The Energy Transition | Government to rule out hydrogen levy on energy bills

This week we look at indications that the government intends to reverse plans for a hydrogen levy on consumer energy bills, Climate Change Committee's annual report on progress in reducing emissions, and more.

Government set to rule out hydrogen levy on energy bills

The Energy and Net Zero secretary, Grant Shapps, has indicated that the government is planning to reverse its proposals for a hydrogen levy to be added to consumer energy bills. This comes as eco-levies, which had been temporarily removed last year, are expected to return in July 2023.

Writing in the Telegraph, Shapps stated that the development of a domestic hydrogen industry should be funded further up the chain, rather than via higher consumer bills.

Shapps stated that the government was still committed to developing and growing the hydrogen industry in the UK, which it says will play an essential role in meeting net zero targets. Though this announcement was made in the press and is not yet government policy, the comments have widely been interpreted as trailing a formal announcement from the government to the same effect in the coming weeks.

Climate Change Committee report on the progress of net zero targets 

The Climate Change Committee's (CCC's) has published its annual report to Parliament on progress in reducing emissions. The report highlights that, though some progress has been made, the government's current strategy for delivering net zero demonstrates "a lack of urgency", with priority actions and policies needing to be put in place without delay. The report recommends a shift of focus towards the delivery of existing climate commitments, such as the aim to decarbonise the electricity system by 2035, and to ensure that 600,000 new heat pumps are installed each year by 2028. 

The report also highlights that more balanced gas and energy prices are essential if the UK is to achieve its net zero targets. The government previously suspended the environmental and social levy from consumers' bills, which had been part of the previous energy support package. This suspension had a knock-on effect which has seen the ratio of electricity to gas prices falling over the past year. The CCC has emphasised the importance of maintaining this ratio in achieving the government's target of rebalancing energy and gas prices by spring 2024. There have, however, been indications that the government intends to re-implement these levies back onto consumers due to falling electricity prices. 

The CCC also encouraged the government to establish its position on the role of hydrogen, stating that the "systematic uncertainty" of waiting until 2026 for a decision on its use will lead to "further lost progress in buildings, and hinder infrastructure development more widely". According to the report, this approach is likely to see hydrogen having a more limited role - "at most to a back-up role in hybrid heat pump systems and only in limited areas of the country". 

Overall, it concluded that that despite increased confidence in the UK meeting its Fourth Carbon Budget in 2027, longer-term emission reduction targets appear less likely to be satisfied, with the prospect of meeting of the Nationally Determined Contribution for 2030 and the Sixth Carbon Budget for the mid-2030s worsening since last year.  

Improved capacity required at 98 UK Power Network substations 

UK Power Networks (UKPN) has published its first Distributions Network Options Assessment report which stated that, within the next five years, 98 of its substations will require increased capacity due to predicted demand exceeding current supply. The pinch points, of which over half are in UKPN's East of England region, are coming under strain due to the UK's transition to low carbon and electric alternatives to fossil fuels. In particular, low carbon technologies such as heat pumps and electric vehicles are responsible for both realised and predicted increased demand.  

In response, UKPN has begun the process of opening flexibility tenders at substations where demand will exceed supply by 2025, and intends to repeat the process for locations where the same issues will arise by 2026-2027. UKPN states that the approach taken for the tenders will be "flexibility first", utilising additional capacity during peak times rather than investing in new infrastructure. UKPN's report also considered the potential for hybrid solutions which could act in tandem with flexibility alternatives.  

In related news, the government has launched its Flex Markets Unlocked Innovation Programme in order to encourage the innovation in technical solutions to "facilitate system-wide coordination and standardisation across multiple flexibility markets". The Programme was launched on 26 June 2023 by the Department for Security and Net Zero as a part of the overarching Flexibility Innovation Programme.  

£80 million boost to help UK businesses tackle carbon emissions 

On 28 June the government allocated £80 million in funding to help businesses reduce their carbon emissions and make the transition to more sustainable energy sources. The funding formulates part of the government's Net Zero Innovation Portfolio, which is to provide an total of £1 billion to boost innovative clean technologies. Graham Stuart, the Minister for Energy Security and Net Zero, announced the winning projects at the Climate Innovation Forum. Stuart stated that: "[o]ur investment of over £80 million will help them to go further and faster, using the latest science, technologies, and new energy sources to cut ties with fossil fuels and future-proof their industries."  

One of the 29 successful projects was proposed by Kellogg's, the food manufacturer, which plans to use the investment to alter its production processes. The business intends to use the £3 million awarded to cut emissions in its Manchester factory by swapping to using hydrogen as a fuel. Similarly, Burton's Food Ltd, which is known for making British biscuits Jammie Dodgers, will use £3.3 million of funding to upgrade its ovens to low carbon electric models in their Dorset bakery.  

The funding is part of the government's efforts to try to reduce the country's overall energy demand by 15% by 2030, help with economic growth, and protect the UK's energy security.

This article was written with the assistance of Sophie Myatt and Amy Lewis, trainee solicitors.