What needs to change for hydrogen projects to move forward in the UK?

The UK’s hydrogen industry is facing growing pressure as developers and investors manage rising requirements and ongoing uncertainty. Despite the government setting ambitious targets for low-carbon hydrogen in 2021, gaining momentum has been a challenge for the sector. Delays in allocation rounds and the complexity of the Low Carbon Hydrogen Agreement are creating barriers for projects already contending with high capital costs. A shift in regulatory approach, supported by predictable policy delivery, can help restore confidence and support investment in new hydrogen supply.

How current regulation affects project delivery

In 2022, the UK introduced the Hydrogen Production Business Model to reduce the cost gap between fossil‑based hydrogen and low-carbon alternatives. Using the Low Carbon Hydrogen Agreement, it aims to provide stable revenue support. Yet many developers have raised concerns about the administrative weight of the agreement.

Concerns include detailed metering requirements under OCPs 4 and 5, evidence obligations linked to the Low Carbon Hydrogen Standard Version 3 and a significant amount of documentation for audits. Electrolytic projects must also address UKEX compliance. While these expectations provide clarity across the system, they create significant early‑stage work for project teams that have limited resources to manage administrative processes.

Performance testing adds further expectations, with developers needing to calculate verified storage output, verified compression output and a range of supporting measurements. These processes protect public funds and confirm environmental outcomes, but they can place pressure on smaller teams that are focused on delivery.

At the 7th UK CCUS and Hydrogen Decarbonisation Summit in Leeds (2026), regulators emphasised the need for accurate verification. However, developers described how the level of detail can slow progress because teams need to shift attention away from building the actual assets and towards administrative work.

Costs remain a challenge too. Average electrolytic hydrogen prices in the first Hydrogen Allocation Round reached £241/MWh. Some project proponents have paused or cancelled their work, including two recent schemes halted by Scottish Power because of viability issues. Other organisations have highlighted similar barriers.

What policy uncertainty means for developers and investors

The UK’s policy landscape has shifted, leading many organisations to seek clearer direction before progressing investment decisions. The original target of 5 GW of CCUS‑enabled blue hydrogen by 2030 now appears at risk. BP’s withdrawal from its H2Teesside proposal in late 2025 added to questions around the twin‑track model.

Recent insights from the Hydrogen Energy Association show declining confidence. Many organisations believe hydrogen will play an important role in the energy transition, although the pace of policy delivery has caused some hesitation. Changing funding rounds, limited clarity on demand‑side incentives and fluctuating milestones all contribute to uncertainty.

Developers and buyers have expressed a desire for more flexible offtake conditions. Long‑term contracts of around 15 years can be difficult for buyers in sectors with changing commercial cycles. Others have called for parallel progress on storage and transport infrastructure. Without this infrastructure, project value can be difficult to achieve.

The second Hydrogen Allocation Round (HAR2) was expected to conclude in early 2026. The current shortlist totals around 765 MW, although the government has stated that shortlisted status does not guarantee support. Additional reviews, including work on the Climate Change Levy exemption for electrolytic hydrogen, are still underway. Some organisations expect decisions by mid-2026; others believe timelines may extend.

These delays affect real projects. Several hydrogen schemes across international markets were cancelled in 2025, and the UK was part of this pattern. High costs and limited demand were among the most cited reasons.

How the industry can maintain momentum

The UK has strong capabilities in engineering, research and industrial applications. The challenge is to build a support system that enables this capability to grow. Responsive regulation and clear milestones can help developers focus on delivering new production assets rather than navigating prolonged administrative processes.

A phased approach to metering and verification could also help. Early projects could adopt simplified requirements during initial operating years, with more detailed expectations introduced once systems stabilise. This would reduce early administrative pressure without compromising environmental or reporting integrity.

Clearer timelines and signals around how demand will grow across sectors can help organisations plan investment decisions. This would benefit developers and allow buyers to take a position when contract structures align with their commercial needs.

Infrastructure planning will also play a crucial role, as early clarity around storage options, compression hubs and pipeline corridors can help shape project design and guide investment decisions. In regions where industrial clusters are already established, coordinated efforts across hydrogen, energy supply and transport networks have the potential to deliver substantial benefits, making planning more efficient and impactful.

Collaboration among regulators, developers and potential buyers can also accelerate progress. Engaging in technical working groups, joint trials and structured feedback allows different stakeholders to refine requirements in a way that supports practical delivery. 
The growing interest in these approaches across the UK’s hydrogen community reflects a shared commitment to advancing the industry efficiently and effectively.

Key takeaways

The international hydrogen investment landscape is shifting. For those shaping long-term investment decisions, it’s critical to understand how global capital is responding to these shifts. The UK has a real opportunity to build a credible low-carbon hydrogen industry, but progress depends on a mix of practical steps that will help project teams, buyers and investors plan with confidence.

•  Regulatory settings should reduce complexity in the early years of a project’s life, particularly for first movers.
• Predictable allocation cycles can support investment planning and help organisations map out delivery pathways.
• Stronger signals on future demand can give buyers and developers clearer foundations for commercial decisions.
• Early clarity on storage, transport and other supporting infrastructure can help organisations design projects that are resilient over time.
  
   

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