UK ENERGY LAW AND ELECTRICITY SYSTEM — HYDROGEN MARKET REGULATION

1. Introduction

Hydrogen market regulation in the United Kingdom is an emerging field connecting energy law, electricity regulation, environmental law, competition law, infrastructure regulation and industrial policy. Unlike the established electricity market, hydrogen does not yet operate under one comprehensive UK-wide market code. Instead, regulation is developing through the Energy Act 2023, contractual support mechanisms, planning law, environmental regulation, safety requirements and emerging rules for hydrogen transport and storage.

The principal policy objective is to create a commercially viable low-carbon hydrogen sector while protecting consumers, maintaining energy security and supporting the UK's net-zero framework.

2. Statutory Framework

The Energy Act 2023 is central to the emerging hydrogen framework. Part 2 creates powers supporting low-carbon hydrogen production and hydrogen transport and storage, including business-model contracts and levy mechanisms. The legislation also permits regulations modifying the application of the Gas Act 1986 to hydrogen production, transportation, storage and use, subject to statutory safeguards and consultation with GEMA.

This is significant because hydrogen may increasingly use infrastructure originally designed for natural gas, while its physical and safety characteristics require distinct regulatory treatment.

3. Hydrogen Production Business Model

The UK has adopted a contractual approach to supporting low-carbon hydrogen production. The Hydrogen Production Business Model (HPBM) uses the Low Carbon Hydrogen Agreement (LCHA) to provide revenue support intended to address the cost difference between low-carbon hydrogen and higher-carbon alternatives.

Hydrogen Allocation Rounds allocate these support contracts competitively. The government states that successful projects receive LCHAs providing revenue support over a 15-year period.

Legally, this creates an important distinction between market regulation and market creation: government is not simply policing an existing hydrogen market; it is using contractual intervention to establish investment conditions for a new market.

4. Hydrogen Transport and Storage

Hydrogen pipelines and storage facilities raise natural-monopoly and infrastructure-access questions similar to those encountered in electricity and gas networks.

The Energy Act 2023 provides powers for hydrogen transport and storage business models and contemplates the use of a Regulated Asset Base (RAB) mechanism for certain hydrogen pipeline projects. It also provides powers for levy funding.

Future regulation therefore has to address network access, charging, third-party access, technical standards, safety, investment recovery and potentially separation between infrastructure ownership and competitive hydrogen production or supply.

5. Hydrogen and Electricity-System Integration

Hydrogen regulation is increasingly connected with electricity law. Electrolytic hydrogen converts electricity into hydrogen, allowing electricity to be stored indirectly and potentially used later for industry, transport or electricity generation.

The government has also developed a Hydrogen-to-Power Business Model to de-risk investment in hydrogen-fired electricity generation and has indicated an intention to facilitate hydrogen-to-power participation in the Capacity Market.

Consequently, hydrogen can become both an energy commodity and an electricity-system flexibility resource, creating regulatory questions concerning electricity-market participation, capacity payments, network charges and emissions accounting.

6. Competition and Consumer Protection

As hydrogen markets develop, competition law under the Competition Act 1998 may become increasingly relevant. Potential concerns include market concentration, discriminatory infrastructure access, exclusionary conduct, vertical integration and preferential access to hydrogen transport or storage.

Where infrastructure develops as a natural monopoly, economic regulation may be necessary alongside competition law. The regulatory challenge will be to prevent monopoly bottlenecks without imposing premature regulation on competitive emerging markets.

7. Case Law — HyNot Ltd v Secretary of State for Energy Security and Net Zero [2025] EWHC 2644 (Admin)

Case Name/Citation: R (HyNot Ltd) v Secretary of State for Energy Security and Net Zero and another [2025] EWHC 2644 (Admin).

Facts: The case concerned the HyNet cluster and challenges relating to development involving carbon capture and storage infrastructure associated with the emerging hydrogen economy. The judgment specifically records that the HyNet hydrogen production plants were a separate project for which planning permission had already been granted.

Legal Issue: The litigation examined environmental assessment, consultation, cumulative effects and related statutory requirements for major energy infrastructure.

Judgment: The High Court considered the statutory planning and environmental framework governing the challenged development.

Legal Principle/Ratio: Emerging hydrogen infrastructure remains subject to ordinary public-law requirements, including lawful environmental assessment and proper consultation.

Significance: HyNot demonstrates that hydrogen-market development does not operate outside established planning and environmental law.

8. Case Law — Finch v Surrey County Council [2024] UKSC 20

Facts: The Supreme Court considered whether downstream greenhouse-gas emissions from oil produced by a development had to be addressed in environmental assessment.

Legal Issue: The scope of legally required environmental impact assessment.

Judgment: The Supreme Court held that the relevant downstream combustion emissions had to be assessed.

Legal Principle/Ratio: Environmental assessment must address environmental effects having the legally required connection with the project.

Significance: The principle is relevant to hydrogen projects because production pathways, associated electricity consumption, carbon capture and downstream uses may generate environmental effects requiring careful legal assessment.

9. Conclusion

UK hydrogen market regulation is currently a developing regulatory architecture rather than a fully mature standalone market regime. The Energy Act 2023 supplies enabling powers; the HPBM creates investment incentives; hydrogen transport and storage regulation is being developed; and planning, environmental, competition and safety law provide additional controls. The central legal challenge is designing a framework capable of encouraging hydrogen investment while ensuring fair market access, infrastructure accountability, consumer protection, environmental integrity and integration with the electricity system.