UK hydrogen sector updates: hydrogen production – kicking off the next allocation round

United Kingdom

On 14 December 2023 the UK Government’s Department for Energy Security and Net Zero (“DESNZ”) published a wide array of documents on its approach to the development of the hydrogen sector in the UK, covering production, transport, storage, networks, planning, and hydrogen to power.

This article focuses on the announcements made in relation to hydrogen production, from the following publications:

  1. Hydrogen Production Delivery Roadmap;
  2. Summary of responses to a call for evidence on price-based competitive allocation for low carbon hydrogen;
  3. Notice of successful projects in Hydrogen Allocation Round 1;
  4. Notice of Hydrogen Allocation Round 2; and
  5. An update to the UK’s Low Carbon Hydrogen Standard.

For commentary on recent publications on hydrogen networks, transport and storage and blending, please see our article here.

We will publish additional commentary on updates from DESNZ in relation to planning barriers and solutions in the hydrogen sector in January 2024.  

Hydrogen Production Delivery Roadmap 

DESNZ’s Hydrogen Production Delivery Roadmap (the “Roadmap”) sets out the “big picture” plan for further development of the UK’s hydrogen economy, in particular:

  • Allocation processes for both CCUS-enabled and electrolytic hydrogen, including the schedules for future hydrogen allocation rounds for electrolytic hydrogen (“HARs”).
  • Alternative hydrogen production technologies, including gas-splitting and gasification of biomass and waste.
  • Facilitating the import and export of hydrogen.
  • Using hydrogen to support electricity network resilience.
  • Ensuring the consideration of environmental factors (including water, air quality, and critical minerals).

The Hydrogen Production Delivery Roadmap sets out a number of noteworthy key dates and milestones, as outlined in the below table and diagram.

14 December 2023The second hydrogen allocation round (“HAR2”) launches.
19 April 2024Deadline for HAR2 applications.
2024Anticipated that the UK Government will make Final Investment decisions.
Anticipated that the UK Government will make a further update on the Hydrogen Strategy.
2025Anticipated that 1GW of carbon capture, usage, and storage (CCUS)-enabled hydrogen is operational or under construction.
HAR2 contracts award.
The third hydrogen allocation round (“HAR3”) launch.
Anticipated that the Government will review the deployment of hydrogen production after HAR4.



HAR3 contracts award.
The fourth hydrogen allocation round (“HAR4”) launch.
Anticipated that the Government will make a decision regarding hydrogen for heat.
31 March 2026 to 31 March 2029HAR2 projects to be delivered.



HAR4 contracts award.
The fifth hydrogen allocation round (“HAR5”) launches.
31 March 2027 to 31 March 2030HAR3 projects to be delivered.



HAR5 contracts award.
The sixth hydrogen allocation round (“HAR6”) launches.
31 March 2028 to 31 March 2031HAR4 projects to be delivered.



HAR6 contracts award.
The seventh hydrogen allocations round (“HAR7”) launch.
2030HAR7 contracts awarded.
Anticipated that up to 10GW of low carbon hydrogen capacity is available.
To be announcedDelivery years for HAR5, HAR6 and HAR7.
2035Target for emissions to be decreased by 78% and decarbonisation of the UK power system.


Hydrogen Allocation Rounds

DESNZ has selected 11 projects as part of the first hydrogen allocation round (“HAR1”) which represent 125MW of capacity with a weighted average strike price of £241/MWh (£175/MWh in 2012 prices).

Details of the successful projects are available here.

As anticipated, HAR2 has also been launched with support available for up to 875MW of low carbon hydrogen projects. Unlike HAR1, HAR2 projects will not be able to receive Capex support under the NZHF.

Projects looking to participate in HAR2 have until 5 February 2024 to submitted their expressions of interest and have until April 19th make their applications, subject to meeting the following eligibility criteria:

Project LocationMust be located entirely in the United KingdomAs in the HAR1 requirements
ApplicantMust be a UK registered businessAs in the HAR1 requirements
Operational PeriodAbility to be operational between 31 March 2026 and 31 March 2029In HAR1, the Project had to be able to be operational no later than the end of December 2025
Core TechnologyUtilization of a tested core technology with a Technology Readiness Level of 7 or more (i.e. (Prototype near or at planned operational system, requiring demonstration in an operational environment)As in the HAR1 requirements
Hydrogen Production FacilitiesNew build hydrogen production facilities, including new phases of existing projects adding 5MW+ of new hydrogen production capacity to an existing plantAs in the HAR1 requirements
Technology Options

Must be one of the following technologies:

- Electrolytic

- Gasification/pyrolysis of biomass/wastes (without CCS)

- Gas splitting producing solid carbon

HAR1 supports only electrolytic producers
Offtaker EngagementIdentification and engagement with (at least) one qualifying offtakerAs in the HAR1 requirements
Production Technology SupplierIdentification and engagement with a core production technology supplierHAR1 required the identification of an electrolyser supplier
Minimum Production CapacityMinimum hydrogen production capacity of 5MW H2 (HHV)As in the HAR1 requirements
Low Carbon Hydrogen Standard ComplianceProject must be able to meet the Low Carbon Hydrogen StandardAs in the HAR1 requirements
Access to FinanceDemonstration of access to financeAs in the HAR1 requirements

As with HAR1, the key factors determining whether a project will succeed in its HAR2 application will depend on deliverability, cost-effectiveness, contribution to the economy and the development of hydrogen supply chains, and, to some extent the ability to help with electricity network constraints and whether the project will divert low carbon electricity from other users.

Key dates for HAR2 applicants are as follows:

Engagement sessionsA number of engagement sessions will be held to provide information. These sessions will take place throughout December 2023 – February 2024. The sessions can be signed up to here.
Expression of InterestDue by 23:59 on 5 February 2024.
Submission of an application

Applications open on 1 February 2024, and are due by 23:59 on 19 April 2024.

  • Requires the submission of a suite of documents, detailed here:
ShortlistingProjects will be informed if they have been shortlisted in autumn 2024.

Agreeing an Offer and an Award of Contracts


Following shortlisting, the government will issue formal invitations to the Agreeing an Offer stage. The invitation will comprise:

  • The pathway for this stage;
  • Instructions and information for any discussion between the project and the Government;
  • Details of any submission requirements and how to submit that information; and
  • Any other relevant information pertaining to this stage.

During this stage, due diligence will be carried out.

UK Low Carbon Hydrogen Standard

The UK Low Carbon Hydrogen Standard (“LCHS”) continues to evolve since the versions published in April 2023 and April 2022. While primarily technical in nature, these is key for hydrogen producers, as only LCHS-compliant hydrogen is eligible for subsidy under the Low Carbon Hydrogen Agreement.

The LCHS requires hydrogen producers to:

  • meet a GHG emissions intensity of 20g CO2e/MJLHV of produced hydrogen or less for the hydrogen to be considered low carbon;
  • calculate their greenhouse gas (GHG) emissions up to the ‘point of production’;
  • set out a risk mitigation plan for fugitive hydrogen emissions and report annually;
  • meet additional requirements for the use of biogenic inputs, where relevant and as appropriate for the feedstock source and classification; and
  • meet the conditions of Standard Compliance that apply to their production methods.

It is vital that the changes are noted and incorporated, as a failure to do so may result in a consignment being declared as non-compliant, with significant consequences under the LCHA (and other private offtake agreements which mirror its compliance requirements).

A selection of the key areas of change since the April 2023dated version of the LCHS are:

Chapter 5
  • additional detail on the System Boundary section with included and excluded emissions specified; and
  • amendment of GHG Emission Intensity equation;
  • references for calculating the GHG Emission Intensity of energy Inputs;
  • guidance on varying CO2 capture rates on the Hydrogen Product GHG Emission Intensity; and
  • materiality rules moved from this chapter.
Chapter 7
  • clarification on treating non-production period emissions.
Chapter 10
  • clarification on frequency of updating the risk reduction plan for fugitive hydrogen.
Annex B
  • clarification on the four electricity supply configurations;
  • addition of definition of an eligible PPA – this is crucial for producers in their procurement of power, and will be relevant to electricity generators too;
  • clarification that an Eligible PPA is not required for a generation asset owned by the same entity as the owner of the Hydrogen Production Facility;
  • addition of section on REGO cancellation requirement; and
  • methodology to calculate Transmission and Distribution Losses.
Annex C
  • addition of definition of Electricity Storage System and inclusion of requirements in relation to the use of battery storage by hydrogen producers. The rules are aligned with the requirements for electricity generators who are subject to an “Eligible PPA”;
  • provision of methodologies to determine and evidence Self-Discharge Losses and Round Trip Efficiency.
Annex G
  • provision of GHG Emission intensity calculation methodology; and
  • clarification of system boundaries and emission calculations.
Hydrogen Emission Calculators (HEC)
  • publication of new versions of the HECS to incorporate (i) the latest Eligible Hydrogen Production Pathways; (ii) latest Data Annex values; and (iii) the updated GHG Emission Intensity Calculation Methodology.
Fugitive Hydrogen Risk Reduction Plan and Annual Report Templates
  • template for Hydrogen Production Facilities to complete an updated Risk Reduction Plan and
  • template for an Annual Report.
Summary Tables
  • addition of tables breaking down and describing (i) each Emission Source; (ii) Activity Flow Data collection; (iii) technical methodology for GHG emissions calculations; and (iv) Typical Data for GHG Emission Intensity.


UK government aims to have up to 10GW of low carbon hydrogen production capacity by 2030, subject to affordability and value for money. At least 5GW of this should be coming from electrolytic hydrogen. The first allocation round is a small step in that direction but at most will deliver about half of what was originally targeted. However, by increasing HAR2 to 875 MW, from 750 MW, the Government is essentially signalling that HAR1 project applicants may not have been progressed enough to merit award. Some projects may also choose not to wait for government support and follow the route taken by Dolphyn Hydrogen which withdrew its demonstrator application “to secure alternative funding for a phased multi-unit larger development.”

HAR2 will also need to allow for more innovative projects which may not be solely focused on production. As storage of hydrogen becomes an increasingly important factor in determining whether the sector develops, whether HAR2 will be production plus storage projects come forward remains to be seen.

Additionally, HAR2 (and later rounds) hint at the value that hydrogen can bring in the context of electricity network constraint management plus at seeming convergence between the international regimes (RED for the EU projects and the IRA in the US) in the context of requirements as to additionally, geographic impact and temporarily. While DESNZ seeks to consider the impact of a project’s location on the electricity system, the preference still is for behind the meter projects (i.e. limiting the size of projects and ability to use grid power including through the use of corporate PPAs). This seems an excessive restriction where the procurement signals will dictate the location of the prospective projects and their potential size (coupled with the restriction who hydrogen can be sold to via the risk taking intermediary rule in the LCHAs. The impact of REMA as overlay to this will make scenario planning quite the task!

As has been widely expected, although DESNZ is keen on annual auctions, price-based competitive allocation for low carbon hydrogen production will begin already from HAR3. As stated in the summary of the responses received from industry stakeholders to its May 2023 call for evidence, we note that DESNZ will remain responsible for HAR3 and HAR4 despite the move to price-based competition, rather than this being the role of a Delivery Body like with CfDs.