The ‘creative accounting’ that means consumers still likely to foot the bill for hydrogen

Will low-carbon hydrogen be the fuel that weans us off our dependence on high-emissions gas and gives us a much-needed push towards net zero?

This is certainly what many are hoping for. And indeed, as part of the government’s long-term strategy, funding has been allocated to encourage the development of low-carbon hydrogen.

But who will fund the cost of this?

10GW of hydrogen in plan by 2030

Currently, the government is providing £100 million each year to support projects that it hopes will deliver 1 gigawatts (GW) of low-carbon hydrogen production by 2025. And it’s hoped to ramp up hydrogen production to 10GW by 2030.

But rather than continuing to fund hydrogen support from the Treasury, the government’s Energy Security Bill proposed to shift the obligation to energy consumers from April 2025, with a new Hydrogen Production Levy set to appear on energy invoices.

This was set to add an additional charge of around 50p per megawatt hour (MWh).

However, under pressure from those arguing that the burden on consumers is already too high, the government has amended this plan.

Indeed, energy invoices are already groaning under the weight of a growing list of subsides to finance the Climate Change Levy (CCL), Contracts for Difference (CfD), the Renewables Obligation (RO), Feed in Tariff (FIT) and more.

Cost now allocated to gas shippers

But rather than continue funding this cost out of Treasury funds, the £100 million+ annual funding commitment will instead be passed to gas shippers.

These are the organisations responsible for securing and storing gas as it reaches UK shores and then getting it into the national gas network to supply consumers.

So what happens when the costs associated with supplying a commodity go up? The cost of buying that commodity will also increase.

Gas energy costs set to increase by around £0.50/MWh

So the cost of the Hydrogen Levy will still hit bills – and will still result in an uplift of around 50p/MWh to the price of gas.

This is likely to happen one of two ways: either it will be added onto the wholesale gas price; or it will be passed as a separate cost to energy suppliers, which will then be passed onto consumers via some form of charge on energy invoices.

Either way, it will be consumers funding the new hydrogen levy!

As soon as we are clearer on exact charging mechanisms, we will share more details with you.