Businesses need more clarity on UK hydrogen priorities, say MPs

In a report published at the end of its inquiry into the role of hydrogen in achieving ‘net zero’, the Commons’ Science and Technology Committee said that while hydrogen “can undoubtedly help key UK industrial sectors decarbonise”, investors would benefit from greater certainty on how the government imagines hydrogen solutions being scaled up in specific sectors of the economy.

Stacey Collins, a specialist in low carbon projects at Pinsent Masons, said: “The UK can become a world leader in decarbonisation technologies, if it can harness the various ways low carbon hydrogen can be utilised, for example in transport, heat, power and industrial processes. However, there are a vast number of decarbonisation-focused strategies and projects being explored across the market. Given limited resource and budget, it makes sense that the government should focus on those strategies and projects that have a realistic chance of contributing to the net zero objective.”

“That said, it feels too early to clip the wings of any of the decarbonisation potential of low-carbon hydrogen – particularly when we’ve only relatively recently started properly exploring it,” he said.

The Committee’s report reflected, among other things, on the contents of the government’s hydrogen strategy, published in 2021, and subsequent updates on its implementation – the latest of which was published on 13 December 2022 (18-page / 367KB PDF). Separately, on 14 December 2022, the Scottish government published a five-year action plan for supporting the development of a hydrogen economy in Scotland.

The Committee said the UK strategy papers provide “a framework with an intention for further consultations rather than early or firm decisions”. They said that while the UK government has an “understandable desire to keep its options open pending market and technological developments”, this “may not provide the clarity that investors require to proceed” and risks progress against net zero targets.

“The government needs to trade the risk of failing to meet net zero if decisions on how to reach it are not taken soon enough against the risk of pursuing unproven technologies or solutions that are not cost-effective which would then set the UK back at a later stage,” the Committee said.

The government should “outline a series of decision points between now and 2050 that will determine the role of hydrogen in the UK, in each policy area identified in the ten point plan for a green industrial revolution”, within the next two months, along with “an outline of the scientific and technological progress that needs to be made to allow hydrogen to play its part in our energy system”, it said.

 “The government should prioritise the use of hydrogen in those sectors where there is a genuine prospect of technical, feasible and economically viable deployment,” the Committee said. “The government should work closely with businesses and international partners to set, in the 2020s, a realistic strategy for the adoption and use of hydrogen in these sectors.”

As part of its plans to achieve ‘net zero’ greenhouse gas emissions by 2050, the government has set a target of hitting 10GW of low carbon hydrogen production capacity by 2030. In its December 2022 hydrogen strategy update, the government said that it has so far identified up to 20GW of potential hydrogen projects through to 2037, that it hopes to issue final grant offer letters in early 2023 in relation to the Net Zero Hydrogen Fund, and sign the first hydrogen production business model contracts in 2023 too. The business model is designed to incentivise investment in low carbon hydrogen production and use.

Low carbon hydrogen has been identified as having potential for powering homes, transport and industry. However, in its report, the Science and Technology Committee queried whether hydrogen-powered cars will emerge as a realistic challenger to electric vehicles. According to Pinsent Masons experts, the UK’s transition to hydrogen-powered vehicles is being held back by the fact that its hydrogen infrastructure is not yet ready to accommodate a major shift to the fuel.

The Committee also said it thinks hydrogen’s role in heating buildings – the potential for which is acknowledged in the government’s heat and buildings strategy – “looks likely to be limited rather than widespread”. Alongside publication of its December 2022 hydrogen strategy update, the government opened a consultation on improving boiler standards and efficiency. The consultation, open until 21 March 2023, seeks views on proposals to mandate that from 2026 all newly-installed domestic-sized gas boilers are ‘hydrogen-ready’, among other things.

The Committee was, though, more positive about hydrogen’s role in other use cases. It said hydrogen has a “critical” role to play in decarbonising the UK’s rail network, and it called on the government should develop a strategy for promoting hydrogen’s role in decarbonising shipping and aviation globally and lead on the development of standards in respect of alternative fuels and hydrogen within aviation and shipping.

The Committee also urged the government to continue providing “policy support and infrastructure for grid-scale energy storage technologies”, citing hydrogen as one of “several potential technologies available for energy storage”. It said hydrogen has “unique features as a means of energy storage, since as a clean-burning gas it can be transported through existing infrastructure and stored safely for long periods of time, if necessary”.

The government published an assessment of hydrogen transportation and storage infrastructure requirements up to 2035 alongside its December 2022 strategy update.

The MPs also addressed the UK government’s support for both ‘green’ electrolytic and ‘blue’ carbon capture-enabled hydrogen production in its report. It said that while the government “should not be dependent on either blue or green hydrogen alone in the short-term”, there is a need for the government to do more to promote investment in green hydrogen.

“Several countries are prioritising green hydrogen in their hydrogen strategies, and it seems likely that international interest in demonstrably low-carbon hydrogen, including green hydrogen, will continue to grow,” the Committee said. “This offers an opportunity for the UK to become a leader in green hydrogen production and development.”

“The government needs to provide more clarity in its updates to market on the hydrogen strategy, with a view to guaranteeing significant green hydrogen development over the next decade. In its response to this report, the government should set out how it intends to support the development in the UK of green hydrogen projects at scale during this decade, to ensure that green hydrogen can be produced in the UK and so it can become cost-competitive with blue hydrogen. This should include additional efforts to reduce the cost of electrolysers,” it said.

Stacey Collins of Pinsent Masons said: “A commercially viable low carbon hydrogen economy, and one which is operationally sound, is critical to support decarbonisation. However, the development of this economy will require supporting transport and infrastructure, the future of which faces significant uncertainties."

“The December 2022 hydrogen strategy update offers fundamentally important insights into how the future of the low carbon hydrogen economy is likely to develop and how the UK’s ambitions for that hydrogen economy can be supported. That ambition includes providing UK companies with the knowledge and tools to be central to the sector’s growth – so that they can ultimately win work both inside and outside the UK. However, significant financial investment to maintain growth, and it’s right that the government is aware of the need to ensure the UK’s low carbon market remains an investable proposition. 2023 should be a big year for the hydrogen market,” he said.