Update on developments in energy transition in the UK

We discussed some of the potential benefits of hydrogen power and recent developments in the sector in this article. At that stage the business models for production, transport and storage infrastructure were advanced and the Hydrogen Production Business Model was finalised. The Low Carbon Contracts Company (LCCC) was named as the entity to issue the contracts under this model which start to be paid once a project becomes operational. The Net Zero Hydrogen Fund (NZHF) had been established to provide grants to support for the development and construction of new low carbon hydrogen production plants. So what progress has been made since then?

Currently demand for hydrogen is concentrated in refining and the chemical sector which is supplied by hydrogen produced from unabated fossil fuels. Low-emissions hydrogen and hydrogen-based fuels can play an important role in the decarbonisation of sectors where emissions are hard to abate and alternative solutions are either unavailable or difficult to implement, such as heavy industry and long-distance transport including aviation, maritime and heavy goods vehicles. Hydrogen either in a fuel cell or in an internal combustion engine can also be a good option for off-road machinery in particular larger, higher-powered machines that are mobile, have heavy duty cycles, require round-the-clock working, or operate on remote or grid-constrained sites. The current difficulty in the UK is that there are insufficient producers of hydrogen and a lack of infrastructure to transport the hydrogen to the potential users. The government has sought to tackle this problem in a number of ways. One strand of these efforts is to try to help projects that produce hydrogen get off the ground.

Second Hydrogen Allocation Round (HAR2)

On 7th April 2025 the government announced 27 projects across England, Scotland, and Wales that had been shortlisted for the Hydrogen Allocation Round (HAR2) programme and invited to the next stage. Since that announcement these projects have been undergoing due diligence to determine whether they will receive government revenue support through the hydrogen production business model. Successful projects may also receive assistance with capex associated with limited hydrogen transport infrastructure and capex and opex assistance with limited storage infrastructure. Successful applications would be required to enter a Low Carbon Hydrogen Agreement (LCHA) with the LCCC following the process set out in the Hydrogen Production Revenue Support (Directions, Eligibility and Counterparty) Regulations 2023. The aim of HAR2 is to support up to 875MW of capacity by the end of 2025. The government has also committed to a third Hydrogen Allocation Round (HAR3), which is expected to open in 2026, and the fourth Hydrogen Allocation Round (HAR4) to launch in 2028.

Progress on HAR1

The successful projects under the first Hydrogen Allocation Round were announced in December 2023. In July 2025, the government has confirmed that 10 projects from that round could begin construction. This included the HyMarnham project in Newark, Nottinghamshire, which has already started construction and is transforming the old High Marnham coal-fired power station into a clean energy hub by using hydrogen to decarbonise waste disposal operations. Also, In July 2025, Kimberly-Clark announced its plans with its energy partners, Carlton Power and HYRO (a joint venture between Octopus Energy Generation and RES), to invest over £125 million into the emerging energy solution at its two plants in Barrow-in-Furness, Cumbria and Northfleet, Kent. These sites produce nearly 1 billion Andrex toilet rolls and over 150 million boxes of Kleenex tissues every year. This investment is in the form of two long-term off-taker hydrogen supply agreements, signed by Kimberly-Clark with energy partners Carlton Power and HYRO, will mean a green hydrogen facility is installed next to Kimberly-Clark’s Barrow plant, while a separate facility will be developed on-site at Kimberly-Clark’s Northfleet plant. The Barrow hydrogen project will supply 100GWh of hydrogen per annum while the Northfleet project will supply 47GWh per annum.

Infrastructure and transport 

As well as trying to bring more producers on stream, the UK government is also seeking to tackle the lack of infrastructure to transport hydrogen to where it needs to go. In June 2025 the government announced funding for the first regional hydrogen transport and storage network to connect hydrogen producers with vital end users, including power stations and industry. Over £500 million has been committed to this initiative. However, the final investment decision has not yet been made, and the first networks are only going to be operational in 2031. 

The Tees Valley continues to be a focal point for hydrogen innovation. In 2025, the Government reaffirmed its support for the Hydrogen Transport Hub, which is facilitating real-world trials across multiple transport modes. In March 2025, construction began on a hydrogen refuelling station at Teesside International Airport, indicating progress towards operational readiness. The hub is expected to be fully operational by the end of 2025 and is projected to create up to 10,000 jobs over the next 30 years. 

In the maritime sector, the government has increased funding for clean maritime technologies, with the sixth round of the Clean Maritime Demonstration Competition supporting innovative projects, including those related to hydrogen. The Maritime Decarbonisation Strategy, announced in March 2025, includes a commitment to regulate the greenhouse gas emission intensity of maritime fuels and energy sources, with domestic fuel regulations to be introduced following consultation in 2026. These regulations will promote the uptake of zero and near-zero greenhouse gas emission fuels, including hydrogen and hydrogen-derived fuels, and will align with developments at the International Maritime Organization. 

The government’s sector plan also outlines measures to support the supply chain, including initiatives to ensure that developers are aware of available suppliers, the introduction of monitoring and evaluation to achieve a target of 50% UK local content for hydrogen projects by 2030. It also includes the potential expansion of the Contracts for Difference (CfD) Clean Industry Bonus, which has been successful in encouraging investment by giving offshore wind developers extra CfD funding if they invest more in UK-based manufacturing along the coast, to hydrogen. There is also a focus on workforce development, with efforts underway to design a comprehensive hydrogen curriculum to ensure the availability of suitably skilled personnel.

Hydrogen to Power (H2P)

In June 2025, the government published the Clean Energy Industries Sector Plan, which confirmed that a dedicated business model for hydrogen-to-power (H2P) will be launched in 2026, as set out in the Modern Industrial Strategy. Subsequently, in its July 2025 hydrogen strategy update, the Department for Energy Security and Net Zero (DESNZ) announced that the H2P business model will be structured around a dispatchable power agreement mechanism. This approach is intended to reduce investment risk by addressing deployment barriers and supporting the rollout of H2P plants, while ensuring value for money for consumers and taxpayers. The government has also confirmed that a new hydrogen strategy will be published in autumn 2025. This forthcoming strategy is intended to articulate the government’s vision for hydrogen, set clear priorities for collaboration with industry, and outline evidence-based plans to accelerate the delivery of hydrogen projects over the next decade.

In addition, in July 2025 the DESNZ has commenced a consultation on the potential strategic and economic value of blending hydrogen into the Great Britain gas transmission network. The government’s current position is to permit up to 2% hydrogen blending in the National Transmission System. The blending is seen as a transitional measure to support early-stage hydrogen production and reduce carbon intensity, while acting as an “offtaker of last resort” for hydrogen producers which would allow providers a backup market when usual customers are not available. In addition to this, and in the initial absence of larger-scale hydrogen T&S infrastructure, blending may also have value as a strategic enabler to enable electrolytic hydrogen producers to locate to support the wider electricity system. It worth noting that the EU has adopted the EU Hydrogen and Decarbonised Gas Market Package which was due to came into fore in 2025 that provided a framework to enable harmonisation of hydrogen blending across Member States to support up to 2% hydrogen blends across EU gas transmission networks and so in this respect the UK lags behinds the EU.

This article was co-authored by Morgan MacWilliams.