Targeted government policies, strategic incentives and the creation of a national hydrogen network will be essential to unlocking the potential of the UK’s green hydrogen market, according to a new whitepaper by law firm Osborne Clarke.
With the country’s ambition to build 10GW of low-carbon hydrogen capacity by 2030, the report, hosted on h2-view.com, warns that without decisive action, progress could stall.
Focused on demand building, overcoming infrastructure and financing challenges, and ecosystem growth and risk mitigation, it calls for the government to adopt a holistic approach that aligns decarbonisation goals with economic realities.
Demand creation
Describing the lack of demand for green hydrogen as a “critical bottleneck” for the UK market, the paper calls for targeted measures such as carbon pricing, industry consumption quotas and subsidies to reduce the energy carrier’s cost premium.
It suggests traditional hydrogen offtake agreements, with predominantly onsite offtakers, are easier to finance and reach final investment decision (FID), but limit scalability.
To reduce financial risks associated with offtake agreements, it says the government must support demand liquidity, and in the last resort, act as a buyer to guarantee the purchase of unsold hydrogen volumes.
It says strategic use cases such as steel, ceramics and ammonia production can act as demand anchors to drive forward market adoption.
Furthermore, it suggests hydrogen blending in the natural gas grid as a way to provide an “immediate fallback” for unsold volumes of green hydrogen.
Infrastructure
Although logical in the short term, the report suggests the UK’s cluster-based approach to green hydrogen production poses scalability challenges. Despite production hubs like Teesside and the Humber aligning with demand within those clusters, it says they lack the flexibility to redistribute supply “efficiently.”
Highlighting Germany’s 9,000km Hydrogen Core Network (HCN) as a “blueprint” to address the challenge, it says connecting clusters to form an integrated network would balance surpluses and deficits, prevent bottlenecks and support access.
Despite this, it acknowledges the significant investment and government intervention required for such an approach.
“Without the UK government intervening on the infrastructure front, building a national green hydrogen market will be much more complex,” it reads, pointing to Spain where the absence of infrastructure has created “significant logistical obstacles.”
“The UK can avoid these pitfalls by prioritising infrastructure alignment early in its hydrogen strategy.”
Financing
The whitepaper highlights the inherent difficulty in securing investment for green hydrogen projects due to the shallow demand pool.
It said, “Traditional long-term offtake agreements…may not in themselves be sufficient. The brittleness of single offtakers – particularly their ability to fulfil long-term agreements – has led financiers to consider alternative approaches.”
However, despite heavy industries such as steel being “logical candidates” for decarbonisation, it says “they remain reluctant to commit to fixed-price agreements that carry a green premium.”
It recommends the UK learn lessons from Germany’s climate Contracts for Difference (CfDs) which allow industrial players to purchase hydrogen at affordable prices while ensuring production remains financially viable.
“Tools such as CfDs, blending mandates and direct subsidies can help narrow the cost gap with incumbent fuels, reduce the green premium and provide the stability needed to attract private-sector investment,” it said.
Read the full whitepaper here.
