BEIS Hydrogen Strategy

The flagship Hydrogen Strategy paper was unveiled by BEIS on 18 August and confirmed that hydrogen will form a crucial part of the UK’s net zero economy. Perhaps disappointingly, the paper only reaffirms the 5GW of production capacity by 2030 commitment as set out in the Ten Point Plan with no more ambitious or technologically specific targets set. Nonetheless, the paper recognises analysis for Carbon Budget Six indicating that by 2050 the hydrogen sector could need to cater for around 20-35% of final energy demand, which is about 250-460TWh of low carbon hydrogen. In total £900mn of government funding has been confirmed through the strategy, with BEIS commenting that the sector is likely to bring over £4bn in private capital and 9,000 jobs in the next decade.

BEIS adopts a “twin track” approach in its strategy meaning it will support multiple production technologies rather than a single technology, with particular emphasis placed on blue and green hydrogen. Blue hydrogen is made through combining Steam Methane Reformation (SMR) with Carbon Capture, Utilisation and Storage (CCUS); while green hydrogen is formed by passing an electrical current through water to break the H₂O molecule down into its different constituent parts.

As it stands CCUS-enabled hydrogen is the lowest-cost production method, but the cost of green hydrogen is likely to reduce over time with innovation, scale, and increased availability of low-cost renewable power. BEIS projected that renewable electrolysis will cost £112/MWh in 2025 and £71/MWh in 2050; compared to SMR with carbon capture at £59/MWh in 2020 and £67/MWh in 2050. For green hydrogen BEIS has opted for a “learn by doing” approach over the course of the 2020s to provide lead-in time for it to eventually tap into the value chain created by large-scale CCUS-enabled hydrogen production. In the long-term BEIS has said that green hydrogen has the potential to become cost competitive with blue hydrogen, and in some projections this could happen as early as 2025 to 2030.  As one of the co-leads of Mission Innovation’s new Clean Hydrogen Mission, BEIS reiterated the UK’s commitment to help bring down the costs of clean hydrogen production to $2/kg by 2030.

Figure 1: Overview of selected hydrogen production methods

Source: Cornwall-Insight graph from BEIS data in Table 2.2. Note: grey hydrogen is SMR without carbon capture; blue hydrogen is SMR with carbon capture; green hydrogen is renewable electrolysis. 

As a “turning point” for low carbon hydrogen production, the strategy outlines three major consultations that have been issued alongside the strategy paper:

  • Hydrogen Business Models: the preferred model would employ a Contracts for Difference style mechanism to provide revenue certainty for hydrogen producers.  The approach is due to be finalised in 2022 so the first contracts can be allocated early 2023.
  • Design and Delivery of the Net Zero Hydrogen Fund: a fund of £240mn of government co-investment to support hydrogen production out to 2025.
  • Low Carbon Hydrogen Standard:  this will underpin the development of low carbon hydrogen, such as setting standard for maximum acceptable levels of greenhouse gas emissions in hydrogen production. It is expected to be finalised by early 2022. 

Detail on a hydrogen regulatory framework remains vague, with BEIS commenting that it will be included in the strategy’s next update set for early 2022, which will be informed by industry, consultation representations, the Hydrogen Advisory Council, and the newly formed Hydrogen Regulation Forum. In the early 2020s, the government will focus on loosening regulation around first-of-a-kind projects for low carbon hydrogen and address any barriers to investment across the value chain. It confirmed that it is working with the Health and Safety Executive to assess the feasibility of 20% hydrogen blending in the gas network and will review systemic hydrogen network requirements this decade. This includes reviewing the market framework set out in the Gas Act 1986 and Gas Safety Management Regulations to ensure it is fit for purpose, as currently the hydrogen content in the network is limited to 0.1%. 

By 2030 the strategy envisages demand of up to 38TWh, not including hydrogen blended into the gas grid. This will be split across the industry (21TWh), power (10TWh), heat in buildings (1TWh) and transport (6TWh). By 2035 the total demand could increase to 55-165TWh. Industry and transport are positioned as crucial early adopters of hydrogen, while the strategy is less clear when it comes to heat. Key policies on repurposing existing natural gas and building hydrogen infrastructures to transport and store hydrogen are to be made this decade.

For more information regarding the hydrogen strategy, please contact

Figure 2: Hydrogen economy timeline through the 2020s

Source: Cornwall-Insight graph from BEIS data in Table 2.1.

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