Creating a scalable and self-sustaining hydrogen market in the UK

By Sam French, CTO at MorGen Energy

The UK has made considerable strides in establishing itself as a leader in the emerging hydrogen economy in Europe. Through the Hydrogen Production Business Model and the first two Hydrogen Allocation Rounds (HAR1 and HAR2), the country has begun to lay the foundation for a viable green hydrogen market. Yet much remains to be done to turn early momentum into a fully functioning ecosystem.

At MorGen Energy, we are advancing two major green hydrogen projects in the UK: West Wales Hydrogen (20 MW) and Teesside Green Hydrogen (60 MW). Both projects integrate directly with industrial offtakers, offering real-world evidence of how hydrogen can decarbonise hard-to-abate sectors. Operational trials have already proven that green hydrogen can be safely and viably integrated into existing processes, a critical step toward mainstream adoption.

The importance of flexible technology choices

Each project is different. That is why we take a technology-agnostic approach, tailoring solutions to fit site conditions, power availability and offtake profiles. In West Wales, for example, we selected PEM electrolysis due to its high operational flexibility. This enables rapid response to changes in hydrogen demand and variable power inputs, vital for matching offtake dynamics and optimising commercial performance.

Yet even the most efficient designs rely on the right market conditions to succeed. Without clear incentives and a supportive policy environment, flexibility alone cannot overcome structural barriers.

Why the right incentives matter

To reach scale, the hydrogen industry needs more than ambition, it needs the right incentives.  It is important to remember that the same was true for renewables and batteries and has helped to build a sector, driving down costs in the process.

Mechanisms such as the Low Carbon Hydrogen Agreement (LCHA) in the UK provide revenue stability through a Contract for Difference (CfD) model. This reduces investment risk by offering predictable income streams, helping projects reach Final Investment Decision. However, delays in contracting under the LCHA increase costs and create unnecessary uncertainty. Streamlining contracting timelines will be key to converting awarded projects into real-world delivery.

It is therefore encouraging that, as part of the Government’s updated Industrial Strategy and Sector Plans released on 23 June, plans were announced to accelerate the Hydrogen Allocation Round (HAR) process, reducing the time between application and award. This marks a positive step toward creating a more efficient and investor-ready environment for hydrogen project development.

Equally vital is the role of Risk-Taking Intermediaries (RTIs). These are entities that purchase hydrogen from producers and resell it to end-users, helping overcome first-mover hesitation on the demand side. RTIs can act as market activators, giving industrial users time to adapt while ensuring producers have bankable offtake agreements. In early-stage markets, this model could help overcome the perceived risks of switching from natural gas to hydrogen, particularly in a context where the UK carbon price remains low.

To date, the UK Government has excluded RTIs from qualifying for support under the Hydrogen Production Business Model (HPBM), citing concerns around traceability and value for money. However, it has made clear that this does not exclude intermediaries from playing a role in the wider market. Importantly, the government has committed to reviewing this position in future allocation rounds, recognising that intermediary models may play a more constructive role as the market matures and demand-side activation becomes increasingly critical.

In tandem, funding tools such as the Industrial Energy Transformation Fund (IETF) should be expanded and better targeted to support industrial uptake and infrastructure readiness. If the offtaker is switching from fossil-based hydrogen to green hydrogen the primary risk lies in the certainty of supply, a challenge that can be addressed through design. However, if the offtaker is fuel switching away from fossil fuels, such as Natural gas, then there is an operational risk to change. To mitigate this, plant operators often require trials to be run, which are expensive and time consuming, but can be vital to securing offtake agreements.

Phase 3 of the IETF was launched in January 2024, offering up to £185 million in funding between 2024 and 2028. It supports feasibility studies, front-end engineering design, energy efficiency upgrades, and deep decarbonisation in energy-intensive industries. This sustained commitment reflects the UK’s growing recognition of industrial decarbonisation as a critical lever for net zero and provides a strong platform to better align capital support with the specific needs of hydrogen deployment. But policy alone cannot carry the weight. Hydrogen infrastructure must keep pace.

Infrastructure must catch up

To truly scale hydrogen, production must be paired with reliable transport and storage infrastructure. Pipelines, in particular, are the most cost-effective method of moving hydrogen across regions. Investment in large-scale backbone networks, like those underway between Denmark and Germany, must be matched in the UK. Without national coordination, hydrogen will remain siloed in local clusters, limiting its strategic impact and real potential for scale-up.

Storage also plays a critical role in the future hydrogen system as a buffer that enables continuous supply even when production or demand fluctuates. Large-scale hydrogen storage can help smooth volatility in renewable generation, support security of supply and provide strategic reserves.

Encouragingly, the UK Government recently announced a £500 million commitment to support hydrogen transportation and storage infrastructure, a critical signal that the enabling environment is beginning to take shape.

While these infrastructure assets require long lead times and significant upfront investment, they are essential to reducing long-term system costs, enhancing resilience, and ensuring hydrogen can play a dependable role in decarbonising both energy and industry.

Building a resilient supply chain

A competitive hydrogen economy depends on more than just producers and offtakers. The UK must develop a domestic supply chain that includes equipment manufacturers, EPC contractors and skilled labour. This will enhance economic resilience, reduce import dependency and ensure that the hydrogen transition supports UK-based jobs and industrial growth.

Hydrogen is not a silver bullet, but it is an essential pillar of a decarbonised energy system. The UK has the opportunity to lead, but success depends on clear incentives, coordinated infrastructure planning and industrial confidence.

By unlocking the full potential of well-designed incentive mechanisms and supporting projects that are both commercially sound and nationally relevant, the UK can build a scalable and self-sustaining hydrogen market that delivers environmental and economic value.

Now is the time to turn policy ambition into infrastructure reality, so that the UK maintains a leadership position in the Global hydrogen market.