The Energy Transition | Shortlist released for second round of UK green hydrogen funding

This week we look at the shortlist for green hydrogen funding, the government's £100 million fusion investment, the investment scheme for long-duration electricity storage and offshore wind in the Celtic Sea.

Government releases shortlist of projects for second round of green hydrogen funding

The Department for Energy Security and Net Zero (DESNZ) has announced that 27 electrolytic hydrogen projects have advanced to the next stage of the second Hydrogen Allocation Round (HAR2). The scheme is the government's principal mechanism for providing funding support for low-carbon hydrogen production in the UK.

The successful projects are spread across the UK, including eight in Scotland and three in Wales. The range of intended uses for green hydrogen includes oil refineries, production of ammonia and an industrial-scale brewery. The government has reiterated its hope that the HAR2 support will boost decarbonisation of industries which are hard to electrify. It has also further identified projects that support the use of green hydrogen in "glass manufacturing, brick making, and sustainable aviation fuel production." However, the government has noted that it is unlikely that all the shortlisted projects will progress to a stage where they will receive funding.

Industry voices have welcomed the announcement, claiming it as a success for the funding mechanism. Clare Jackson, CEO of Hydrogen UK, praised the announcement as “building on valuable lessons” from the first Hydrogen Allocation Round (HAR1).

Project developers must now focus on maturing their projects and completing the government's due diligence process, before DESNZ publishes decisions on which projects will progress to the next stage.

In HAR1, 11 projects were allocated were allocated funding totalling over £2 billion, with five so far having signed the contracts, including:

• The Bradford Low Carbon Project, which supports hydrogen powered mobility.
• The Cromarty Hydrogen Project, which uses power generated by nearby wind farms to power an electrolyser supplying local industries such as distilleries.

For more on how to tackle the barriers facing investment in green hydrogen production, please read Osborne Clarke's white paper "Unlocking Green Hydrogen Projects".

Government kickstarts £100 million-plus fusion investment

The government has announced its £20 million investment to kickstart "Starmaker One", a private British fusion investment fund, the first early-stage clean energy fusion venture capital fund outside the US.

This "first of its kind" partnership aims to unlock up to a further £130 million of investment from the private sector, and put Britain at the forefront of the global fusion market, which the government expects to become worth trillions of pounds. The announcement follows the government's commitment in January 2025 for a record £410 million of funding for fusion research in the UK and in collaboration with other countries.

Fusion generation involves the combination of two forms of hydrogen and heating them at extreme temperatures, resulting in the release of large amounts of energy. The government intends fusion to be a key sector in the Oxford-Cambridge Growth Corridor and cites independent research from London Economics, which suggests that every £1 invested in fusion could benefit the UK economy by nearly £4.

By injecting cash into this technology, the government hopes to build private sector confidence in fusion energy. The initial £20 million investment will help small fusion companies to train their workforce, develop technologies and capitalise on fusion opportunities in a wide range of markets (including magnetics, industrial AI, robotics, healthcare, transportation and energy storage). The government also hopes that fusion can make a significant contribution to delivering clean, secure and abundant baseload energy.

Energy minister, Kerry McCarthy, said: "breakthroughs in this technology are happening thick and fast, and we want to keep the UK at the forefront of the global race by helping projects to innovate and grow here, in turn driving economic growth".

Long-duration electricity storage investment scheme unveiled

Ofgem has launched its new long-duration electricity storage (LDES) investment support scheme. The "cap and floor" scheme is the UK's first major funding for LDES projects in 40 years.

It aims to provide both financial stability for LDES operators by guaranteeing a minimum revenue and protection for consumers, by driving efficiency and ensuring that excess revenues result in reduced consumer bills.

Ofgem published its UK's technical decision document for LDES in March. LDES technologies provide essential back-up for renewable power by functioning like large batteries. The cap and floor scheme has been established to de-risk investment in these technologies (particularly liquid air energy storage, compressed air energy storage and flow batteries), which currently have significant upfront capital costs.

In a separate announcement, Ofgem has announced the first application window for the scheme. Ofgem is seeking applications from developers who can meet the government's Clean Power 2030 target. Projects will be divided into two tracks: a 2030 track and a 2033 track, with priority given to those who can deliver by 2030.

Ofgem has invited interested parties to send their intentions to submit projects by 22 April and to submit actual applications by 9 June (by email to LDES@ofgem.gov.uk).

Government publishes update to solar capacities for Clean Power 2030 Action Plan

On 7 April, the Department for Energy Security & Net Zero (DESNZ) published a letter to the National Energy System Operator (NESO), copying in Ofgem. The letter confirmed the re-publication of the Connections Reform Annex, which accompanied the Clean Power 2030 Action Plan and detailed the permitted regional capacity breakdowns by technology.

The updated annex includes adjustments to the solar capacity allocations for 2031-2035. The update addresses a previous misalignment between solar capacity allocations and the solar pipeline for 2031-2035. This resulted from an increase in the solar project pipeline at transmission level not having been fully reflected in NESO's 2024 Future Energy Scenarios. NESO's advice to DESNZ on Clean Power 2030 and its action plan had been based on that document.

DESNZ states that it has decided the best way to address this is to amalgamate the solar distribution and transmission allocations for 2031-2035 across the 11 transmission network regions (see table 6 of the updated annex). This is intended to allow NESO to allocate network capacity to the most well-developed solar projects across transmission and distribution in each region.

DESNZ emphasises that this is a one-off technical update to the action plan. The overall (albeit "interim") solar capacity allocation remains the same. DESNZ has stated it does not expect to revisit allocations again until the publication of the Strategic Spatial Energy Plan in late 2026.

Next generation of offshore wind in Celtic Sea reaches ITT Stage 2

The Crown Estate has published an update that three sites have entered the final stages of Offshore Leasing Round 5 (OLR5) – the invitation to tender (ITT) Stage 2. This fifth round is expected to award rights for three new floating wind farms in the Celtic Sea, generating up to 4.5GW of capacity. This forms the first phase of commercial development for OLR5 and is part of a broader plan to introduce an additional 20-30GW of offshore wind leasing opportunities by 2030.

ITT Stage 2 will involve an auction later in spring 2025. The Crown Estate has suggested the resulting agreements for lease could be signed in summer 2025.

Research published by the Crown Estate last year indicated that these three floating wind farms could support the creation of over 5,000 jobs and deliver a £1.4 billion boost to the economy.

RenewableUK analysis shows that, by 2050, floating wind technologies could provide a third of the UK's overall offshore wind capacity, which could be 40GW. The organisation's estimate is that the floating wind sector alone could employ 97,000 people and contribute £47 billion to the economy.

This article was written with the assistance of Ellie Smyk and Imogen Drummond, trainee solicitors, and Tomi Agbonifo, paralegal.