Regulating the hydrogen pipelines: UK moves forward on Market Framework for Hydrogen Pipeline Networks
On 15 July 2025, the Department for Energy Security and Net Zero (‘DESNZ’) launched a consultation seeking views on the economic regulatory framework for 100% hydrogen pipeline networks (the “Consultation”). The Consultation is a direct successor the proposals for hydrogen transport and storage business models published in 2022.
The Consultation considers changes to the regulatory framework under the Gas Act 1986 (‘Gas Act’). Particularly, the Consultation evaluates the existing regulatory framework using the following core design principles:
- Allocating clear roles and responsibilities for market participants to ensure hydrogen flows from producers to end users are safe and reliable;
- Providing commercial confidence to market participants; and
- Flexibility to adjust to a competitive market as networks grow.
While the hydrogen pipelines will share some features with the established natural (methane) gas pipeline, given the differences in the markets, early hydrogen pipeline networks will operate as smaller, self-contained systems with shorter pipelines and fewer connected assets. As such, early hydrogen pipeline networks will focus on power and industrial customers (and will therefore be concentrated around existing clusters).
Content of the Consultation
Development in clusters
The Government expects that, as the hydrogen economy is in its early stages, the majority of industrial and power demand for hydrogen will be situated within or in the instant proximity of sizeable industrial clusters. Support for the networks will therefore be focussed on the industrial clusters and could then extend to the development of a core network providing transmission-scale connections between regions and to sources of hydrogen production and storage further afield with more dispersed demand. The Consultation should therefore be seen through this lens and minded-to-positions are taken with a view to supporting clusters rather than establishing a wider transmission system.
Balancing and transportation
The Consultation considers the ‘balancing’ of hydrogen networks – i.e. maintaining safe pipeline pressures by ensuring that the amount of hydrogen going into the pipeline is equal to the amount of hydrogen going out of the pipeline. Balancing for natural gas takes place over a 24-hour period (in contrast to electricity which can require action on a second-by-second basis). No specific time period has been detailed for balancing hydrogen and the response times are likely to be varied with a table of estimated response times for different hydrogen production and storage technologies set out below. DESNZ analysis suggests that the balancing timeframe may be between 2-6 hours for some networks.
| Estimated response times of different hydrogen production and storage technologies | ||
| Technology | Start up time / rate | Response time |
| Electrolytic hydrogen production | Cold start up time (PEM/Alkaline) | 5 to 10 minutes / 30 to 60 minutes |
| Hot ramp rate (PEM/Alkaline) | 10% per second / 1% per minute | |
| CCUS-enabled hydrogen production | Cold start up time | 6 to 8 hours |
| Hot ramp rate | 1 to 2% per minute | |
| Hydrogen salt cavern storage (dry cavern technology assumed) | Cold start up time (switch from injection to withdrawal) | 1 to 3 hours |
| Hot ramp rate (when currently withdrawing) | 1 to 2% per minute | |
Although balancing requirements will depend on the kind or source of the imbalance, the core activities to balance hydrogen will be the same across all networks and similar to those used for balancing methane gas. This will include sharing data, changing gas flows, maintaining system resilience and managing emergencies.
In line with the Gas Act the Consultation anticipates that balancing activities will be regulated via the existing two forms of licences – primary and residual. For reference, primary balancers are those in charge of the majority of daily balancing activities by way of a shipper licence, and residual balancers act as a ‘backstop’ for primary balancers when further actions are needed to rectify an imbalance.
Under the Gas Act, primary balancing is regulated through the gas shipper licence and DESNZ is of the view that, for initial networks, hydrogen producers should hold a shipper licence, allowing them to retain primary balancing responsibilities. DESNZ proposes that other participants would not be barred from applying for such a licence should they meet the criteria to do so.
Role of the System Operator
The Consultation lays out the requirement for a System Operator for hydrogen pipeline systems and DESNZ recommends that such role should be given to the owners of pipeline systems in their capacity as licensed transporters of hydrogen by virtue of the Gas Act. DESNZ’s assessment of system operation responsibility for hydrogen pipeline systems is set out below:
| Assessment of system operation responsibility for hydrogen pipeline systems | ||
| Assessment Criteria | Pipeline system owners | A single owner |
| Flexibility: provides arrangements that can adapt or be changed to align with changes in infrastructure and the way it is used. | Early hydrogen pipeline networks will be modest in scope and regionally isolated. Producers and offtakers will contract with one another on a bilateral basis. System operation approach will likely be sufficient to support network decisions. When pipeline systems grow and likely interconnect, this approach may remain viable but could become sub-optimal if combined decision-making is needed across networks operated by different System Operators. Licence drafting could offer flexibility to change, should there be a case to reallocate responsibility in later network stages. | A single, overarching System Operator for early networks is unlikely to offer benefit to early networks. However, as pipeline systems grow and likely interconnect, the case for a single overarching System Operator may grow. For example, it might offer operational efficiencies and enable decisions to be made in the context of the whole energy system. However, the scale and needs of future hydrogen pipeline networks remain uncertain. |
| Commercial confidence: provides an effective solution for initial pipeline systems | Offers consistency with current NTS arrangements and expectations of existing legislation, offering clarity to network participants of legislative responsibilities. Preserves day-to-day operational efficiencies offered by a combined owner and operator arrangement. | Arrangements likely to be less familiar to industry, due to divergence with NTS arrangements. Would require new legislation to define a new System Operator operating as a single, overarching entity. Could result in a loss of day-to-day operational efficiencies, which could result in higher infrastructure maintenance costs. |
| Capability and expertise: allocates clear roles and responsibilities for market participants | Prospective pipeline owners should have, or be able to build, capability and capacity to deliver activities needed to operate their pipeline networks. System Operator responsibilities may extend these operational responsibilities beyond the scope anticipated by some prospective pipeline owners (e.g. to undertake residual balancing). Specific responsibilities would be set out in licence and code but are expected to be limited in scope for early networks. | May not have relevant capability or experience (e.g. gas control centre experience) but could acquire this ahead of pipeline system operation to deliver core operational activities. |
Licensing
Unless exempt, the Gas Act forbids the supply of gas (including hydrogen) conveyed to premises via pipelines without a supply licence, however DESNZ’s minded to position is that persons who supply hydrogen through pipes to premises should be exempt from supply licence requirements to eliminate “inessential regulatory obstacles” for the initial hydrogen pipelines. Schedule 2A of the Gas Act lays out five licensing exemptions, of which the most relevant is the supply to ‘very large consumers’ (the threshold of which is those carrying out ‘a supply of gas to any premises at a rate in excess of 2,000,000 therms a year’). The basis of this exemption is that large consumers do not require the same consumer protections as smaller consumers. Recognising that some users may fall below the exemption threshold, DESNZ is minded to disapply the threshold altogether for hydrogen projects. An alternative approach would be to set a hydrogen specific exemption threshold.
In addition, the Consultation suggests that transportation and shipping are to be regulated under a licence. Transportation would cover conveying hydrogen through pipes to premises, or to a pipe-line system operated by a gas transporter while shipping would cover arranging with a transporter for the conveyance of gas. The Gas Act regulates storage of hydrogen in storage facilities, but this is not licensed, nor is the production of gas. DESNZ seek views on whether other activities such as production and/or storage activities should also be regulated.
Hydrogen network code
The applicable code for the natural (methane) gas network is the Uniform Network Code (‘UNC’). A new network code similar to the UNC was developed for CCUS using a ‘minimum viable product’ (‘MVP’) method. DESNZ’s proposal is to develop a new network code for hydrogen which builds on the experience of the CCUS network code using the MVP approach.
The MVP approach priorities issues which are most relevant to hydrogen networks and their users for the first version of the code. It also allows the code to be adaptable as hydrogen networks develop. DESNZ are, inter alia, seeking views on which issues should be prioritised in using this approach and propose that code development will be best implemented by industry and Government working together, alongside collaboration from Ofgem and other appropriate stakeholders, such as NESO.
Implications, next steps and conclusions
Industry has long been calling for an acceleration in the development of hydrogen networks (as can be seen in this document of recommendations provided by the Networks Working Group in January 2023). Indeed, following the signing of the first LCHAs at HAR1, it is crucial that hydrogen pipelines and networks are developed alongside the production. The announcements contained within the Consultation will therefore be welcome news throughout the industry.
Key considerations include the potential for new licensing requirements, economic regulation, and obligations regarding access and charging. Early engagement with the Consultation process and ongoing monitoring of policy developments will be important for project planning, investment decisions, and compliance.
The Consultation will close on 9 September 2025. Responses can be submitted here. Following the closure of the Consultation, DESNZ will use the feedback to inform the design of the regulatory framework. A timeline of when this should be expected was not provided, however it took just under nine months for a response to be published to the hydrogen transport and storage consultation in 2022. This may serve as a possible indicator.
