UK unveils $5.5bn hydrogen spend to power industry to hit net zero goals

By 2030, the hydrogen economy could be worth more than $1.2bn and create more than 9,000 high-quality jobs

The Bacton gas terminals could become a major hydrogen producer in the coming decades. Bloomberg

Hydrogen is emerging as the key ingredient in UK plans to eliminate greenhouse gases by sparking a revolution in the way factories are powered and vehicles are fuelled.

The £4 billion ($5.52bn) hydrogen strategy unveiled on Tuesday shows how Britain hopes to reach a net zero economy for carbon dioxide.

By 2030, the hydrogen economy could be worth £900 million, create more than 9,000 high-quality jobs and help polluting industries such as oil and shipping to decarbonise, the government said.

UK Prime Minister Boris Johnson has been under pressure to act on climate change. In the run-up to the UK hosting the Cop26 climate summit in November, he has set increasingly ambitious targets for slashing carbon emissions to zero.

“Today marks the start of the UK’s hydrogen revolution,” said Business and Energy Secretary Kwasi Kwarteng.

“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.”

Creating a market

Ministers plan to use similar incentives to those that helped boost offshore wind production and reduce the price of renewable energy to help it compete with that derived from fossil fuels.

The plan includes both green hydrogen, produced using water and renewable power, and the cheaper blue hydrogen, which has carbon dioxide as a by-product that must be stored permanently underground.

Mr Kwarteng said pursuing both production methods was vital to stimulating a new market. He said relying solely on green hydrogen – at about twice the cost – would be far harder.

The government will make sure that subsidised blue hydrogen was “as pure as we can, as decarbonised as we can”, he said.

Environmental groups have criticised the dual approach. Greenpeace called it a “bad idea both environmentally and economically,” and E3G said it could be a “twin track to nowhere, leaving the climate behind”.

For hydrogen incentives, the government will initially negotiate contracts directly with hydrogen producers, at a level that covers costs and allows a profit.

Then, it aims to introduce a system of competitive auctions, as has happened with other renewable energy in the past decade.

The UK plans to finalise its low-carbon hydrogen business model next year with the aim of allocating the first contracts in the first three months of 2023.

Hydrogen heating houses

The government also announced a £105 million funding package through its Net Zero Innovation Portfolio that will act as a first step to build up Britain’s low-carbon hydrogen economy.

Investment will help industries develop low-carbon alternatives for industrial fuels, including red diesel used in construction and mining.

By 2050, 20 to 35 per cent of the UK’s energy consumption could be hydrogen-based, according to the government forecasts.

The strategy includes domestic heating trials scaling up from districts to villages to towns over the next decade to lay the foundations for wider post-2030 usage.

“If you consider that 85 per cent of UK homes essentially use gas, we could decarbonise this essentially through use of hydrogen,” Mr Kwarteng said. “That’s very exciting.”

Hydrogen is seen as the main alternative to heat pumps when replacing the gas-fired boilers that warm the majority of UK homes.

The industry sees the potential to blend hydrogen with natural gas to a proportion of up to 20 per cent without the need to modify pipes or home appliances.

That could give ministers an easy way to quickly reduce emissions from home heating and cooking, opening the way for the hydrogen industry to increase that blend over time.