Opportunities and Challenges in the UK's Hydrogen Market: Key Takeaways from the OEUK Hydrogen Insight 2025
Introduction
Offshore Energies UK (“OEUK”) has published its first Hydrogen Insight 2025 Report (the “Report”) on the opportunities and challenges in the UK’s emerging hydrogen market. We summarise the key takeaways from the Report below to assist key stakeholders within the hydrogen sector in the UK (or those looking to invest in the UK) in navigating this evolving landscape.
The Role of Hydrogen in Achieving Net Zero
Hydrogen is poised to play a crucial role in the UK's (and many other countries’) journeys towards net zero emissions by 2050 (see the CMS Expert Guide for more on this). Its versatility makes it an attractive option for decarbonising various sectors, including industrial processes, transportation, power generation, and potentially in heating. However, the penetration of hydrogen in the UK's energy system will ultimately depend on several factors, including the pace of deployment, enabling policies, and cost reductions.
Key Recommendations for Boosting the Hydrogen Sector
The Report outlines several key recommendations to accelerate the growth of the hydrogen sector in the UK:
- Prioritise Early Hydrogen End-Uses: It is essential to prioritise sectors where hydrogen can be most competitive and impactful, such as high-temperature industrial manufacturing and dispatchable low carbon power generation. Without decisive action, the UK risks falling behind other countries in the hydrogen economy.
- Confirm Hydrogen Ambition: The UK government must commit to deliverable deployment targets to provide visibility and certainty for project developers and supply chains. This will help catalyse investment and drive the development of the hydrogen sector.
- Design Robust Funding Mechanisms: Affordable long-term funding mechanisms for hydrogen business models are crucial to provide certainty for investors. The proposed Gas Shippers Obligation (GSO) must be designed to support the long-term nature of the market, balancing the need to preserve energy security and deliver net zero objectives – see our earlier CMS Law Now on the GSO consultation here (consultation closed 9th April 2025).
- Recognise the Role of Gas: Gas is a critical input for producing CCS-enabled hydrogen, which is currently more cost-competitive than electrolytic hydrogen. Policies must recognise the essential role of gas in achieving the necessary levels of low carbon hydrogen deployment.
- Strategic Planning and Integration: The government and the National Energy System Operator (NESO) should work closely to ensure strategic planning activities are aligned for the future energy system, including electricity, hydrogen, and its derivatives.
- Enable Transmission-Level Blending: Enabling hydrogen blending at the transmission level within Great Britain can provide a flexible baseload for hydrogen demand and avoid the costs associated with importing blended gas from Europe. (Note that in 2023 the UK government decided to support blending of up to 20% hydrogen by volume into GB gas distribution networks).[1]
- Integrate Hydrogen and Wind: The UK has a unique opportunity to lead in the hydrogen economy by leveraging its abundant renewable resources, specifically offshore wind. By strategically designing and optimising hydrogen production, storage, and transportation systems, the UK can maximise its renewable resources and create a robust hydrogen market.
- Repurpose Existing Infrastructure: The UK's existing infrastructure for natural gas transportation and storage offers a valuable foundation for hydrogen. Repurposing this infrastructure can reduce the need for new investments and speed up deployment.
- Simplify and Evolve Business Models: Early business models are essential to make early hydrogen production and end-use economically viable. These models need to be simplified and evolved to remain investable.
- Harmonise Standards with the EU: Harmonising standards regarding the definition of low carbon hydrogen between the UK and the EU will facilitate access to other markets and enhance competitiveness.
The Report itself provides a useful overview of the current landscape with respect to the hydrogen market in the UK, looking at the following areas:
- Global outlook, with a specific look at the European market
- The role of hydrogen in achieving net zero in the UK
- Boosting the UK’s hydrogen sector
- Economic Drivers and Policy Foundations
- Export Opportunities
The Report also provides some case studies of a number of ongoing UK hydrogen projects such as the Hydrogen Backbone Link, H2NorthEast and Hy-One.
Insights
For leaders in the field, it is crucial to understand the regulatory and policy landscape that will shape the hydrogen market.
Given the significant level of ongoing policy development across the UK Energy sector, the Report offers a useful overview of the current landscape and in doing so highlights the areas where further development is required.
As the UK government launches the HAR2 round focused on hydrogen production[2] as well as bearing in mind the ambitions set out in the Clean Power 2030[3] plan, this Report is a timely reminder of the work that lies ahead if the current challenges are to be addressed through strategic planning, policy support, and robust legal frameworks.
The Report can be accessed here.
[1] https://www.gov.uk/government/publications/hydrogen-blending-in-gb-distribution-networks-strategic-decision
[2] https://www.gov.uk/government/publications/hydrogen-allocation-round-2-har2-projects/hydrogen-allocation-round-2-har2-shortlisted-projects
[3] https://www.gov.uk/government/publications/clean-power-2030-action-plan
