Government announces funding for green hydrogren, and blending green light

The UK government announced backing for 11 new projects to produce green hydrogen from electrolysis, on 14 December, in addition to giving a tentative green light to hydrogen blending in existing gas distribution networks.

Energy Security Secretary Claire Coutinho announced the funding boost, which the government said will create over 700 jobs across the UK “in a world-leading hydrogen industry from the South West of England to the Highlands of Scotland, backed by £2 billion in government funding over the next 15 years.”

She also confirmed that suppliers will receive a guaranteed price from the government for the clean energy they supply.

“This represents the largest number of commercial scale green hydrogen production projects announced at once anywhere in Europe, helping to place the country at the forefront of this emerging industry.”

“Unlike blue hydrogen, which is formed using fossil fuels and capturing the carbon emissions, green hydrogen is made by using renewable energy to split water – helping provide cleaner fuel for energy intensive industries and transport.”

In return for this government support, the successful projects will invest over £400 million in the next three years, generating more than 700 jobs in local communities across the UK and delivering 125MW of new hydrogen for businesses including:

  • Sofidel in South Wales, who will replace 50% of their current gas boiler consumption with hydrogen at their Port Talbot paper mill.
  • InchDairnie Distillery in Scotland, who plan to run a boiler on 100% hydrogen for use in their distilling process.
  • PD Ports in Teesside, who will use hydrogen to replace diesel in their vehicle fleet, decarbonising port operations from 2026.

Energy Security Secretary Claire Coutinho said:

“Hydrogen presents a massive economic opportunity for the UK, unlocking over 12,000 jobs and up to £11 billion of investment by 2030.

“Today’s announcement represents the largest number of commercial scale green hydrogen production projects announced at once anywhere in Europe.

“These eleven major new hydrogen projects across the UK will create over 700 jobs and deliver new opportunities from Plymouth in England to Cromarty in Scotland.”

Minister for Energy Efficiency and Green Finance Lord Callanan said:

“Today’s funding commitment represents a monumental step forward in helping producers to deliver a fuel of the future today, backing businesses to go greener.

“This will be essential to achieving our net zero targets, and will benefit people across the UK with the job and investment opportunities that this funding will bring.

“And we’re not stopping there with a new, second round of funding now available for producers to apply for, so they can develop the next round of projects and build on this success.”

The government said the funding represents the most significant step in scaling up the UK’s hydrogen economy to date – speeding up progress towards the Government’s ambition to deploy up to 10GW low carbon production capacity by 2030.

Ministers also opened a new second round of funding that companies can apply for to support their projects and published a production roadmap, which sets out the government’s plan for future allocation rounds in 2025 and 2026. This includes “ambitious plans to boost hydrogen capacity up to 1.5GW across these rounds, and award funding to projects to help deliver up to 4GW of CCUS-enabled, or blue, hydrogen and 6GW of green hydrogen by 2030 – giving businesses the confidence they need to invest in the UK.”

Blending green light, with caveats
Ministers have also announced their decision to support hydrogen blending in certain scenarios – subject to an assessment of safety evidence and final agreement.

Currently, less than one per cent of the gas in distribution networks is hydrogen. Under proposals, hydrogen could be blended with other gases in the network as an offtaker of last resort, working to reduce costs in the hydrogen sector by helping producers, and to support the wider energy system.

Hydrogen blending may help achieve the UK’s net zero ambitions, but would have a limited and temporary role as the UK moves away from the use of natural gas.

Ministers have decided not to proceed with a hydrogen trial in Redcar, as the main source of hydrogen will not be available. The government recognises the potential role of hydrogen in home heating and will assess evidence from the neighbourhood trial in Fife, as well as similar schemes across Europe, to decide in 2026 whether and how hydrogen could help households in the journey to net zero.

Responding to the announcements, James Earl, Director of Gas at industry representative body the Energy Networks Association (ENA), speaking on behalf of ENA’s gas members, said:

“The government’s decisions today show the UK’s direction of travel on hydrogen is positive. We are particularly pleased that the government listened to our gas members and made a positive strategic decision to progress hydrogen blending.”

“Against a highly competitive international backdrop, clear indications on the future of hydrogen transport and storage infrastructure and hydrogen production will provide confidence to investors.”

Heat pumps manufacturer Kensa Group seemed to opt for a more cautious framing of the announcement, particularly in relation to home heating. CEO Tamsin Lishman welcomed “the Government providing more clarity about the role of hydrogen in the UK economy.”

She added: “As we stand on the brink of a radical shift in how we heat our buildings, it’s important to understand the differences between heat pumps and hydrogen in the context of their viability as a scalable solution and the urgency with which we need to take action on climate change.

“Some believe hydrogen is a get-out-of-jail-free card, but the evidence suggests that compared to heat pumps, hydrogen use for domestic heating is less economical, less efficient and more resource-intensive. In a review of 32 independent studies, not one of them found hydrogen to be a cost-effective decarbonisation solution for heating compared to heat pumps. Indeed, it takes six units of electricity to get just one unit of hydrogen. Thankfully, unlike hydrogen, heat pumps work today and reduce bills – one unit of electricity delivers 4 units of heat with a ground source heat pump.

“By cancelling the controversial proposals for a hydrogen trial in Whitby and not proceeding with the proposed trial in Redcar the Government recognises the enormous challenges hydrogen poses. So much so that hydrogen-ready boilers are not considered to be a suitable or efficient low-carbon heating system in the Future Homes Standard.

“Time is ticking for the future of our planet. Heat pump technology is proven and ready to be deployed at scale to decarbonise the majority of UK domestic buildings now, as evidenced by successful community-based heat pump switchovers like our ‘Heat the Streets’ project, unlike hydrogen, where trials have been either cancelled or will not give data until 2026.

“Networked Ground Source Heat Pumps offer a 21st-century, renewable equivalent to the gas grid. In the street, homes connect to pipes circulating non-flammable refrigerant providing heat from the ground. The infrastructure is paid for, owned and maintained by utility companies, and consumers pay a small monthly connection fee, like with gas today. Households have an innovative microwave-sized heat pump in a cupboard that provides hot water and heating.

“We need a diverse range of solutions to deliver net zero, and as the Government suggests, hydrogen has a part to play in the industrial sectors and back up power generation, whereas Networked Ground Source Heat Pumps have a proven solution to decarbonising home heating now.”