Shaping the future of hydrogen with the Government’s latest market update

1 September 2025 | 3 minute read

Towards the end of July, the UK Government provided an update on the trajectory of the UK hydrogen market, and the policies designed to expand the sector.

Investment in the hydrogen sector is crucial to make the UK a Clean Energy Superpower. However, the development of a thriving hydrogen economy relies on a positive outlook on the direction of the UK hydrogen market from investors. A clear roadmap for the development of the hydrogen value chain will help to incentivise the investment required for a successful energy transition.

Key upcoming changes

The latest market updateopens in a new window provided key updates on sector developments alongside an overview on the UK hydrogen economy until 2030. It's encouraging to see confirmation that the Government will invest £500 million in a regional hydrogen transport and storage network. This commitment is the first step in the journey to create a hydrogen economy that connects producers to vital end users across the power and industrial sectors.

A renewed commitment from the Government to announce the final awards under the second Hydrogen Allocation Round (HAR2) in early 2026 is also welcome news. This also included plans for the future of hydrogen investment, with HARs three and four planned for 2026 and 2028, respectively. 

Other key changes announced in the hydrogen market update include:

• A commitment from the Government to remove the Climate Change Levy (CCL) from electricity used in hydrogen electrolysis
• An expectation that a full Hydrogen Production Business model will be launched in 2026 to incentivise investment in low carbon hydrogen production and end-use
• The publication of a report later this year recommending the National Energy System Operator (NESO) to take responsibility for hydrogen transport and storage infrastructure planning
• Plans to consider expanding the Clean Industry Bonus to hydrogen, a revenue support scheme designed initially to incentivise offshore wind developments

The industries prioritised for hydrogen uptake

Low carbon hydrogen has a unique role to play in hard-to-abate sectors, where other decarbonisation methods such as electrification may not be suitable. Heavy transport, chemical production, and aviation are perfect examples of these sectors. In these circumstances, hydrogen offers an energy dense solution to replace fossil fuels in a cost-effective way.

The recent hydrogen market update confirmed that hydrogen will play a key role in dispatchable, low carbon power generation to help meet fluctuating demand. The update also highlighted hydrogen’s future potential, which includes:

• Heavy transport, maritime, and aviation
• Industry, off-road machinery, and heat in buildings

In the latest update, the Government has committed to focus hydrogen infrastructure development on hard-to-electrify processes such as chemical production and refining. In the maritime sector, the document reaffirms its £30 million pledge for the development of clean maritime technology. In aviation, the Government has reaffirmed the development of the Sustainable Aviation Fuel Mandate for more sustainable air travel. 

For transport and storage, policymakers recognise how crucial these networks are to connect key end users to hydrogen producers.

An excess of renewable electricity also provides the opportunity to produce low carbon hydrogen. Storing this for use when supply is higher than demand will create a more resilient energy supply.

Benefits and drawbacks from the UK Hydrogen Market Update

The Government’s recent hydrogen market update has provided some certainty for the sector on the future trajectory of the market for hydrogen in the UK. As the Government makes significant investment commitments, long term certainty will encourage investors to look towards the UK as a hub for hydrogen innovation. 

The latest update also provides a large hydrogen export opportunity for UK manufacturers. As the Government commits to making electricity cheaper through changes to the CCL, hydrogen will become cheaper to export.

This will benefit Scotland thanks to its vast renewable electricity landscape. The Department for Energy Security and Net Zero (DESNZ) has also been working to strengthen cooperation with the Netherlands, Germany, and France on hydrogen development. 

However, despite the market report’s positive outlook, there are several risks that may present barriers for the wider hydrogen sector. While the update helps to provide certainty for hydrogen producers and infrastructure development, it's crucial that the Government engages proactively with end users.

Driving increased demand for hydrogen will further improve investor confidence. Infrastructure development must also keep pace with this increased production ambition. 

A future hydrogen strategy must also consider the need for skilled workers to deliver the energy transition. The Government must focus on attracting workers to the sector, supporting skills development, and reskilling the existing workforce. This should also happen in parallel with a strategy to improve the public perception of hydrogen.

What does the latest market report mean for Scotland?

The updated roadmap for hydrogen provides significant investment opportunities for Scotland. The report provides a chance for Scotland to reflect on how it can fit into the wider UK innovation and infrastructure planning for hydrogen. 

The UK Government is currently seeking evidence from across the hydrogen value chain to inform its understanding of the value of blending hydrogen into the current gas network. This decision will be crucial to establishing a hydrogen economy across the UK and will significantly boost Scotland’s ability to offer cost-effective, low carbon hydrogen. 

Scottish voices are key to shaping a hydrogen economy that allows Scotland to fully realise its potential as a hub for hydrogen. If you'd like to input into the Government’s next steps, respond to the hydrogen blending consultationopens in a new window.