15 January 2026
Looking ahead to 2026
Gas is the hidden hero of the UK energy system, providing affordable and reliable energy to millions of Britons. But with homes accounting for a fifth of UK carbon emissions in 2022, decarbonising the UK gas system is not optional, but a key stepping-stone on the road to Net Zero 2050.
Looking ahead to 2026, we expect it to be a pivotal year marked by positive decisions that will accelerate the decarbonisation of the UK gas system.
Funding
Budget 2025 scrapped the Energy Company Obligation and other green levies on electricity bills; but left the Climate Change and Green Gas levies on gas bills untouched. Together, these raise less than £10 million a year – far short of the National Infrastructure Commission’s forecast of £4 billion-a-year investment required to decarbonise the gas system by 2050.
We await the government’s response to their consultation on the Gas Shipper Obligation (GSO) – a levy on gas networks and transporters which aims to provide revenue support to hydrogen producers through the Hydrogen Production Business Model (HPBM). Xoserve has supported the Department for Energy Security and Net Zero’s design of the GSO, building upon our experience developing the successful Energy Price Guarantee scheme. Confirmation of the design of the GSO will provide clarity and certainty for the UK gas industry on how much bills are likely to rise to fund the obligation, which is set to commence in 2027.
Hydrogen
The recent publication of DESNZ’s response to its hydrogen economic regulatory framework consultation outlines the key legislative, regulatory and licensing arrangements needed to enable a 100% hydrogen gas network.
Complementing this policy progress, the H100 trial in Fife, one of the world's first domestic green hydrogen gas networks, is set to go live in Spring 2026. The trial will provide important insights on the investment required for decarbonising home heating, as well as the feasibility and adaptation requirements of existing gas infrastructure for hydrogen transport and distribution. The project's data on safety, cost and user consumption could also inform how hydrogen gas is integrated with other renewable technologies like wind and solar. Xoserve will play a key role communicating the insights and learnings from this project, helping to accelerate decarbonisation of the UK gas system.
The H100 trial will also coincide with the UK Government’s strategic decision on the role of hydrogen within domestic heating, expected next year.
An update on the commercial design of the Transport and Storage Business Models is also expected in early 2026, with the first allocation round expected in the first half of this year.
Meanwhile, NESO’s Clean Power 2030 roadmap highlights the key role of hydrogen as a dispatchable low carbon fuel for both electricity generation and industrial use.
The Government has set an ambitious goal of 10GW of hydrogen production by 2030. Hydrogen Allocation Rounds (HAR) 1 confirmed funding for 11 projects, with HAR 2 shortlisting a further 27. Together, these projects are forecasted to deliver a total production of 890MWh of hydrogen. While this is welcome progress, the UK will need to significantly accelerate investment in UK hydrogen production in future allocation rounds to meet its 2030 target.
The updated Hydrogen Strategy, due in 2026, is expected to wrap all of this progress together into a coherent implementation approach.
Biomethane
Ofgem’s decision to maintain Network Innovation Allowance (NIA) funding for biomethane injections while excluding investments in hydrogen and carbon capture and storage, is a clear indication that the Regulator has greater confidence in the future role of biomethane within the UK gas system.
This confidence was further strengthened by the news that the Green Gas Support Scheme has been extended until March 2030 provides greater certainty for anaerobic biomethane producers by extending the commissioning deadline. This will enable continued investment in UK biomethane production.
Further policy certainty is expected with the publication of the Government’s Future Policy Framework for Biomethane consultation, anticipated in March 2026. Building upon the February 2024 call for evidence, the consultation is expected to provide further definition on the UK Government’s vision for the future role of biomethane within the net zero transition; consider options to further boost funding for UK biomethane production; and detail proposals to remove regulatory and licensing barriers to increase biomethane injections into the gas grid.
2026 is expected to be a big year for boosting biomethane’s role within the UK energy system.
Hydrogen blending
We can also expect to see the publication of the health and safety case for hydrogen blending, alongside the government’s decision of whether to go ahead with the initial 2023 decision to support up to 20% hydrogen blending within the gas distribution system. Furthermore, in 2026 we can expect the government’s response to their consultation on transmission blending, which could see up to 2% hydrogen blend in the National Transmission System.
While the UK continues to make steady progress towards decarbonising the UK gas system, a range of unanswered questions remain. We look forward to seeing the updated UK Hydrogen Strategy and Future Biomethane Policy Framework to provide valuable clarity for the sector over the coming year.
Get in touch
If you have any feedback or questions on any of the above, please email us at decarbonisation@xoserve.com.
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