect levy payments from market participants including gas and electricity suppliers and gas shippers, to fund the revenue support contracts. 
    • Section 103 of the Energy Bill also provides that the Secretary of State may, out of money provided by Parliament, provide financial assistance to any person for the purpose of facilitating or supporting low carbon hydrogen production or the transportation and storage of hydrogen. This includes expenditure incurred by the Secretary of State for the purposes of making payments to a revenue support counterparty, and can be in any form including grants, loans, guarantees, indemnities, or insurance.  
    • However, the UK Government (in June 2023) indicated that a hydrogen levy is unlikely to be adopted, in order to avoid placing additional costs onto consumer bills and therefore the costs may instead be covered through general taxation. 
  • Demand-focussed hydrogen policies: The UK Government is considering a range of policies to create a demand for hydrogen production:
  • Carbon pricing: By strengthening the UK Emissions Trading Scheme pricing, the UK Government hopes to promote investment in low carbon technologies, including clean hydrogen.
  • Creation of a low-carbon hydrogen standard: To support the demand for low carbon hydrogen by providing confidence to end users that the hydrogen purchased is a low carbon alternative to existing fuels. standard has a single threshold which is set at the point of production of hydrogen, which is 20gCO2e/MJLHV.  A hydrogen certification scheme to demonstrate high-grade British hydrogen for export and ensure high standards of imported hydrogen will be introduced by 2025.
  • Sector-specific policies: For example the Renewable Transport Fuel Obligation (“RTFO”) in transport, the Capacity Market (“CM”) in the power sector, or the Industrial Energy Transformation Fund (“IETF”) in industry. UK Government guidance in Spring 2023 enhanced the flexibility of the RTFO for electrolytic hydrogen, allowing suppliers to blend additional and non-additional renewable energy in order to reach the greenhouse gas emissions threshold and qualify for support.  
  • Broader regulatory regime: Further clarity is yet to be provided on licensing requirements and roles, for example, whether hydrogen production, storage and transportation will require a licence, and whether National Grid’s role as the gas transmission operator will be extended to encompass hydrogen, or whether a new regulated entity will be created. A review of the Gas Act 1986 will also be launched to consider the future regulation of a gas industry which includes hydrogen.
  • Hydrogen storage: The strategy acknowledges the need to scale up the hydrogen network and storage infrastructure in time. The UK Government has committed, in its British Energy Security Strategy to design new business models for transport & storage by 2025.  Following the UK Hydrogen Strategy in 2021, a £69 million Longer Duration Energy Storage Demonstration Competition was launched. It has two streams, both of which are now in phase 2 which relates building and commissioning and consists of the bulk of the available funding. 

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: 

  • the UK Government announced the establishment of a new Industrial Decarbonisation and Hydrogen Revenue Support (the “IDHRS”) scheme to fund new industrial carbon capture and hydrogen business models. The £140 million scheme will initially commit to providing up to £100 million to award contracts of up to 250 MW of electrolytic hydrogen production capacity in 2023 with further allocation in 2024. Eventually, the IDHRS will fund the allocation of the hydrogen business model contracts to both electrolytic and CCUS-enabled projects, resulting in up to 1.5 GW of low carbon hydrogen contracts awarded to projects. 
  • the anticipated announcement of a funding envelope in 2022 enabling the award of the first contracts to industrial carbon capture facilities and CCUS enabled hydrogen production projects from 2023 the Cluster Sequencing process, to deliver up to 3 MtCO2/yr of industrial carbon capture and up to 1GW of CCUS-enabled hydrogen by the mid-2020s. As of March 2023, 8 projects have now been selected to proceed to negotiations for support through relevant business models as part of the UK Government’s “Cluster Sequencing” process; 
  • further allocation rounds for all types of eligible low carbon hydrogen production and industrial carbon capture from 2025, so as to enable the UK to meet its 2030 deployment ambitions of 6MtCO2/year of industrial carbon capture, 5 GW hydrogen production capacity, and four CCUS clusters; and
  • from 2025 at the latest, all revenue support for hydrogen production to be levy funded, subject to consultation and legislation.
Part 5

Hy-ly Volatile? making it safe, sustainable and transportable

Production

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:

  • gets natural gas from its natural condition in strata (otherwise than as an unintended consequence of the storage of gas) and requires a licence under the Petroleum Act; or
  • produces any other gas, including in particular biomethane, which is suitable for conveyance through pipes to premises in accordance with a transportation licence.

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.

Planning and permitting

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:

  • planning permission is likely to be required under the Town and Country Planning Act 1990 (“TCPA”) for the construction of a hydrogen production facility. An Environment Impact Assessment is also likely to be required as part of the planning process under the TCPA.
  • depending on the quantity of hydrogen that is stored at a production site, the Planning (Hazardous Substances) Regulations 2015 (“PHSR”) and/or Control of Major Accident Hazards Regulations 2015 (“COMAH”) may be applicable.
  • an environmental permit from the relevant local authority would be required under the Environmental Permitting (England and Wales) Regulations 2016 (“Permitting Regulations”) for any activities or plant which fall within the scope of the Permitting Regulations. The Permitting Regulations implement the requirements of Directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010 on industrial emissions (integrated pollution prevention and control) (the “EID”), which regulates the production of hydrogen by virtue of Annex 1. The Permitting Regulations require operators of “regulated facilities” to obtain a permit or to register some activities, which would otherwise require permits, as “exempt facilities”. They regulate, among other things, installations where hydrogen is produced on an industrial scale.

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.

Transportation: Pipelines

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.

Transportation: Road

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.

Hydrogen as a Fuel and for Vehicles

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.

Gas Grid Issues

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.

Sustainability of Hydrogen

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 .

Footnotes

Key Contacts

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