Blog: UK hydrogen strategy update - What will 2025 bring?

Five hydrogen economy milestones achieved in 2024

Xoserve has a unique position at the heart of Britain's gas market. From our standpoint, it’s easy to agree with the Government that hydrogen has a critical role to play in accelerating net zero progress, decarbonising hard-to-abate sectors, and complementing electrification efforts.

With net zero plans focused primarily on power for so long, it’s encouraging to see some real progress in developing policies and incentives that will create a decarbonised gas system and thriving hydrogen economy. Both will be crucial to grid stability and energy resilience as power demand grows and our nation increases its reliance on renewables.

During the second half of 2024, we saw the Government achieve five key hydrogen milestones:

1. Publication of the hydrogen to power (H2P) consultation response

The government published its response to the consultation on the need and design for hydrogen to power market intervention. The response confirmed the intention to establish a new H2P business model, which will support the accelerated deployment of hydrogen to power and contribute to the delivery of a clean power system. Read how the proposed business model could impact the gas industry.

2. Confirmation of Hydrogen Allocation Round 1 projects

The Government confirmed support for the 11 successful projects from the first Hydrogen Allocation Round. These total 125MW in capacity and contribute to the development of the UK's hydrogen production capabilities.  

3. £21.7 billion funding for UK carbon capture, utilisation and storage (CCUS)

Up to £21.7 billion of funding was made available to help launch the UK's new CCUS industry. This will support the development of CCUS-enabled hydrogen production plants and help decarbonise vital industrial sectors.  

4. Launch of the National Energy System Operator (NESO)

NESO was launched to help deliver a world-leading low carbon energy sector. This new body believes in a whole system approach to net zero and will play a key role in supporting the growth of the hydrogen economy.  

5. Launch of the National Wealth Fund and Great British Energy

The Government launched the National Wealth Fund and Great British Energy to support investment in clean energy projects and help make Britain a Clean Energy Superpower. These initiatives are expected to support the hydrogen value chain and contribute to the growth of the hydrogen economy.

2025 and beyond: What next for hydrogen?

As well as assessing progress during the past year, the December 2024 hydrogen strategy update showcases the Government’s plans for 2025, focusing on key areas including hydrogen production, infrastructure and usage.

Xoserve will stay close to the plans as they move into implementation. As the hydrogen economy develops and infrastructure evolves, we expect there will be many ‘tipping points’ when the gas market framework will also need to change. Our expertise in data management and our understanding of competing priorities within the gas marketplace could be an invaluable resource to those tasked with keeping progress on track.

During 2025, the Government aims to boost hydrogen production, encourage private investment and provide greater clarity on the future uses of hydrogen, all in pursuit of a ‘world-class hydrogen economy’:

Boosting hydrogen production

The Government states that it is ‘firmly in delivery mode’ when it comes to hydrogen production. Several key activities during 2025 will contribute directly to this:

Low carbon hydrogen standard and certification scheme

The UK Low Carbon Hydrogen Standard defines the maximum greenhouse gas emissions allowed for hydrogen to be classified as 'low carbon'. This ensures that hydrogen labelled as 'low carbon' genuinely contributes to decarbonisation efforts. Version 4 of the Low Carbon Hydrogen Standard is currently in development, to make sure it remains fit for purpose as the understanding of how technologies work in practice grows. Watch this space for further updates during 2025. The refined Standard will inform the Low Carbon Hydrogen Certification Scheme, also expected to launch during 2025 according to a consultation response published under the 2022-24 Conservative government.

Hydrogen production funding

The UK government is backing low-carbon hydrogen production through the £240 million Net Zero Hydrogen Fund. This initiative supports a range of production technologies, including carbon capture and electrolysis, and prioritises projects capable of starting hydrogen production within this decade. The fund is divided into four strands, with successful applicants from 2023/24 expected to progress to contract signing, final investment decisions, or the start of construction by 2025.

The year ahead will also bring a review of how Hydrogen Allocation Rounds are administered. During 2024, we saw support confirmed for 11 successful Hydrogen Allocation Round 1 projects. These are non-CCUS projects that require capital expenditure revenue support. Following an oversubscribed second Hydrogen Allocation Round, we can expect publication of a shortlist of Round 2 projects soon. The Government will also engage with the market in 2025, prior to Round 3, to seek feedback on design and delivery. It intends to then review the design of allocation rounds beyond Round 4, and may decide to use an independent allocation body and move to price-based competitive (auction) allocation.

Investment in CCUS

The Government has reaffirmed its support for CCUS and is investing in the CCUS industry, which will also pave the way for the UK’s first large-scale hydrogen production plant. The next stage of the CCUS programme includes the building out of the first two Track-1 clusters in the  Carbon Capture, Utilisation and Storage Cluster Sequencing Process: East Coast and HyNet. The HyNet expansion process will announce a Project Negotiation List from spring 2025. Further decisions for CCUS deployment, including Track 2 clusters, will be taken in due course. No dates have yet been provided.

A focus on hydrogen networks and storage

The Department for Energy Security and Net Zero (DESNZ) is developing detailed designs for the Hydrogen Transport Business Model and the Hydrogen Storage Business Model. This includes the process and ambitions for the first rounds, which should be announced in 2025. These models will incentivise the development of regional pipeline infrastructure and support up to two large-scale storage projects, to be in operation or construction by 2030.

The need for clarity on hydrogen usage

The gas industry and potential investors have faced challenges in understanding the intended role of hydrogen within the UK energy system. At Xoserve, we anticipate playing a key role in facilitating hydrogen's integration into the energy network. We welcome clear guidance from policymakers on how hydrogen will be utilised across gas and power networks. Providing clarity and transparency is equally important to our customers and stakeholders, enabling them to effectively plan for the changes ahead.

The December 2024 hydrogen strategy update acknowledges this need for clarity and considers how the Government can act to provide it during 2025:

Hydrogen to power

Developing the H2P business plan during 2025 will be a crucial first step toward realising the potential of H2P to provide sustained, dispatchable generation that supports intermittent renewables. Further details on the business plan design will be released in spring 2025.

Industry and transport

Other potential uses for hydrogen currently under consideration include industrial gas decarbonisation and long-haul or heavy-duty transport. It is widely recognised that electrification of these sectors is both extremely challenging and expensive, and that hydrogen can help to transition them away from oil and gas. Following its 2024 update to the Hydrogen Investment Roadmap, DESNZ has worked to encourage investment in decarbonisation of industry; most recently consulting on The UK’s modern industrial strategy - Invest 2035. The industrial strategy comprises a 10 year plan intended to deliver the certainty businesses need to invest in high growth sectors, including ‘clean-energy industries’. Launch of the strategy is expected in spring 2025, with a focus on supporting UK supply chains for clean energy sectors.

Heat in buildings

Using hydrogen for heat in buildings has been a topic of intense debate. While the previous Government committed to making a decision on this use of hydrogen by 2026, much has changed in the interim. We can expect the H100 project to go live in summer 2025 while the Health and Safety Executive (HSE) continues to assess the safety evidence for hydrogen heating. Meanwhile, a consultation on blending hydrogen into the existing gas transmission system will be launched in early 2025, with a policy decision expected during the year.

A developing policy framework

Whatever the year ahead holds for hydrogen, one thing is certain: the existing regulatory framework provided by the Gas Act 1986 is not properly equipped to support our emerging hydrogen economy, or enable it to grow. The new framework required will need to be informed by a depth of knowledge on how market participants interact, and must also be flexible enough to adapt as the first pipeline projects evolve into a mature hydrogen economy.

The December 2024 hydrogen strategy update makes it clear that the Government is committed to ensuring regulations can support its hydrogen ambitions, and Xoserve is keen to help in this process. Our expertise in gas data and understanding of marketplace processes could help to ensure that any new policies take all marketplace players and essential practicalities into consideration.

We’re also keen to hear the most up-to-date views of our customers and stakeholders. We believe that your insights and experiences should help to shape future hydrogen policy and inform industry best practices as the hydrogen economy develops.

Get in touch

To learn more about how Xoserve supports the decarbonisation of gas, take a look at our decarbonisation knowledge centre.

If you have any feedback, questions or suggestions for our Decarbonisation Team, please email us.

Email us