Green Hydrogen for Energy Security

Green hydrogen gains momentum as UK energy security tool

The UK government has stepped up its commitment to green hydrogen as part of a broader effort to reduce dependence on imported fossil fuels. This shift comes as businesses across the country face persistent energy cost pressures and growing regulatory expectations around carbon reduction.

Green hydrogen is produced by splitting water into hydrogen and oxygen using electricity from renewable sources. Unlike grey hydrogen, which relies on natural gas and generates significant carbon emissions, green hydrogen offers a way to store and transport energy without adding to carbon footprints. For businesses, this matters because hydrogen can replace natural gas in industrial processes, power heavy transport, and provide backup energy storage when renewable generation dips.

The technology sits at the intersection of several urgent business concerns. Energy security has become a boardroom issue since 2022, when supply disruptions pushed industrial energy costs to historic highs. Meanwhile, public sector procurement rules and private supply chain requirements increasingly demand evidence of carbon reduction. Hydrogen presents a potential answer to both problems, though practical deployment remains limited and costly.

Several UK sectors are already testing hydrogen applications. Manufacturing facilities in the North West are trialling hydrogen boilers to replace gas heating. Transport operators are running pilot schemes with hydrogen-powered HGVs. Energy companies are exploring hydrogen blending in existing gas networks. These projects remain small in scale, but they signal where investment and policy attention are heading.

Understanding how green hydrogen fits into the UK’s energy transition helps businesses assess whether it might affect their operations, supply chains, or compliance obligations in the years ahead.

Government sets 10 gigawatt production target for 2030

The Department for Energy Security and Net Zero has confirmed a target to establish 10 gigawatts of low-carbon hydrogen production capacity by 2030. This target includes both green hydrogen from renewable electricity and blue hydrogen produced from natural gas with carbon capture. However, ministers have indicated that green hydrogen will form the majority of new capacity.

To support this goal, the government allocated £2 billion through the Net Zero Hydrogen Fund, which opened for applications in early 2024. The fund provides capital grants and revenue support for projects that can demonstrate commercial viability and supply chain benefits. Priority goes to facilities that can supply industrial clusters, heavy transport operators, or heat networks.

Regulatory changes are following the funding. Ofgem is consulting on a hydrogen transport and storage network code, which would govern how hydrogen moves through dedicated pipelines. The Environment Agency has updated permitting guidance for electrolysers, the devices that produce hydrogen from water. Planning authorities in England now have specific guidance on assessing hydrogen production and storage applications.

The timeline matters for businesses. Projects receiving funding in 2024 are expected to begin commercial operations between 2026 and 2028. This means hydrogen supply will remain constrained and expensive in the near term. Companies considering hydrogen need to plan for a transition period where availability is limited to specific industrial clusters and pilot schemes.

Several regional hydrogen hubs are taking shape. The HyNet North West project aims to supply hydrogen to industrial sites across Cheshire and Merseyside. The East Coast Cluster covers Teesside and the Humber. The South Wales Industrial Cluster includes Port Talbot and Bridgend. These clusters benefit from existing industrial infrastructure, skilled workforces, and concentrated energy demand.

Businesses located within or near these clusters may see hydrogen supply options emerge faster than those in other regions. However, transport costs currently make hydrogen uneconomical for most users outside industrial concentrations.

Industrial decarbonisation drives near-term demand

The most immediate applications for green hydrogen involve replacing fossil fuels in industrial processes that cannot easily electrify. Steelmaking, chemical production, and cement manufacturing all require intense heat or specific chemical reactions that electricity alone cannot provide efficiently.

British Steel and Tata Steel have both announced plans to explore hydrogen use in blast furnaces, though both companies acknowledge that full conversion remains years away. The challenge is not just the hydrogen supply but also the capital cost of adapting furnaces designed for natural gas or coal.

Chemical manufacturers face similar decisions. Companies producing ammonia, methanol, and other industrial chemicals currently use grey hydrogen from natural gas. Switching to green hydrogen would cut their Scope 1 emissions significantly, but only if the price gap narrows. Currently, green hydrogen costs roughly three times as much as grey hydrogen per kilogram.

This price differential creates a compliance calculus for businesses. Companies bidding for public sector contracts above £5 million must demonstrate carbon reduction plans under PPN 06/21. Those with ambitious corporate buyers in their supply chains face similar pressure. If green hydrogen enables a business to meet these requirements and secure valuable contracts, the premium may be justified. If not, cheaper emissions reductions elsewhere may make more sense.

Transport presents another near-term opportunity, particularly for heavy goods vehicles and buses operating on fixed routes. Hydrogen refuelling takes minutes rather than hours, unlike battery charging. For fleet operators running long-distance or heavy-load routes, this operational advantage matters.

Several UK bus operators are running hydrogen vehicles in Aberdeen, London, and Birmingham. The economics work where local authorities provide subsidies or emissions zones penalise diesel. For commercial HGV operators, the case is harder. Hydrogen trucks cost more to purchase than diesel equivalents, and refuelling infrastructure remains sparse outside pilot projects.

Energy storage represents a longer-term application. Renewable generation creates periods of excess electricity that cannot always be used immediately or stored in batteries economically. Converting that surplus into hydrogen offers a way to store energy for weeks or months, then convert it back to electricity when needed. This matters for grid stability as wind and solar capacity expands.

For businesses, the storage application is less immediate than industrial or transport uses. However, it affects electricity pricing and grid reliability, which matter to any operation with significant power consumption.

Cost and infrastructure remain significant barriers

Green hydrogen production costs vary depending on electricity prices, electrolyser efficiency, and operating hours. Current UK estimates put production costs between £3 and £6 per kilogram. Natural gas-derived grey hydrogen costs roughly £1 to £2 per kilogram. This gap makes green hydrogen uncompetitive without subsidies or carbon pricing that penalises fossil alternatives.

The government’s Low Carbon Hydrogen Agreement scheme aims to close this gap by guaranteeing a price floor for hydrogen producers. However, these contracts pass some price risk to taxpayers rather than eliminating the cost differential entirely.

Infrastructure presents another hurdle. The UK currently has no dedicated hydrogen transmission network. Existing natural gas pipelines can carry hydrogen blends up to 20% by volume without modification, but pure hydrogen requires different materials and compression equipment. Building a national hydrogen network would take years and cost billions.

In the interim, hydrogen users will need to locate near production facilities or arrange dedicated transport. Road tankers can move compressed or liquid hydrogen, but transport costs add significantly to delivered prices. This concentrates early adoption in industrial clusters where multiple users can share infrastructure costs.

Electrolyser capacity is also limited. The devices that split water into hydrogen and oxygen are manufactured by a small number of global suppliers. Lead times for large-scale electrolysers currently extend beyond 18 months. UK manufacturing capacity is growing, but not fast enough to meet the government’s 2030 target without substantial imports.

For businesses considering hydrogen, these barriers mean careful timing. Early movers face higher costs and limited supply. Waiting too long risks falling behind competitors or missing grant funding windows. The decision depends on sector, location, and how quickly regulatory or market pressures are rising.

What green hydrogen developments mean for UK businesses

Here are the essential points for companies trying to assess how hydrogen might affect their operations:

• The UK government has committed £2 billion to establish 10 gigawatts of hydrogen production capacity by 2030, with green hydrogen expected to form the majority of new supply.
• Green hydrogen currently costs three times more than grey hydrogen, making it uneconomical without subsidies or regulatory drivers that penalise fossil fuel use.
• Industrial clusters in the North West, Humber, Teesside, and South Wales will see hydrogen infrastructure develop first, with other regions following later in the decade.
• Businesses in steel, chemicals, cement, and other hard-to-abate sectors face the most immediate decisions about whether to plan for hydrogen adoption.
• Heavy transport operators running fixed routes may benefit from hydrogen vehicles if local refuelling infrastructure becomes available, though upfront costs remain high.
• Public sector suppliers and companies with corporate buyers demanding carbon reduction may find hydrogen enables them to meet procurement requirements, particularly under PPN 06/21.
• Practical hydrogen supply for most businesses remains several years away, meaning near-term carbon reduction strategies should focus on energy efficiency, renewable electricity, and Scope 3 supply chain work.

Planning for hydrogen in your business strategy

Most UK businesses do not need to make immediate hydrogen decisions. The technology remains expensive, supply is limited, and cheaper carbon reduction options exist for the majority of sectors. However, companies in specific circumstances should start paying attention.

If your business operates within or near a designated hydrogen cluster, monitor infrastructure development closely. Production facilities and pipeline connections will appear in these regions first. Companies with energy-intensive operations in these areas may gain access to hydrogen supply by the mid-2020s. Therefore, capital investment plans should account for potential fuel switching.

Businesses bidding for public sector contracts should review whether hydrogen could help meet carbon reduction requirements. PPN 06/21 requires suppliers to publish carbon reduction plans and demonstrate progress. If your operations produce significant Scope 1 emissions that are difficult to eliminate through electrification, hydrogen may become part of your compliance strategy. Consequently, understanding the timeline and costs now helps with tender planning.

Transport and logistics businesses should watch vehicle and refuelling infrastructure developments. Hydrogen HGVs suit long-distance and heavy-load operations better than battery electric alternatives. If your fleet operates on fixed routes where refuelling stations might appear, hydrogen could become viable in the latter half of this decade. Fleet replacement cycles are long, so this needs consideration in capital planning now.

Manufacturers with exposure to steel, chemical, or cement supply chains should ask suppliers about their hydrogen plans. These sectors will face regulatory pressure to decarbonise, and their choices will affect prices and availability. Understanding how upstream suppliers intend to cut emissions helps you assess cost risks and alternative sourcing options.

For most other businesses, the immediate priority remains energy efficiency, switching to renewable electricity, and working with suppliers to reduce Scope 3 emissions. These actions deliver carbon reductions now at lower cost than waiting for hydrogen. Nevertheless, keeping hydrogen on your medium-term horizon makes sense as infrastructure develops and costs fall.

Grant funding is available for businesses exploring hydrogen applications. The Net Zero Hydrogen Fund prioritises projects that demonstrate commercial viability and supply chain benefits. Additionally, regional grants exist in cluster areas. If your business has a genuine hydrogen use case, investigating funding opportunities is worthwhile. However, applications require detailed feasibility studies and business cases, so this is not a casual exercise.

Training and skills will become important as hydrogen deployment accelerates. Handling hydrogen requires different safety procedures than natural gas. Maintenance staff need specific training. If your business is likely to use hydrogen within the next five years, planning for workforce training now avoids bottlenecks later. The SBS Academy offers training on emerging energy technologies alongside established carbon management topics.

Finally, businesses should separate hydrogen hype from hydrogen reality. The technology will play a role in UK decarbonisation, but it will not replace all fossil fuel uses quickly or cheaply. Companies making energy strategy decisions need realistic timelines and costs. Avoid committing to hydrogen before supply, infrastructure, and economics are in place. Equally, avoid dismissing it entirely if you operate in sectors where alternatives are limited.

Where to find detailed hydrogen policy and technical information

The Department for Energy Security and Net Zero publishes policy updates, funding opportunities, and hydrogen strategy documents. This is the authoritative source for government targets and regulatory changes.

The UK Hydrogen Strategy sets out the government’s long-term approach, including production targets, infrastructure plans, and sector priorities. It provides context for how hydrogen fits into wider net zero planning.

For businesses considering whether hydrogen could reduce emissions, our net zero program provides carbon reporting and reduction planning that assesses all available technologies against your specific operations and compliance requirements.

The Office of Gas and Electricity Markets regulates hydrogen transport and storage networks. Their consultation documents and policy decisions affect infrastructure costs and availability.

Finally, businesses exploring sustainable procurement or supply chain carbon reduction can find guidance through our sustainable procurement support, which helps companies meet PPN 06/21 requirements and corporate buyer expectations.