UK gas users could face hydrogen levy on household bills

UK energy updates

The British government is exploring adding a new levy on to household gas bills as a subsidy to hydrogen producers as it attempts to kickstart the fledgling industry.

A new “hydrogen strategy” to be published next week will set out ways to increase the use of the low-emission gas as a part of the UK’s plan to reach its 2050 “net zero” carbon target.

The document will launch a consultation on a new type of mechanism to ensure that hydrogen companies can receive a predictable price for future sales.

Households account for nearly a fifth of carbon emissions. The government last year set out plans to upgrade home heating systems, replacing gas boilers with low-carbon heating systems such as hydrogen appliances. Hydrogen is also expected to play a role in hard-to-electrify sectors such as shipping and heavy industry.

The mechanism will be similar to “contracts for difference” which have been used to guarantee the price of energy produced by offshore wind companies and by the Hinkley Point C nuclear reactor being built in Somerset, according to government officials.

The use of “CFDs” has been credited with helping to drive down the price of offshore wind by more than 70 per cent over the past decade, turning it into one of the cheapest forms of electricity generation. But in the short-term, it can carry a higher cost for consumers, as governments look for methods to subsidise support for cleaner forms of fuel and the associated infrastructure.

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Boris Johnson, prime minister, recently set out a 10-point green plan which included a new target of 5GW of low-carbon hydrogen production capacity by 2030 and 1GW by 2025. 

Hydrogen has long been used in industrial processes but is currently largely derived from fossil fuels.

Now governments and industry want to produce the fuel without releasing carbon dioxide into the atmosphere, either by the electrolysis of water using renewable energy (“green hydrogen”), or by capturing the carbon emissions produced when it is made from natural gas (“blue hydrogen”).

Some of the world’s largest energy companies are simultaneously bidding for government backing to deploy carbon capture and storage projects in the UK, which would form the backbone of a future “blue” hydrogen plan.

The oil and gas industry has been a significant supporter of blue hydrogen in Britain, but some environmental groups fear it will secure the long-term future of gas producers and prove less effective at cutting emissions than home-heating solutions such as heat pumps. 

Blue hydrogen is seen as more cost effective than its green version, at least initially, as production can use existing infrastructure like gas pipelines.

But critics have warned that government or bill-payer support for hydrogen derived from natural gas should be limited on the basis that it is a transitional fuel.

Doug Parr, Greenpeace’s chief scientist in the UK, said that a CFD system could prove viable but emphasised the risk of pulling support away from other forms of renewable power.

“There isn’t an infinite amount of bandwidth in government or household bills to support multiple levies,” Parr said.

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“We expect the price of green hydrogen and other forms of renewables to fall faster . . . so there’s a danger of locking the UK into a more expensive and less clean fuel long-term.”

Two trials of fully hydrogen heated homes were started in the UK this month, while a pilot to blend up to 20 per cent hydrogen into a portion of the public gas network was approved in north-east England this week. 

The idea of a new hydrogen charge on bills comes as ministers are braced for a backlash from some backbench MPs about the impact of the 2050 net-zero target on household finances. 

On Tuesday, The Sun newspaper reported the government’s plans to delay a ban on gas boilers by 2035 amid concerns about the cost of replacing them.

BEIS, the business department, will publish a detailed net zero strategy in September while the Treasury will release a simultaneous report examining the cost of reaching the target. 



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