Watson Farley & Williams LLP Article on, UK’s Hydrogen Strategy
The Department for Business, Energy and Industrial Strategy (BEIS) published the UK Hydrogen Strategy on 17 August 2021 (the Strategy). It is an important step toward decarbonisation and meeting the United Kingdom’s (UK) legally binding net zero emissions targets, particularly as Glasgow is set to host COP26 later this year.
The Strategy articulates a clear goal of 5 GW of low carbon hydrogen production capacity by 2030 as “a signal of the government’s firm commitment to work with industry to develop a strong and enduring UK hydrogen economy”. It sets out the case for low carbon hydrogen (chapter 1), plans for scaling up the hydrogen economy (chapter 2), realisation of economic benefits for the UK (chapter 3), ambitions to demonstrate international leadership (chapter 4) and how progress will be tracked (chapter 5).
Large scale deployment of hydrogen will require investment from private sector equity, debt funds and traditional lenders. Although helpful in setting the tone and the scale of the UK’s hydrogen ambitions, the Strategy overall is lacking in concrete proposals and very light on details of the supporting regulatory framework that would address concerns about commercial scaling up. With no clear identification of routes to market, subsidy support, or regulatory treatment of hydrogen production and transportation, the UK still has a long way to compared to jurisdictions such as Germany.
DOES IT DELIVER?
We commented in our previous article on the hopes of the industry. Now that the moment of truth has arrived, does the Strategy deliver? The industry had high hopes for 5 GW of green hydrogen by 2025 and 10 GW by 2030. It’s not just the numbers that have fallen short, but also the type of hydrogen. “Low carbon hydrogen” can include not only green hydrogen, but also yellow, blue and turquoise (see our beginners guide for a refresher on the hydrogen rainbow).
| Key Commitment | WFW Commentary |
|---|---|
| Prepare a Hydrogen Sector Development Action Plan, including for UK supply chains, by early 2022. | An Action Plan is welcome, though many in industry had hoped to see that Action Plan set out as part of the Strategy. |
| Establish an Early Career Professionals Forum under the Hydrogen Advisory Council. | There will be a lot of work required to ensure that the Forum is as effective as possible and this is recognised in the Strategy (page 89): As part of our work to develop the low carbon hydrogen sector, we will assess the opportunities for hydrogen employment across the UK. We will work with industry, trade unions, the devolved administrations, local authorities and enterprise agencies to support sustained and quality jobs and ensure that there is effective and targeted investment in relevant skills. We will work with industry, education providers and local and regional authorities to explore opportunities for relevant skills programmes, including apprenticeships and re-skilling programmes. |
| Support hydrogen innovation as one of the ten key priority areas in the £1bn Net Zero Innovation Portfolio. | This is not a new commitment – it was detailed in Point 2 of the Ten Point Plan for a Green Industrial Revolution Plan for a Green Industrial Revolution published in November 2020: …our aim is for the UK to develop 5 GW of low carbon hydrogen production capacity by 2030 that could see the UK benefit from around 8,000 jobs across our industrial heartlands and beyond. This will be supported by a range of measures, including a £240m Net Zero Hydrogen Fund… (page 10) |
| Work with the Hydrogen Advisory Council Research & Innovation Working Group to develop a UK hydrogen technology R&I roadmap. | Boosting the UK’s research, innovation and development capability is admirable and no doubt welcome news for industry. However, the only concrete commitment is buried in the text of the Strategy; it is relatively obvious why this is the case as it only “includes” hydrogen: To provide crucial long-term certainty for researchers and innovators, we have also already committed to increasing our investment in research and development (R&D) to 2.4 per cent of GDP by 2027 and to increasing public funding for R&D to £22bn per year by 2024. This will further boost the UK R&I ecosystem, including hydrogen-related activity. (UK Hydrogen Strategy, page 92) |
| Deliver as one of the co-leads of Mission Innovation’s new Clean Hydrogen Mission. |
DEMONSTRATING INTERNATIONAL LEADERSHIP
Overall, in terms of international leadership, the Strategy is high on ambition and low on detail. We can only hope that further detail will come out after COP26, with concrete plans and commitments from all parties.
While a cynic might throw around accusations of “padding” out the Strategy by including commitments that are already nearing completion (making them easy wins for government), the Strategy does recognise that there is still a long way to go:
As the CCC’s and our own analysis makes clear, rapid progress and learning by doing in the 2020s is vital. The roadmap at Chapter 2.1 highlights a challenging trajectory to meet our 2030 ambition and [Carbon Budget 6] beyond this. While government intervention across the hydrogen value chain will be essential, we remain committed to market-led approaches that build and maintain competitive tension. … While this strategy package sets out the initial steps, there is far more to do and we will continue to develop policy over coming months and years. (UK Hydrogen Strategy, page 71)
While we applaud this ambition, we (along with industry) had hoped that the Strategy would deliver more policy and regulatory certainty, particularly as it is the market-led approaches which have been driving the nascent hydrogen market forward while we waited for publication of the Strategy.
However, rather than setting out policy and regulation, the Strategy merely recognises that it is needed: Government action will be required to put in place a wider policy framework covering regulations and, where needed, market support mechanisms in production, demand and supporting network and storage infrastructure, taking account of evolution in the electricity and gas markets and linkages to wider economic activity and networks.(UK Hydrogen Strategy, page 72)
This is a step in the right direction, but we had expected the Strategy to begin laying out that policy framework in a more concrete and practical manner rather than listing government’s aspirations.
SUMMARY
The UK government’s clear ambition is to be at the forefront of the hydrogen economy globally. However, much of the development to date has been taken forward by industry and the Strategy indicates a continued reliance on an industry-led approach. While this is no bad thing, clarity on policies and regulation is still required.
We hope to see concrete plans around legislating for the uptake and roll out of hydrogen at every point in the value chain, from production to consumption. Many of the key commitments promise detail in 2022 – let’s hope they deliver.
Article By:
Emmanuel Ninos, Partner, WFW London | Heike Trischmann, Partner, WFW London, | Marianne Anton, Associate, WFW London
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The UK’s Hotly Anticipated Hydrogen Strategy – Cool Britannia, Or Full Of Hot Air?.
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