Making clean hydrogen affordable

We can’t afford to do hydrogen this way

Government and the fledgling UK hydrogen industry must face an unavoidable fact:

We cannot afford clean hydrogen based on the UK government’s existing support model.

The cost of supporting the 11 electrolytic hydrogen projects in the first Hydrogen Allocation Round (HAR1) will add ￡2.60-￡4.00 to an average annual domestic gas bill.

Scaled up to the target of 10GW by 2030 that would add ￡200-￡360 to an average bill.

Even if the hydrogen subsidy fell by 2/3 it would still add 10% to gas bills.? For only 10GW hydrogen production capacity.

That is politically unacceptable, and it simply won’t happen.

The support model is designed for the least valuable use of hydrogen

The whole premise of the GB Hydrogen Production Business Model is to make burning hydrogen for heat a comparable price with burning natural gas for heat.? Low grade heat is a poor use for a premium clean fuel. Hydrogen is too valuable for that, and gas customers cannot afford to pay for it.

High value hydrogen

We need to focus support on uses where hydrogen has most value or where only hydrogen will do.

There is a fairly short list: displacing dirty hydrogen, chemical and industrial processes, heavy machinery and off grid power, some transport applications including aviation and shipping as derivatives like methanol and Sustainable Aviation Fuel (SAF).

And, for Great Britain, the biggest and most strategic use of all will be energy storage.

Why use hydrogen for energy storage?

Compared to batteries hydrogen is less efficient and more costly.? Batteries are already deploying at 100MWh scale in GB, so why would we use hydrogen for storage?

The answer is the Clean Power Mission.

When the wind is blowing, we have plenty of low-cost electricity. For short calm periods we can make do with batteries, interconnectors and pumped storage.?

The challenge is ‘dunkelflaute’ the dark doldrums when for a few days in a row wind and sun are not available.? For that we need to store large amounts of energy between seasons and even years.? Hydrogen storage in salt caverns may be the only way to do it at the scale required.

For 8,000 of the 8,760 hours in a year clean power is relatively straightforward. But those last 760 hours get increasingly harder and more costly to manage however we choose to do it.

This was illustrated last month when Rye House power station was briefly paid ￡5,500/MWh. For comparison, the average wholesale price last year was ￡70 and pre-covid it was around ￡40.

Rye House was burning fossil fuel to make electricity, but at that price they could have afforded to burn banknotes.

Large scale energy storage

In 2023 the Royal Society produced a report on Large Scale Electricity Storage which says that for a completely clean power system GB will need 60-100TWh of long duration storage.? This will mostly be hydrogen stored in huge underground reservoirs.

Until we build the storage we won’t have a 100% clean power system. The last 5% will come from burning natural gas in GB’s legacy fleet of power stations.? They need to operate efficiently and rarely.

That last 5% is a relatively ‘good’ use for fossil fuels but we will need to stop it.? Old gas power stations won’t last forever, and we need a clean alternative.

Models we can afford

We know what we need hydrogen for, and that we cannot afford to subsidise it for everything.? We need to quickly evolve the four separate UK business models (production, transport, storage and power) to support the end-to-end process of storing wind power using hydrogen in salt caverns.

We need less focus on hydrogen as a commodity and more on how we deliver clean power in ways that happen to use hydrogen.

Electricity

Viewed that way the most significant support for hydrogen starts with making changes to the electricity market.

The biggest cost of making electrolytic hydrogen is the cost of the electricity.? We need to change electricity market rules so that we can divert constraint payments to build electrolysers.

Last year ￡300 million was paid in curtailment payments to wind farms and 4TWh of renewable generation were lost due to grid constraints.? That would cover the entire capital cost of HAR1, and the lost energy would make over 75,000 tonnes of hydrogen.

If supporting changes are made in time for this summer’s wind auction, we could see electrolysers built at GW scale by 2030.? The supply chain for that is ready.? Siemens Energy’s automated electrolyser stack factory in Berlin already has plans to ramp up to 3 GW/yr capacity.? A GW scale UK market would attract investment from companies like Siemens Energy to build electrolysers here.

Storage

Knowing what we are using hydrogen for helps us design an appropriate support model. Storage caverns are critical national infrastructure.? It may be more cost effective to separate the capital cost of building the store from the ownership and working capital cost of the hydrogen inside it.? And maybe both can be separated from strategic decisions about when to put hydrogen in or take it out.

A proportion of the stored hydrogen needs to be kept for an unusually low wind year.? That sort of multi-year strategic reserve is very hard to deliver with a market model.? It will need government intervention however the rest of the system is funded.

Solution mining a new salt cavern takes 5-10 years, so the sooner the right signals are in place the sooner projects can start.

Generation

Once we have filled those hydrogen reservoirs, we need an efficient way to turn it back into electricity when the wind is not blowing.? For larger scale it is hard to beat the energy density of a gas turbine.? That’s why fossil fuel power stations use gas turbines today.? The good news is that the world’s first 100% hydrogen fuelled gas turbine was designed and built in Britain at the Siemens Energy factory in Lincoln.

In December SSE and Siemens Energy announced a hydrogen power acceleration partnership to develop hydrogen generation at scale.? This includes further investment to accelerate development of a commercial 100% hydrogen capable 900MW Combined Cycle Gas Turbine for operation in 2030 at Keadby in Lincolnshire.

We can develop the technology, but for SSE to take a final investment decision in about 2 years’ time there will need to be an end-to-end support model in place that supports both the power station and building the infrastructure to deliver 45 tonnes of hydrogen per hour.

Government is already working on a hydrogen to power business model, designed to support building hydrogen power stations that only run when we are short of renewable electricity.

Making the change

An end-to end business model for storing wind in the form of hydrogen in salt caverns will take time to develop, what do we do in the meantime to keep both the clean power mission and the hydrogen industry on track?

There is still value to be had from pressing on with HAR1 and HAR2 projects which are well developed or in flight.? The industry needs experience of projects to learn lessons, start to grow supply chains, and de-risk the larger project that follow. ?Government will make better regulation by seeing what really matters on real projects.? The model we have is not wasted.? We should see it as an investment to learn how GB should do hydrogen.? We can make HAR2 more affordable with rule changes already discussed in the industry, but those won’t be sufficient to make it sustainable at larger scale.

The National Energy Systems Operator (NESO) should quickly make an interim Strategic Spatial Energy Plan looking at the low-regrets investments for hydrogen infrastructure.? We know the electrolysers need to be either co-located with wind farms or at least on the same side of a grid boundary. We know the areas suitable for salt caverns. We will need 100% hydrogen pipelines between them.

It is time for Government to say what the industry already knows.? That we can’t afford to do HAR3 and beyond the same way.? Importantly there must also be a clear message that we still need to do hydrogen, and that government will work quickly with industry on policy to support it.? Sending clear signals about what we need, where, and that we will soon have affordable support in place will give developers confidence to work on end-to-end projects and avoid a damaging hiatus.

The hydrogen production business model began development in 2019, predating huge changes in the energy industry.? Britain’s Clean Power Mission makes now the most exciting time in my working life.? We all need to move fast and up our game.? The new clarity of purpose is an opportunity to evolve support models to fit the system we know we need.? The future for hydrogen is bright, let’s have the courage to pivot and make it happen.

References

“We estimate the policy impact of funding HAR1 projects on the average annual domestic gas bill to be approximately ￡2.60 - ￡4.50, over the 10-year appraisal period (2028-2037)” - Consultation on the Gas Shipper Obligation: analytical annex 16th January 2025 https://www.gov.uk/government/consultations/funding-mechanism-for-the-hydrogen-production-business-model-proposed-design-of-the-gas-shipper-obligation

England & Wales average gas bill in 2024 is ￡1,081 https://www.gov.uk/government/statistical-data-sets/annual-domestic-energy-price-statistics

Rye House paid ￡5,500/MWh https://www.telegraph.co.uk/news/2025/01/08/electricity-bills-gas-wind-power-weather-freezing-cold/

What you need to know about hydrogen salt cavern storage – Frank Bridge and Dr. Daniel Curry Energy Systems Catapult 2025 https://es.catapult.org.uk/insight/hydrogen-salt-cavern-storage/

Large-scale electricity storage, Royal Society 2023 https://royalsociety.org/news-resources/projects/low-carbon-energy-programme/large-scale-electricity-storage/?

First 100% hydrogen small gas turbine https://www.hyflexpower.eu/about/

SSE & Siemens Energy Hydrogen Power Acceleration partnership https://www.ssethermal.com/news-and-views/2024/12/sse-and-siemens-energy-announce-hydrogen-power-acceleration-partnership/

Splitting the difference Hydrogen UK & Renewable UK report on reducing the cost of hydrogen https://www.renewableuk.com/news-and-resources/publications/splitting-the-difference-reducing-the-cost-of-green-hydrogen-to-accelerate-deployment/

Offshore wind co-location: integrating offshore wind with flexibility https://www.renewableuk.com/news-and-resources/publications/offshore-wind-co-location-integrating-offshore-wind-with-flexibility/