What role can green hydrogen play as part of the future of clean energy in the UK?
Published on 6th Mar 2025
The green hydrogen sector offers investment opportunities – but there are challenges that need to be addressed
Green hydrogen is rapidly gaining attention as a cornerstone of the global clean energy transition. As the world moves towards a low-carbon economy, and as industries and governments strive to meet ambitious net zero targets, green hydrogen offers a promising solution for decarbonising sectors that are difficult to electrify.
Role in clean energy transition
Green hydrogen, produced using renewable energy sources, offers a zero-emission alternative to traditional hydrogen production methods that rely on fossil fuels. It provides a scalable solution for reducing carbon emissions and supporting the integration of renewable energy sources. It is particularly valuable for decarbonising sectors such as heavy industry, high-temperature processes, and long-haul transport.
The UK has set ambitious targets to install 10GW of green hydrogen capacity by 2030. This goal highlights the sector's growth potential and its importance in achieving the country's 2050 net zero target.
Current landscape
The green hydrogen sector is still in its early stages but is growing rapidly. As of the end of 2023, global operational electrolyser capacity was 1.4GW, with projections to reach 5GW by the end of 2024. In the UK, the sector is expected to expand significantly with the conclusion of the first and second Hydrogen Allocation Rounds (HARs) and the anticipation of a third round.
Despite this growth, the sector faces several challenges. Infrastructure deficits, financing difficulties and demand uncertainty are significant barriers to investment. Green hydrogen carries a price premium compared to grey hydrogen, which suppresses demand and increases investment risk. Additionally, the lack of a national hydrogen network complicates project scalability and financing.
Investment opportunities
There are several exciting and lucrative investment opportunities in the green hydrogen sector. Industries that already use hydrogen as a feedstock, such as ammonia production and petrochemical refining, are seeking alternatives to grey hydrogen and can drive foundational demand for green hydrogen. Sectors that cannot easily electrify, such as glass, ceramics, and steel manufacturing, represent significant opportunities for green hydrogen to provide substantial decarbonisation impact.
Strategic use cases, government subsidies and clear regulatory frameworks can further enhance these investment opportunities. Co-locating green hydrogen production with industrial clusters can drive demand and reduce risks, making it easier to secure financing for new projects.
Overcoming investment barriers
To unlock the full potential of green hydrogen, several barriers need to be addressed, including infrastructure challenges, demand uncertainty and cost competitiveness.
Infrastructure challenges, such as planning regimes and environmental permitting, will need to be overcome to facilitate the development of complex projects.
The development of a national hydrogen network and clear regulatory frameworks will be essential to support the sector's growth and integration into the wider energy system. Blending green hydrogen into the national gas grid and introducing green steel quotas in key sectors can help create stable demand and reduce financial risks for producers.
Demand uncertainty can be mitigated through targeted policies, strategic use cases and incentives. Establishing foundational demand through industry consumption quotas, carbon pricing and targeted regulations can provide the certainty needed to unlock private-sector investment. Government support in the form of subsidies and revenue guarantees can help narrow the cost gap with other fuels, and make green hydrogen more competitive. The government acting as a buyer of last resort and broadening the eligibility criteria for support mechanisms like Contracts for Difference (CfDs) would also assist with this.
Mitigating risks
Companies and policymakers should be aware of supply chain risks, including the potential for stranded investments and misaligned priorities. The hydrogen supply chain is vulnerable to market volatility and internal execution challenges, which can undermine scalability.
The skills base required for green hydrogen projects is still developing, and there is a need for coordinated efforts to build the necessary expertise and capabilities. Ensuring consistent policy signals and demand stability is critical to mitigating these risks and supporting the sector's growth.
Legal advice can help mitigate risks and challenges by providing strategic guidance on navigating complex regulatory frameworks, advising on government support mechanisms, securing finance and structuring offtake agreements.
Osborne Clarke comment
The future of green hydrogen looks promising, but it requires coordinated efforts from policymakers, industry stakeholders and investors to realise its full potential. The sector is poised for significant growth, with increasing interest from industries like steel, chemicals and heavy equipment manufacturers. The supply chain for green hydrogen is ready to scale up, but demand and policy support are needed.
Green hydrogen is not just a technological solution; it represents a significant economic opportunity. The transition to a green economy is about creating jobs, driving investment, and building new infrastructure. While there are challenges to overcome, the fundamentals of green hydrogen production are sound, and with the right support, the sector can scale up quickly.
For more on this topic, watch Business Green's interview with James Watson below, or access our Unlocking Green Hydrogen Projects whitepaper.
