With the North Sea Transition Authority (NSTA) describing hydrogen as "essential" to the UK's net zero commitments and the UK Government setting ambitions of achieving 10GW of low carbon hydrogen production by 2030, the UK is aiming to become a global leader on hydrogen.

At our Hydrogen in the Highlands event in October, we heard from businesses Storegga, Statera Energy and Whyte & Mackay, which are playing an integral role in accelerating the country's hydrogen capabilities. Storegga and Statera Energy's projects in Cromarty and Aberdeenshire could create new employment opportunities and help drive Scotland and the UK towards net zero. On the end user side, Whyte & Mackay is hydrogen ready at its Invergordon distillery, to further its commitment to sustainability.

The hydrogen movement is at an early, exciting stage. With so many different types of hydrogen being discussed as part of the UK's energy transition, it can be difficult to keep track.

Unlike natural gas, which exists in large quantities, hydrogen deposits are thought to be limited and therefore must be produced from other energy sources such as gas and renewables. Hydrogen can be used as a fuel that releases only oxygen and water into the environment when burned. There is scope for it to become a cleaner fuel alternative, with industrial, power generation and transport uses.

There are several types of hydrogen; their colour coding is based upon the production method used to create the hydrogen. Those include:

  • Green: viewed as the cleanest production method, and involves "electrolysis", where electricity is used to split water into hydrogen and oxygen. The electricity involved comes from renewable sources and emits zero greenhouse gas emissions.
  • Blue: comes directly from natural gas and a specific production process; e.g. steam reforming, auto thermal reforming. When hydrogen is produced by splitting natural gas, carbon dioxide is created as a by-product, and 'blue' refers to capturing and storing these CO₂ emissions before they are released.
  • Pink: the same process applied in green hydrogen production, but nuclear energy is the main power source.
  • Grey: the same process as blue hydrogen production but without any efforts to capture the CO₂ emissions.
  • Yellow: uses electrolysis, but solar is the only energy source used.

To create a fully functioning hydrogen market, regulatory factors need to be considered. Under the Gas Act 1986, hydrogen is a gas, so regulatory requirements and prohibitions applying to transport, supply and storage of gas, also apply to hydrogen.

Several consultations have been published, seeking views on the most prudent ways to exploit and transport hydrogen, onshore and offshore. This includes Department for Energy Security and Net Zero (DESNZ) consultations seeking views on secondary legislation plans to extend offshore oil and gas pipeline construction and use consenting responsibility of the NSTA to apply to hydrogen pipelines, and separately, looking at transport and infrastructure.

While no licence is currently required purely in respect of producing hydrogen, production itself is subject to safety rules regulated by local authorities, the Health and Safety Executive, and the Environment Agency. Other likely requirements include planning permissions, safety and emergency planning duties for significant volumes of hydrogen, environmental impact assessments, licences for transporting/supplying hydrogen, and designated standards for storage tanks and cylinder designs.

Blue and green hydrogen are more expensive to produce than grey, and subsidy support is essential for developing a low carbon hydrogen market. The UK Government envisages supporting blue and green production with capital and revenue support.

For example, the Net Zero Hydrogen Fund (NZHF), offers capital expenditure funding, supporting commercial deployment of new low carbon projects throughout the 2020s. Other funding opportunities and incentives are available to UK developers and operators, including the CCS infrastructure fund – providing up to £1 billion to develop Carbon Capture Usage and Storage clusters with transport and storage networks.

The UK Government is designing financial support, based on the method of support provided to renewable electricity production. This is based on the contracts for difference (CfD) model, which pays producers the difference between the market price of the commodity and an agreed strike (set by auction, although the strike price will be set by negotiation for initial hydrogen projects). This contrasts with the US and EU approach, which will pay a fixed premium for each kg of green hydrogen produced. The UK's challenge is that the CfD model will need to attract capital in the face of competition from fixed premium support.

Discussions from our Hydrogen in the Highlands event underlined the opportunity to capitalise on an exciting new market, and the importance of a joined-up approach. As highlighted by one speaker, confidence and buy-in is needed from everyone to make the hydrogen movement a success.


Marc Penman

Senior Solicitor