Although it is common to use the term ‘the UK’, this note seeks where possible to differentiate between Great Britain (GB) and Northern Ireland (GB and Northern Ireland together comprising the United Kingdom (UK)). This is because the electricity markets in GB and Northern Ireland are separate from each other; Northern Ireland’s being linked to the Republic of Ireland via the Integrated Single Electricity Market (I-SEM).

The UK has a well-established renewable energy industry and GB is considered the world leader in offshore wind in particular.

Onshore and offshore wind farms are the largest source of renewable energy in the UK. The Hornsea Project Two is currently the words largest offshore wind farm with a capacity of 1.3GW. The Dogger Bank Wind Farm is currently under construction and will be the largest offshore wind farm with a capacity of 3.6GW once complete.

Bioenergy projects are the second-largest contributors to renewable energy in the UK, providing 11.6% of the UK electricity generation in Q1 2022. Projects include the Drax Power Station, which was formerly the country’s largest coal-fired power station before converting 4 of the 6 boilers to biomass. Due to the prominence of Drax, that distorts the actual prevalence of bioenergy in the UK and there is more obvious activity in, for example, solar PV projects.

The UK has numerous future renewable energy projects planned. The Renewable Energy Planning Database of UK renewable electricity projects over 150kW (updated quarterly) shows 1,071 projects had submitted planning permission as at April 2023 and 272 were under construction. Of those under construction, the largest (by capacity) are offshore and onshore wind, followed by battery storage and solar PV.

Renewable generation in the UK reached record high levels in 2022, increasing 10% to 135TWh. This was driven by high output from wind and solar generators. Renewables accounted for 41.5% of total generation in 2022, more than fossil fuels (40.8%)

GB has been seen to be a leader over several generations of renewables with market leading approaches to subsidising renewables. The current regime of Contracts for Difference (CfD) is seen as a cornerstone for making offshore wind and solar PV attractive in GB and is being largely copied in several places around the world.

In June 2019, the UK became the first major economy in the world to pass net zero emissions laws, when the Climate Change Act 2008 (2050 Target Amendment) Order 2019 amended the target in the Climate Change Act 2008 from an 80% to a 100% reduction in carbon emission from 1990 levels by 2050. The target requires the UK to bring all greenhouse gas emissions to net zero by 2050 and end its contribution to global warming.

The 2050 target is legally binding and is enforced through a series of ‘carbon budgets’ that the UK must meet. Each budget is effectively a cap on emissions, lasts for five years and is set at least 12 years in advance to give enough time to prepare. The latest Carbon Budget Delivery Plan, published in March 2023, shows that the UK has met its first three carbon budgets (2008-2012, 2013-2017 and 2018-22) and sets out a package of proposals for enabling carbon budget6 (2032-37, the first to be set under the new net zero target) to be met.  However, the 2023 Carbon Budget Delivery Plan has just been successfully challenged in the High Court and the Government has been ordered to produce a new report within 12 months.

Although this 2050 target is UK-wide, climate change is a devolved matter and so the devolved administrations (Scotland, Wales and Northern Ireland) have set their own targets in addition. This means they may have slightly different interim carbon reduction targets, although the overall UK target remains 2050.

Scotland aims to achieve net zero by 2045 under the Climate Change (Scotland) Act 2009, with a 56% reduction by 2020, 75% by 2030 and 90% by 2040.  However, the Scottish Government recently withdrew the 2030 target as it admitted it could not be met. This contributed to a change of First Minister.

The Environment (Wales) Act 2016 (amended in 2021) places a duty on the Welsh Ministers to ensure that the net Welsh emissions in 2050 are at net zero, with interim carbon reduction targets for 2020 (27%), 2030 (63%) and 2040 (89%) and five-yearly carbon budgets.

The Climate Change Act (Northern Ireland) 2022 sets a net zero target for Northern Ireland by 2050, although the net methane emissions do not have to be more than 46% lower than the 1990 baseline.

Following COP26 and for the purposes of meeting the 2050 target, the UK announced its aim to cut greenhouse gas emissions by at least 68% by 2030 in December 2020. The 68% target is part of the UK’s latest National Determined Contribution (NDCs) as party to the UNFCCC Paris Climate Agreement 2015.

The Government also announced in 2021 that all electricity in GB should be generated from clean sources by 2035 to ensure that the UK meets its net zero target.

Although there are criticisms around how quickly the binding general targets are being translated into specific initiatives, the legal imperative to meet those targets is there which leads to a strong sense of progress in the industry and a strong level of support from the Government – and the risk of legal challenge if the targets are seen not to be being met.

The legal definition of ‘renewable energy’ in the UK is determined by the applicable law or regulation.

For example, the Promotion of the Use of Energy from Renewables Sources Regulations 2011 (SI 2011/243) applies the following definition of “energy from renewable sources” contained in Directive 2009/28/EC (Renewable Energy Directive): “energy from renewable non-fossil sources, namely wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewerage treatment plant gas and biogases” – each of which is defined separately.

The National Renewable Energy Action Plan which was adopted in accordance with article 4 of the Renewable Energy Directive sets out that Ofgem shall administer schemes designed to promote the increased take-up of renewable generation. Each scheme (such as the Feed in Tariff, Renewables Obligation and Renewable Energy Guarantees of Origin) contains different criteria to determine whether the electricity generated is renewable.

The Energy Strategy for Northern Ireland (2021) seeks to promote the growth of renewable energy but does not define it.

The two main UK Government departments responsible for renewable energy policies are the Department for Energy Security and Net Zero (DESNZ) and the Department for Environment and Rural Affairs (Defra). DESNZ is responsible for delivering security of energy supply, ensuring properly functioning energy markets, encouraging greater energy efficiency, and seizing the opportunities of net zero to lead the world in new green industries. Defra is responsible for improving and protecting the environment and also aims to grow a green economy and sustain thriving rural communities.

The Scottish and Welsh governments also support renewable energy in their nations, setting their own energy strategies. For example Scotland aims to generate 50% of its energy from renewables by 2030 and Wales aims to meet 100% of its energy needs from renewables by 2035.

In Northern Ireland the Department for the Economy is responsible for policy and strategy on energy including renewables.

DESNZ is supported by other public bodies, including the Gas and Electricity Markets Authority (GEMA) and the Office of Gas and Electricity Markets (Ofgem), together normally referred to as Ofgem. Ofgem is the independent economic regulator of gas and electricity markets in England, Scotland and Wales under the Utilities Act 2000 and is accountable to the UK Parliament for the performance of its functions and duties. Northern Ireland has a separate Utility Regulator, again an independent economic regulator that is responsible for regulating the electricity, gas and water industries in Northern Ireland.

The Energy Act 2023  establishes a new independent body, referred to in the Act as the Independent Systems Operator and Planner, but to be known as the National Energy Systems Operator (NESO). NESO is tasked with strategic oversight across GB’s electricity and gas systems.

The recent Strategy and Policy Statement for Energy Policy in Great Britain¹ sets out the roles and responsibilities of Government, Ofgem and NESO in more detail.

The devolved administrations governments (Scotland, Northern Ireland and Wales) create their own climate change policy and help implement UK-wide policies.

The Climate Change Committee (CCC) is the UK’s independent adviser on climate change and on achieving the emissions reduction targets in the Climate Change Act and its carbon budgets.

Private sector players include generation companies, transmission and distribution companies (formed when the networks were privatised in the 1980s), the National Grid Electricity System Operator (which will become NESO) and a number of suppliers (formerly the “big six” but now including many smaller suppliers to domestic and business customers).

There are also very active private sector energy participants from former oil and gas majors who are focusing on renewables (BP, Shell, Total) to renewable investment funds such as Greencoat and Equitix who invest in these project. Investments there tend to be equity driven. The debt market is also active and has been supplemented by the UK Infrastructure Bank who are focused on net zero lending (equity and debt).

In summary, there is both very clear Government policy support for renewable energy and the energy markets are very open in GB and so global and financial investors play a very active role alongside traditional and visible energy players.

Footnote(s):

¹ https://assets.publishing.service.gov.uk/media/6631ff75ed8a41eeaf58c0eb/strategy-and-policy-statement-for-energy-policy-in-great-britain.pdf

Businesses are taking a range of approaches, from simply buying energy from suppliers on a green tariff, to entering into corporate power purchase agreements with a renewable plant to supply them with electricity. Many are installing on-site generation such as solar panels or smaller wind turbines, often combined with battery storage.

All these solutions have pros and cons and Addleshaw Goddard have developed an Energy Ready tool² to help businesses and the public sector decide which solutions are best for them.

Most businesses find this area daunting and yet there are easy wins available which will help price stabilisation, security of supply and the ESG position of a business.

Footnote(s):

² https://www.addleshawgoddard.com/en/sectors/energy-and-utilities/energy-for-business/

The business approach to renewable energy has changed in the last year. The prominence of ESG has been the main driver of behavioural change. Previously there were broadly three responses to renewable energy by business. The first and most common was purchasing green power from their existing energy supplier; the second is engaging on taking renewable power directly by for example, allowing solar panels on their own roof; and third is the commitment of their own capital to have a more secure energy future.

The change towards being more engaged has been a board level issue where a business makes a conscious choice to have tangible examples of taking the E element of ESG seriously. When options are examined, they often they focus on taking some power directly from renewable sources, often using their own assets (such as rooftops) and moving “beyond” just purchasing power.

Reducing carbon emissions is becoming a top priority for many businesses, due to the legal imperative to reach Net Zero by 2050 but also to the increasing importance of ESG issues to shareholders.

There is much political and regulatory support. In 2023 the UK Government published some key policy documents including the Powering Up Britain plan, the Energy Security Plan and the Net Zero Growth Plan, along with a Green Finance Strategy to drive a multi-billion-pound investment in green energy. These were followed up with the Energy Strategy and Policy Statement which gives guidance to the energy sector on the actions and decisions needed to deliver the government’s policy goals. There has been criticism from some quarters that these plans do not do enough to incentivise energy efficiency measures, especially in buildings and building standards.

However, taking hydrogen as an example, the policy documents are very well developed in GB giving a very sophisticated and thoughtful risk environment (see the hydrogen business models and the hydrogen net zero investment roadmap³). We would expect existing heavy gas users to benefit from large scale hydrogen projects as hydrogen can replace gas in a hydrogen enabled boiler, for instance.

Northern Ireland produced a ‘Path to Net Zero Energy’ in December 2021, an energy strategy that forms part of an overall plan to address climate change, the Green Growth Strategy.

Footnote(s):

³ https://www.gov.uk/government/publications/hydrogen-net-zero-investment-roadmap

For offshore projects, a licence is needed from the Crown Estate or Crown Estate Scotland, which owns rights to the seabed out to 12 nautical miles. These are normally granted by auction. A marine licence from the Marine Management Organisation (MMO) may be needed.

For onshore projects, planning permission or a development consent order is needed, depending on the size of the project. In Scotland, a consent order under section 36 of the Electricity Act 1989 is needed, and in Northern Ireland the construction, extension or operation of a generating station over 10MW (onshore) or 1MW (offshore) needs consent under Article 39 of the Electricity (Northern Ireland) Order 1992.

A generation licence is usually needed unless the project falls within a class exemption (e.g. onsite generation).

Environmental consents may be needed.

No specific rights are needed to transfer a renewable energy project, unless it is receiving a subsidy, in which case the terms of the relevant scheme will need to be checked to see if transfer is permitted.

In summary, the main method used to “stop” a renewable class is the planning system with onshore wind largely being not allowed in England due to planning rules. Promotion of renewable energy still largely needs a subsidy and the main method for promoting that is the Contract for Difference, for which onshore wind over 5MW, offshore wind (including floating), solar PV over 5MW, marine, geothermal, hydro and some waste technologies are eligible. As the price of energy rises, technologies like solar PV become much easier to finance without subsidy.

The Government is involved directly in the renewables industry. The main public bodies in GB include the Department for Energy Security and Net Zero (DESNZ) and the energy ministries in the devolved administrations. In Northern Ireland it is the Department for the Economy. See the answer to Question 4 above for more details on their roles.

Ofgem is a non-ministerial government department that regulates the energy industry in GB and administers environmental programmes and sustainability schemes on the government’s behalf. There is also the Low Carbon Contracts Company (LCCC) and the Electricity Settlements Company (ESC), both of which are government-owned entities that deliver key elements of the Government’s Electricity Market Reform (EMR) Programme. The LCCC enters into Contracts for Difference to buy power from renewable generators at a fixed ‘strike price’, giving revenue certainty and enabling projects to be bankable.

In 2024, the NESO will be established, under powers set out in the Energy Act 2023. The NESO will be a publicly-owned body designated as the independent energy system operator and planner. NESO will be a public corporation, that will be independent from other commercial energy interests as well as from operational control of government. The government will be sole shareholder of NESO, and thus retain ultimate responsibility, however it will not exercise control over NESO’s operations. NESO will be licensed and regulated by Ofgem and funded by consumers through price control arrangements.

Northern Ireland’s equivalent of Ofgem is the Northern Ireland Authority for Utility Regulation (NIAUR), an independent public body that regulates the electricity, gas, and water and sewerage industries in Northern Ireland.

Scotland is establishing a National Public Energy Agency, called Heat and Energy Efficiency Scotland, to accelerate the decarbonisation of heat across Scotland.

In August 2023, Wales launched Ynni Cymru (“Energy Wales”), a new publicly-owned energy company, to expand community-owned renewable energy generation across Wales.

There are currently no plans for an English government-owned renewables company, as the GB energy industry is privatised, although the UK’s Labour party has stated its intention to create a new state-owned renewable energy company, Great British Energy, if it comes to power in the next General Election on 4 July 2024.

There have been a raft of plans and strategies published over the last few years.

In November 2020 the Government set out a Ten Point Plan for a Green Industrial Revolution followed by an Energy White Paper in December 2020. The ten points for policy focus are:

• Advancing offshore wind
• Driving the Growth of Low Carbon Hydrogen
• Delivering New and Advanced Nuclear Power
• Accelerating the Shift to Zero Emission Vehicles
• Green Public Transport, Cycling and Walking
• Jet Zero and Green Ships
• Greener Buildings
• Investing in Carbon Capture, Usage and Storage
• Protecting Our Natural Environment
• Green Finance and Innovation

This was followed by more policy papers including a Net Zero Strategy (2021), the British Energy Security Strategy (2022) and recently, Powering Up Britain (2023) which comprises an Energy Security Strategy and a Net Zero Growth Strategy, building on the 2021 Net Zero Strategy. Complementing this is the Energy Strategy and Policy Statement published in 2024 under the Energy Act 2013 which gives guidance to the energy sector on the actions and decision needed to deliver the government’s policy goals.

Northern Ireland published ‘The Path to Net Zero Energy’, an energy strategy setting out a pathway to decarbonising the NI energy industry by 2050, in December 2021. There are annual Action Plans reporting against progress made against each of the 22 Energy Strategy actions.

The key legislation for the renewable sector is the Energy Act 2013 which introduced Electricity Market Reform (EMR) to provide long-term support for renewable electricity generation. This established the Contracts for Difference and Capacity Market regimes, which are governed by their own regulations made under the Act.

See also the answer to Question 2 above for the key legislation setting net zero targets.

Regulations to be made under the Energy Act 2023 will implement many of the proposals set out in the Energy White Paper and Net Zero Strategy, including measures to clarify the legal definition of storage; business models to encourage investment in hydrogen and carbon capture; and centralised planning of new network infrastructure.

The Government provides various incentives to encourage the development of and investment into the renewable energy industry. In GB, the Renewables Obligation (RO) scheme places an obligation on electricity suppliers to source an increasing proportion of electricity from renewable sources. Renewable generators earned money by selling RO certificates to suppliers to fulfil this obligation. This scheme closed to new entrants in 2017 but the support lasts for 20 years. Therefore a lot of live projects still sit under this regime.

The Contract for Difference (CfD) is the replacement for the RO and offers a set ‘strike price’ to generators for their electricity. Normally generators bid for a contract in an auction round, which are now set to take place annually. The CfD makes a project bankable by guaranteeing a fixed price regardless of market fluctuations, although if market prices rise above the strike price the generator must pay back the difference, ensuring they do not make undue profit.

Most types of renewable projects can bid for a CfD and they are grouped into different ‘pots’ each with their own budget, so that more expensive less-established technologies are not competing with cheaper more-established technologies. The pots for the current auction round (AR6) are:

• Pot 1: Energy from Waste with CHP, Hydro (>5MW and <50MW), Landfill Gas, Onshore Wind (>5MW), Remote Island Wind (>5MW), Sewage Gas, and Solar Photovoltaic (PV) (>5MW)
• Pot 2: Advanced Conversion Technologies, Anaerobic Digestion (>5MW), Dedicated Biomass with CHP, Floating Offshore Wind, Geothermal, Tidal Stream, and Wave
• Pot 3: Offshore Wind

Projects below 5MW are normally excluded from the scheme, as are nuclear projects and coal to biomass conversions. Renewable hydrogen projects are also excluded, although an equivalent support scheme is being developed and should be available in the next few years.

For smaller projects there was a Feed-in Tariff (FiT) subsidy scheme which closed to new entrants in 2019. It is replaced by the Smart Energy Guarantee, where energy suppliers pay small generators for the electricity they generate. This mainly affects domestic installations and smaller on-site solar PV installations such as panels on warehouse roofs.

There is the Renewable Transport Fuel Obligation (RTFO) for renewable transport fuel such as biofuels and hydrogen. This operates in a similar way to the RO, where suppliers of liquid fossil fuel for transport use have to supply a certain proportion of renewable fuel which they prove by buying RTFO certificates or paying a buy-out price.

In Northern Ireland there was the Northern Ireland Renewables Obligation (NIRO) which operated on a similar basis to the GB RO scheme. The NIRO closed to new entrants on 31 March 2017. The Department for the Economy is currently consulting on a new Renewable Energy Support Scheme for Northern Ireland, which will be similar to the GB CfD. The high level design of the scheme was published on 9 April 2024⁴ and the first auction is expected to take place in 2025.

The UK Government is developing support schemes for carbon capture, use and storage (CCUS) and renewable hydrogen production. These will operate in a broadly similar way to the CfD but with extra capital support in recognition of the high upfront costs of these new technologies. There are also support schemes (on a regulated asset basis plus a subsidy top up) for the carbon dioxide and hydrogen transport and storage infrastructure that is needed to support this.

Footnote(s):

⁴ https://www.economy-ni.gov.uk/publications/design-considerations-renewable-electricity-support-scheme-northern-ireland-response

The UK Government introduced the Energy Bill Relief Scheme (EBRS) for businesses and the Energy Price Guarantee for domestic customers. Both schemes were effective from 1 October 2022 until 31 March 2023, although the Energy Price Guarantee was extended for a further three months.

The Energy Price Guarantee limited the amount suppliers could charge customers per unit of energy used. If this resulted in suppliers making a loss, the Government made up the difference.

The EBRS similarly set a ‘government supported price’ capping the unit price, but with a maximum discount that would be applied. Again the Government made up the difference to suppliers.

From 1 April 2023 the EBRS was replaced by the Energy Bill Discount Scheme (EBDS), which applied to non-domestic customers up to 31 March 2024. It operates in a similar way to the EBRS, but with a lower ‘government supported price’ and a lower level of discount, although extra support is available to ‘energy and trade intensive industries’.

Aside from the Energy Price Guarantee, consumers are protected by an Ofgem price cap on standard default energy tariffs, which is reviewed and updated every three months. There has been discussion about de-linking the gas price and renewables prices and DESNZ is carrying out a wide-ranging Review of Electricity Market Arrangements (REMA) which was considering this as part of a series of reforms. However, the second REMA consultation response, published in March 2024, has ruled this out as an option.

The main concern the energy industry has is less about de-linking the price and more the investment uncertainty that would arise whilst the wide ranging changes proposed under REMA were being implemented.

Direct corporate PPAs are becoming very common now. So, for example, a large user of energy directly purchases power say from an offshore wind farm and that power is sleeved into the overall supply arrangement. It is also becoming much more common for a customer’s assets to be used, for example a roof where an energy supplier will finance and install solar PV panels and sell the power to the customer. Both are prevalent, but buying power direct is becoming very common indeed, partially as it gives some price certainty as well as fulfilling ESG credentials.

The most significant barriers in GB are planning permission and grid delays. The onshore wind industry in England has not been able to develop as quickly as in the other home nations due to a policy change in 2015 which made it more difficult for onshore wind projects to get planning permission. This along with the removal of RO subsidies the same year led to a sharp decline in onshore wind farm development. The recent Energy Security Plan and National Planning Policy Frameworks may lead to these planning restrictions being somewhat eased going forward.

Grid delays are however a major issue. There are reports of some projects waiting up to 10 to 15 years to be connected in GB due to a lack of capacity on the network. The transmission and distribution networks in the UK are struggling to upgrade in time to meet the challenging renewable energy targets set by the Government: the UK needs to build six times the amount of electricity transmission infrastructure over the next few years than it has done in the previous 30. This is being addressed through the ESO’s Connections Reform project, that allows projects that are ready to connect to “jump the queue” instead of being connected in order of when they applied.

GB has very few restrictions on direct foreign investment and renewable assets have a very healthy secondary market of trading on assets. The National Security and Investment Act 2021 does require notification of any acquisition of a generating asset with a capacity of 100MW or more, or where the acquiring company plus its group companies and the entity it is acquiring together have a cumulated generation or aggregation capacity of 1GW or more.

A new-build renewable energy project will have:

• Project Agreement (a shareholders agreement or joint venture agreement between the parties sponsoring the project)
• Lease (of the land for the project) and easements for cables and access routes
• Financing agreements (with the lender/s financing the project)
• Connection agreement (with the DNO or TO)
• Construction/EPC agreements (and turbine supply agreements if a wind farm)
• Operation and maintenance agreements
• Power purchase agreement (to sell the power: this is the key source of revenue for the project
• Contract for Difference (if the project cannot be financed on a merchant basis).

There are no restrictions on the export of renewable energy. In fact, in 2022 Britain exported more power than it imported for the first time. The Energy Security Plan envisages more exports of electricity in future as the deployment of offshore wind continues. The Offshore Wind Sector Deal (published 2019 and updated in 2020) set a target of increasing UK offshore wind exports fivefold to £2.6 billion per year by 2030, and the Government committed to maintaining key policies and programmes that support export-led growth.

There are local content obligations for the Contract for Difference support for larger projects. If a project of 300MW or more (or any size of floating offshore wind project) wishes to benefit from the CfD scheme it must complete a Supply Chain Plan questionnaire. This requires them to state the percentage of ‘UK content’ that the project will have. Developers who cannot show a sufficient level of UK content in their project will not qualify for the CfD scheme.

However, there is an informal move to have more local content and some more enlightened developers have implemented their own local content schemes.

The latest full year’s Digest of UK Energy Statistics (July 2023, covering 2022) shows that 3.8GW of renewable capacity was installed in 2022., the highest growth rate since 2018.  Most of the new capacity (2.7GW) was in offshore wind, with 0.7GW solar PV and 0.3GW of onshore wind.  If anything, the high gas wholesale prices and energy insecurity resulting from Russia’s invasion of Ukraine has resulted in an acceleration in renewables deployment as the UK (in line with the rest of Europe) seeks to lessen its reliance on gas as a source of electricity generation. However, increasing supply chain costs meant that no offshore wind projects were awarded a Contract for Difference in the fifth allocation round, as projects were not able to meet the low strike price on offer.

Supply chain issues have and do remain a major issue both in availability of key components and fluctuating cost. We are now seeing EPC contactors directly refuse to hold the price for key component parts of, for example, labour costs although that is beginning to settle.

The Energy Trends March 2024 report shows that in 2023 a total of 2.7GW of renewable generation capacity was added. Half was wind (0.8GW offshore and 0.5GW onshore) and half solar PV (1.3GW, the largest amount since 2017 and dominated by smaller sized domestic installations).

Future projects include East Anglia 3 offshore wind project, expected to be completed in 2026; and Cleve Hill (Project Fortress), which will be the largest solar farm in the UK, consisting of 373MW of solar and over 150MW of battery energy storage.

The H100 Fife project is a green hydrogen trial involving Scotia Gas Networks (advised by Addleshaw Goddard) building a hydrogen network that will serve around 300 houses with green hydrogen produced at an electrolysis plant powered by a local offshore wind turbine. This will help inform the UK Government’s decision in 2026 on whether to proceed with hydrogen heating in homes, to replace natural gas.

The Government is supporting two CCUS industrial ‘clusters’: HyNet in the North West and the East Coast cluster in Track-1; and is looking to support a further two, Acorn and Viking, in Track-2. Those clusters will comprise a CO2 and/or hydrogen transport and storage network to which individual projects can connect. The individual projects in or near the cluster network can bid for project support under the CCUS or hydrogen business models in allocation rounds. These operate in a similar way to the CfD, guaranteeing a level of income for the hydrogen produced or carbon that is captured, along with a level of upfront capital support by way of a grant. So far 11 projects have been selected for hydrogen production business model support in Hydrogen Allocation Round 1; and Hydrogen Allocation Round 2 launched in December 2023, aiming to deliver up to 1GW of electrolytic hydrogen production capacity in construction or operation by 2025.

The UK already sees itself as the world leader in offshore wind, with a mature supply chain and an established number of projects. The recent Offshore Wind Net Zero Investment Roadmap sets out the ambition to deploy up to 50GW of offshore wind by 2030. The UK already has the highest offshore wind deployment in Europe.

It is seeking to become a leader in hydrogen, with a recent Hydrogen Net Zero Investment Roadmap updated in February 2024 showcasing the scale of the UK’s ambition: 10GW of low carbon hydrogen production by 2030, with at least half from electrolytic (green) hydrogen.

Overall, the UK is seeking to mobilise green investment through its updated 2023 Green Finance Strategy, which seeks to cement the UK’s pace at the forefront of the global green finance market.

The approach to CCUS and hydrogen is very detailed and investable and is ahead of other jurisdictions although the size of subsidy available may limit the impact of this insightful policy.

Large renewables projects in GB normally rely on obtaining a CfD to help them secure project finance, as the CfD provides a guaranteed level of income for the project. However, some smaller renewables projects (particularly solar PV which until recently have been unable to bid for a CfD) are able to operate on a merchant basis.

The UK government is currently designing business models to help finance renewable hydrogen and CCUS projects. These are a combination of grants to help with capital expenditure and a CfD-type arrangement for the sale of the hydrogen produced once the project is operational.

More generally, there is a very active equity market in this space with investment funds keen to invest in ‘green’ projects. There is Government-backed funding available at competitive rates from the Green Investment Bank and, more recently, the UK Infrastructure Bank. The UKIB in particular offers private and public sector financing and has been tasked with tackling climate changes and supporting regional and local economic growth across the UK and has £22bn of infrastructure finance to invest.