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A new report from RenewableUK and Hydrogen UK aims to change that. Splitting the Difference – Reducing the Cost of Green Hydrogen to Accelerate Deployment includes recommendations that the trade associations say could drive the cost of production down from £241 per megawatt hour (MWh), which was achieved in the first Hydrogen Allocation Round in 2023, to less than £100/MWh.
The UK has “massive potential” to use renewable electricity to produce hydrogen in electrolysers that split water into hydrogen and oxygen, the report said, and key measures could unlock economies of scale.
“Affordable green hydrogen will be an essential tool for building the energy system of the future, providing long-duration storage for surplus electricity, and also for decarbonising sectors such as steel, chemicals and shipping,” the report announcement said.
Recommendations include removing barriers to locating hydrogen production at renewable energy plants and incentivising electrolysis to happen when electricity is cheapest. The report also calls for the government to reform the hydrogen production business model to secure the maximum amount of investment, and to introduce an “ambitious” strategy to enable development of a hydrogen transmission network, with pipelines linking Scotland to England and Wales to optimise the availability of green hydrogen.
“For hydrogen to realise its full potential in helping the UK to decarbonise, it must become more affordable as it gets deployed at scale. Like similar nascent technologies in their early stages, green hydrogen has an enormous potential for cost reduction. As the UK scales up production with the help of the recommendations identified in this report, the cost of electrolytic hydrogen production is expected to drop dramatically,” the announcement said.
The price of electricity currently represents about 70% of the final cost of green hydrogen, so reducing it is “imperative”, the trade association said. Another one of the 11 key recommendations is to reduce the charges that project developers have to pay for access to the grid.
“Green hydrogen generated from renewables will play an important role in helping the government to achieve its clean power mission,” said Dan McGrail, chief executive of RenewableUK.
“It can add vital flexibility to our energy system as it can be stored and used whenever it's needed. This report shows that to realise this strong potential, the government will need to work with RenewableUK and Hydrogen UK to establish innovative business models to attract private investment, including strike prices that reflect the fact this technology is still at an early stage, and incentives for developers to build electrolysers alongside wind and solar farms to cut costs.
“Enacting the key measures set out in this report will enable the UK's nascent green hydrogen industry to build on its global lead in this technology, driving down costs significantly in the long term, creating thousands of new jobs and generating billions of pounds in economic activity before the end of this decade.”
Clare Jackson, CEO of Hydrogen UK, said: “This report… marks pivotal steps towards achieving our national goals in energy security and [the] clean energy transition by making hydrogen an economically viable option.”
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