UK’s Shift in Hydrogen Financing Strategy: A Relief for Household Energy Bills

UK’s Energy Security Secretary, Grant Shapps, indicates a probable policy reversal on the way low-carbon hydrogen production is funded. This move comes as a respite for households already grappling with soaring energy bills.

The Government’s Energy Bill, currently making its way through Parliament, was slated to introduce an annual levy in 2025. This levy aimed at covering the cost gap between the production of low-carbon hydrogen and polluting fossil fuels. However, given the backdrop of persistently high inflation and the recent shock interest rate hike, the pressure on household budgets has never been higher.

Shapps communicated his opposition to a direct charge on the energy bills of consumers in a statement to the Telegraph, “What we need to do is make sure that, A, we can get our hydrogen industry up and running… and, B, I don’t want to see people’s household bills unnecessarily bashed by this.”

The shift comes amid concerns raised by the Onward think tank, estimating that a hydrogen levy could increase energy bills by approximately £118 per year for the average dual-fuel household.

Shapps suggested looking at alternative funding mechanisms to transition towards cleaner energy and achieving net-zero goals, adding he does not favor a “levy directly on households”. He hinted that the funding could be potentially borne by the industry or through general taxation.

Talks are reportedly ongoing between the Department for Energy Security and Net Zero, No 10, and the Treasury to arrive at an alternative approach, with the hope that the new scheme will be proposed for consultation before the end of July.

The initial plans for a hydrogen levy sparked a backlash from both Conservative and opposition MPs, particularly due to the heightened energy bills in the aftermath of Russia’s invasion of Ukraine and amid a cost-of-living crisis.

Alan Whitehead, Shadow Energy Minister, stated, “This is yet another humiliating U-turn for Rishi Sunak, showing that his Government is completely out of touch with reality.”

Regardless of the political upheaval, this potential policy change reflects the government’s increased sensitivity towards public economic pressure and the necessity to balance the scales between advancing toward a sustainable future and immediate economic constraints.