UK plans ‘twin track’ subsidies for blue and green hydrogen

Hydrogen is a versatile, storable, potentially zero-carbon fuel source. It produces just heat and water as by-products when burned or used in fuel cells, making it a highly attractive alternative to fossil fuels in industry, power, shipping, and transport. Part of the government’s 10-point plan for a “green industrial revolution” is a significant expansion in hydrogen, aiming to meet 5GW of hydrogen capacity by 2030.

Hydrogen is currently much more expensive to produce than conventional fuels, so the government is considering providing subsidies to bridge the gap between fossil fuels and hydrogen. It has launched a consultation to fund the difference between what producers can sell hydrogen for and what it costs them to manufacture it. The strategy is similar to the “Contracts for Difference” scheme used to drive down costs of offshore wind power. The scale of the subsidies or how they would be paid for has not yet been decided.

Antony Green, hydrogen director at the National Grid, said: “The transition to a green economy will require a mix of technologies and hydrogen will play a vital role […] unlocking the potential of hydrogen as a clean energy solution requires significant pace and innovation to scale up production, and the guidance from government today will be key to triggering the investment and buy-in needed to achieve this.”

The overall hydrogen strategy, supported by £105m of direct funding, aims to support more than 9,000 jobs and add £900m to the UK economy by 2030, and 100,000 jobs and £13bn by 2050. The government said that within the decade, hydrogen could be used in shipping, HGV lorries and trains, and in energy-intensive industries like chemicals and oil refineries.

Kwasi Kwarteng, the business secretary, said: “Today marks the start of the UK’s hydrogen revolution. This home-grown clean energy source has the potential to transform the way we power our lives and will be essential to tackling climate change and reaching net zero. With the potential to provide a third of the UK’s energy in the future, our strategy positions the UK as first in the global race to ramp up hydrogen technology and seize the thousands of jobs and private investment that come with it.”

Energy and climate change minister Anne-Marie Trevelyan added: “Today’s Hydrogen Strategy sends a strong signal globally that we are committed to building a thriving low-carbon hydrogen economy that could deliver hundreds of thousands of high-quality green jobs, help millions of homes transition to green energy, support our key industrial heartlands to move away from fossil fuels and bring in significant investment.”

The government has proposed a twin-track approach to develop both green hydrogen and blue hydrogen, prompting criticism from environmental campaigners. Green hydrogen is produced by splitting water by electrolysis while blue hydrogen is produced by splitting natural gas. While green hydrogen can be a zero-emission fuel when electrolysis is powered by renewables, blue hydrogen can only be described as a net-zero carbon fuel when used in conjunction with carbon capture and storage. A recent study found that blue hydrogen is more carbon-intensive than natural gas, coal, or diesel, as a source of heat.

“Hydrogen produced from renewable energy is genuinely low carbon, and genuinely useful in some areas of the economy where electrification is difficult,” said Dr Doug Parr, chief scientist for Greenpeace UK. Parr said producing large quantities of blue hydrogen, however, would not just be environmentally damaging but would also lock the country into expensive petroleum infrastructure. “So, the emphasis put on that part of the government’s plan looks like a bad idea both environmentally and economically.”

Keith Anderson, CEO of ScottishPower, backed investment in green hydrogen, commenting: “We fully support the aims of the hydrogen strategy, and the best way of meeting them is to prioritise the delivery of zero emission green hydrogen production facilities across the UK.”

However, the government says it wants to support both green and blue hydrogen with subsidies, in addition to other methods of producing hydrogen. A hydrogen sector development action plan is expected in early 2022, setting out how companies will be supported.

As part of the strategy, the government will work with industry to assess the feasibility of mixing 20 per cent hydrogen into the gas supply to cut emissions from natural gas by seven per cent. The government has also published a consultation on setting a standard for what can be considered low-carbon hydrogen.

Celia Greaves, CEO of the UK Hydrogen and Fuel Cell Association, generally welcomed the hydrogen strategy and the twin-track support for both blue and green hydrogen. However, she said the strategy could have been more ambitious and that industry believes that, with the right support, a 20GW mix of green and blue hydrogen could be deployed by 2030.

“It's clear that when these support mechanisms are up and running, the Government will need to spend more than £240m on funding the deployment of hydrogen,” she said. “While the sums announced today are a welcome start, a commitment to further investment through the Comprehensive Spending Review and the Treasury's long-awaited net-zero review is needed in order to provide investors and the industry with confidence that the UK will really back hydrogen. For now, however, the strategy signals progress and greater clarity. The UK now needs to pick up the pace to turn the policy ambition into investment, jobs and a cleaner future.”

Professor Martin Freer, director of the Birmingham Energy Institute, echoed calls for greater funding: “The ambitious plans set out in the hydrogen strategy to produce 5GW of low carbon hydrogen production capacity by 2030 is an important marker of intent for the development of the UK's energy economy. This sets a path for the development of hydrogen for both heavy transport and decarbonisation of heat. The underpinning innovation programme is absolutely essential, though direct funding of £105m and future £240m may not be enough and is dwarfed by Germany's €8bn and $19bn commitments.”