WBD: UK hydrogen - the pace picks up

Read the article on the WBD website here. 

As flagged in our article, Energy Act 2023: The countdown to net zero', the regulatory framework for hydrogen production, transport and storage in the UK has taken a large step forward. The introduction of this framework took longer than had been hoped by hydrogen developers. It is however a welcome milestone on the journey to providing a stable regime for attracting the investment needed if the UK government is to reach its target of delivering up to 10GW of low carbon hydrogen production capacity by 2030. The Energy Act 2023 (the Act) was followed quickly by publication of the draft Hydrogen Production Revenue Support (Directions, Eligibility and Counterparty) Regulations 2023 as the UK government starts to bring in the implementing regulations.

Revenue support contracts

The UK government had already published in August 2023 the draft Low Carbon Hydrogen Agreement, which is the contract by which revenue support will be given to producers of low carbon hydrogen (electrolytic or carbon capture enabled hydrogen). That revenue support is intended to bridge the gap between the cost of producing low carbon hydrogen and the cost of generating higher carbon fuel.

In addition to proving the statutory footing for hydrogen production contracts, the Act also provides for hydrogen transport contracts and hydrogen storage contracts.

Hydrogen levy

The Act allows for a hydrogen levy to be introduced to fund the UK government's hydrogen business model. The detail of the levy will follow in secondary legislation. Current expectations are that this levy will be imposed on gas shippers following resistance to the UK government's initial plan to include the levy in consumers' bills.

Licensing of hydrogen pipelines

The licensing of hydrogen pipelines is covered by the Act and the licensing regime under the Gas Act 1986 now extends to cover also hydrogen pipelines. More details of the hydrogen pipeline licensing process are expected to follow in secondary legislation.

Gas Act 1986 and hydrogen

The Act also contains a general power for the UK government to use secondary legislation to apply, apply partially or disapply provisions of the Gas Act 1986 to hydrogen production, transportation, storage or use. That power can only be used to facilitate or promote the production, transportation, storage or use of hydrogen and is subject to prior consultation with Ofgem and "such other persons as the Secretary of State considers appropriate". By introducing this power, the UK government is seeking to avoid the delay and cost of having to use primary legislation, such as another Energy Act, to make necessary changes to the Gas Act's application to the hydrogen sector.

Next steps

Evidently, those active in the UK hydrogen sector will be keen to see the details of the various implementing regulations. The introduction of the overarching framework outlined above is welcome though as the statutory regime plays catch-up with the fast developing UK hydrogen industry.