Green hydrogen – if you build it, will the customers come?

This article was first published in The Herald.

In December 2024 UK green hydrogen producers were full of optimism. The first Low Carbon Hydrogen Agreements (LCHAs), awarded in the inaugural Hydrogen Allocation Round (HAR1), had just been signed. HAR1 forms part of the Government’s Hydrogen Production Business Model with LCHAs providing long term revenue support to producers to derisk their investments.

By September, however, one of the successful HAR1 bidders had already taken the decision to halt its HAR1 projects, citing “limited route to market”.

There is no shortage of uses for green hydrogen. It can be used to decarbonise heavy industry or heat, as a low carbon fuel for heavy transport, or to store and then generate electricity when the wind isn’t blowing and sun isn’t shining. So why do producers find it difficult to secure customers?

Need for infrastructure

A key reason is the lack of transport and storage infrastructure. As Hydrogen UK explained in its “Driving Demand” paper from July last year, the absence of hydrogen networks forces customers to rely on more costly transport methods, such as tube trailers. This drives up prices and increases the risk of supply interruptions, meaning customers are likely to retain their natural gas supply as a back-up. This in turn prevents those pipelines from being converted for hydrogen use.

The Department for Energy Security And Net Zero (DESNZ) say that in the near term the focus should be on developing regional hydrogen transport and storage networks, to deliver hydrogen to hard-to-decarbonise industrial and power users in large industrial clusters. To enable this, last July it announced £500m of support for a regional network in one of the designated “Track-1” clusters (HyNet in North West England/North Wales or the East Coast Cluster in Humber/Teesside), with the intention this should be operational from 2031.

Strategic planning

Support for future transport and storage projects will be allocated under the Hydrogen Transport Business Model (HTBM) and Hydrogen Storage Business Model (HSBM), which complete the trifecta of DESNZ support models for the hydrogen industry along with the Hydrogen Production Business Model (HPBM).

NESO (the National Energy System Operator) is currently undertaking a programme of strategic planning for the entire energy system. Their Centralised Strategic Network Plan will map out future hydrogen network needs, including both new-build networks and repurposing of existing gas networks. The networks included in this plan will be of sufficient capacity and significance to be considered for support under the HTBM or HSBM, and DESNZ will have due regard to NESO’s plans when designing future allocation rounds.

Slow policy decisions

Strategic planning is welcome, but producers and customers need certainty now and the pace of decision making in Westminster is affecting confidence. DESNZ’s “Hydrogen Update to the Market”, published in July, said that the first allocation rounds for HTBM (transport) and HSBM (storage) would launch in the first half of 2026, originally these were planned for 2024.

The 27 hydrogen producers shortlisted in April 2025 in the second Hydrogen Allocation Round (HAR2) for HPBM (production) support are also awaiting the contract award decision, for HAR1 there were only 3 months between shortlist and award. And the refreshed UK Hydrogen Strategy, which was due in autumn 2025, has been delayed until early 2026.

Conclusion

The Hydrogen Energy Association published their “The State of the Hydrogen Nation Report” in January 2026. 49% of organisations surveyed felt the UK Government’s commitment to hydrogen had weakened compared with 12 months ago. The next few months should see some long-awaited policy decisions, which will hopefully give customer confidence the much needed boost that UK hydrogen producers urgently need.

Susan Swan will be chairing the ‘From Concept to COD: Unlocking & Derisking Hydrogen Projects’ panel at the upcoming Hydrogen UK Conference and Awards, 10-11 March, NEC Birmingham.

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