The UK government finally launched its long-awaited hydrogen strategy on 17 August, setting out proposals to build the fledgling energy sector using a “contracts for difference” (CfD) subsidy mechanism similar to the one used to kick-start the nation’s now successful offshore wind sector.

Prime Minister Boris Johnson’s administration wants to build 5 gigawatts of hydrogen capacity by 2030 to replace some natural gas in heating homes and powering industry and vehicles as one step in helping the UK to become a carbon neutral economy by 2050.

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The new strategy — published a few weeks later than previously expected — outlines a “twin-track” approach to support both zero-carbon green hydrogen produced by splitting water molecules using renewable energy and blue hydrogen production from natural gas with carbon capture and storage in a process that is not totally carbon free.

As part of the strategy launch, the government kicked off a public consultation on the funding mechanism that will underpin the business model for the sector.

The government is proposing using a replica of the CfD scheme that has helped to build out capacity of offshore wind in the UK and has been instrumental in lowering its cost over the past decade.

Decisions on the final shape of the business model and the subsidy mechanism will not take place until next year, however, meaning first contracts would only be allocated from the first quarter of 2023.

The government said publication of the document, three months ahead of the UN’s COP26 climate summit in Glasgow, sent out a “strong signal globally” that the UK is to committed to building a thriving hydrogen economy that could deliver hundreds of thousands of green jobs.

Business & Energy Secretary Kwasi Kwarteng said: “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.”

In the document, the government also committed to collaborate with industry to develop standards for production to give certainty to producers and users in areas such as emissions.

It will also undertake a review to support the development of transport and storage infrastructure, and will assess the safety, technical feasibility and cost effectiveness of mixing hydrogen into the existing gas supply.

A hydrogen sector development action plan will be launched in early 2022 setting out how the government will support companies to secure supply chain opportunities and jobs.

The government is also consulting on the design of £240 million ($332.2 million) of funding — called the Net Zero Hydrogen Fund — which aims to support the commercial deployment of new hydrogen production plants.

Director of policy at the Association for Renewable Energy & Clean Technology (REA) Frank Gordon said: “This strategy provides welcome clarity. The REA urged the government to provide certainty for investors, deliver a technology neutral approach and highlight the range of low carbon pathways.

“The [strategy] starts to answer those calls and offers a positive vision for the role of hydrogen in meeting the UK’s net zero ambitions."

Trade body Oil & Gas UK welcomed the report.

OGUK sustainability director Mike Tholen said: “The recognised need for the development of green and blue hydrogen is a sentiment we echo – all options should be made viable if we are to transform the UK’s energy system to a sustainable one.

“We look forward to working with the UK government to consult on this and help develop hydrogen, as well as the other necessary low-carbon solutions we know will be needed to reach net zero.”

Nick Cooper, chief executive of Storegga, lead developer of the proposed Acorn CCS and hydrogen project in Scotland, said the ambition of the hydrogen strategy was “encouraging”.

“Hydrogen is crucial to rapidly support our low carbon transition and is a major tool in the UK reaching net zero. History shows that the adoption of new fuels such as hydrogen normally takes decades," he said.

"However, the pace of climate change is such that we do not have the luxury of time. Blue hydrogen … is rapidly available, cost effective and scalable: enabling customers to begin switching to hydrogen as early as possible.”

Michael Burns, partner at law firm Ashurst, said: "This is a very positive development, as there is a huge amount of interest in low-carbon hydrogen and a lot of ground work has been done by various pilot projects.

"What is now important is to set the framework for commercial scale investment and these proposals represent a key step in that process which industry will have a keen interest in."

However, Dan McGrail, chief executive of trade association RenewableUK, warned the strategy “doesn’t focus nearly enough” on developing the green hydrogen industry.

“In the year when the UK is hosting the biggest climate change summit for years, we fear international investors in renewable hydrogen may compare this strategy to those of other countries and vote with their feet," he said.

“The government must use the current consultation period to amend its plans and set out a clear ambition for green hydrogen."

Some of the world’s biggest oil and gas companies, including BP, Shell, Eni and Equinor, are formulating plans for blue hydrogen schemes in the UK.

Backers of that technology coupled with carbon capture and storage technology say it is a cost-effective stepping-stone towards cuttings emissions from hard-to-decarbonise clusters of heavy industry but critics say it will extend dependency on coal and natural gas.