Sprung Link Text
On August 17, 2021, the U.K. government published its highly-anticipated Hydrogen Strategy. The strategy outlines the U.K.’s approach to developing a thriving low-carbon hydrogen sector, re-states its ambition for 5GW of low carbon hydrogen production capacity by 2030 and outlines how the hydrogen sector will be instrumental in achieving the U.K.’s target of net zero greenhouse gas emissions by 2050.
This article provides an overview of the U.K. Hydrogen Strategy and highlights some of the key commercial opportunities outlined thereunder.
The government estimates that the market stimulation promised by the U.K. Hydrogen Strategy could facilitate up to £4 billion of private sector investment in the U.K. low carbon hydrogen market during the 2020s alone, representing not insignificant investment potential arising from the implementation of the measures contained in the U.K. Hydrogen Strategy.
In addition to the consultations described above, the U.K. Hydrogen Strategy proposes various mechanisms to support decarbonization across all sectors of the economy through the adoption of low carbon hydrogen. These will include exploring hydrogen’s increased use in industry and the encouragement of developments in hydrogen networks, storage, hydrogen-to-power, transportation and domestic heating applications.
Similar to the recently-announced U.S. strategy (see our article, DOE Launches Energy Earthshot to Spur Low Cost, Clean Hydrogen), the U.K. Hydrogen Strategy reflects a “twin-track” approach of developing both green and blue hydrogen. Today, most hydrogen is produced by reacting natural gas with steam (commonly known as Steam Methane Reforming), a highly carbon-intensive and methane-intensive process. Blue hydrogen refers to hydrogen produced in the same manner but with the addition of carbon capture, usage and storage (CCUS) which is aimed at reducing carbon emissions from the production process. Green hydrogen refers to hydrogen produced through the electrolysis of water using renewable power.
There are no established international definitions or standards for green or blue hydrogen, although there are a number of initiatives to create such standards in different jurisdictions. The U.K. Hydrogen Strategy’s launch coincides with the commencement of a consultation to establish a consistent standard for low carbon hydrogen. This is intended to aid the uptake of hydrogen by giving producers clarity with respect to the production processes that must be followed to produce low carbon hydrogen meeting a common standard and give consumers confidence in the sustainability and low carbon credentials of low carbon hydrogen. Our own view, based on experience developing hydrogen projects worldwide, is that this is an essential cornerstone of the development of the sector that should be pursued as quickly as possible.
It remains to be seen whether the government’s support for blue hydrogen will continue in the long-term. A number of other countries, as well as the EU member states as a bloc, currently view blue hydrogen (at best) as a transitional source of energy or a pathway to reduce emissions from industries that for technological reasons are reliant on gas for the long term, with green hydrogen being the preferred production pathway. It will be particularly important to see whether the low carbon standard to be developed will impose requirements on the source of electricity to be used to power the CCUS as well as taking into account methane leakage in the system boundaries when determining the carbon footprint for blue hydrogen production.
The government has proposed the following key support mechanisms, which will be of interest to potential investors in the U.K. hydrogen sector:
The government’s Hydrogen Strategy indicates great promise for the U.K. hydrogen sector, although the implementation is of course critical. How these statements of ambition will, practically speaking, translate into viable commercial opportunities for investors and meaningful decarbonization will depend to a great extent on the outcomes of the government’s consultations published in parallel with the U.K. Hydrogen Strategy. Further clarity on this should be possible from early 2022 when the initial incentives to be offered to investors in low carbon hydrogen should be published.
As part of our work representing key stakeholders in the low carbon hydrogen sector and the energy transition more generally, we are closely following these and other developments in the policy and regulatory landscape and would be happy to speak with you if you would like further information as these matters evolve.
Special thanks to attorney Saloni Patel who contributed to this publication.