Analysis: How does Rachel Reeves’ Budget address hydrogen and clean energy?
Yesterday saw the first Budget delivered by a Labour Party Chancellor since March 2010. But what did Rachel Reeves’ Budget say about hydrogen and the wider clean energy sector?
Great British Energy
The biggest energy-related announcement in the Budget is the government’s plan to establish Great British Energy (GBE).
Headquartered in Aberdeen, GBE will be a new, publicly owned, clean energy company.
GBE will contribute to one of the five main missions of the government: to make Britain a “clean energy superpower”.
The Budget has committed to £125 million in initial investment for GBE: £100 million capital funding for clean energy project development and £25 million to establish GBE as a company.
This investment also contributes to the government’s plans for regional growth.
Once GBE is established, the National Wealth Fund will undertake its investment activity.
The National Wealth Fund, announced earlier this month, is the UK’s new impact investor.
In addition to investing on behalf of GBE, the Fund aims to organise over £70 billion of private investment into clean energy and growth industries.
Electrolytic hydrogen production contracts:
The government has committed to supporting the first round of electrolytic hydrogen production contracts. This process involves using electricity to split water into hydrogen and oxygen (electrolysis).
The Low Carbon Contracts Company, the company issuing the contracts, announced back in May that the first contracts under the UK’s electrolytic hydrogen production support scheme will be signed “soon”.
A total of 11 projects were awarded funding under the government’s first hydrogen allocation round (HAR1), which was launched back in 2022.
These projects are split geographically across the UK, including two in Scotland and two in Wales.
Not only will these contracts contribute to the green transition, but the government is keen to highlight how they will create green jobs.
These contracts are funded by the Department for Energy Security and Net Zero (DESNZ) settlement.
The settlement provides £3.9 billion of funding in 2025–2026 for the clean energy sector.
Specifically, this money will be used for “Carbon Capture, Usage and Storage Track-1” projects, in addition to the 11 electrolytic hydrogen production contracts.
Industrial Strategy and investment in clean energy:
Throughout the Budget, the government highlighted their Industrial Strategy, published as a green paper earlier this month. The strategy sets out eight growth-driving sectors.
These are advanced manufacturing, creative industries, clean energy industries, defence, digital and technologies, financial services, life sciences, and professional and business services.
The government has committed to producing a bespoke plan for each sector.
The new National Wealth Fund will be used to support the delivery of the new Industrial Strategy.
Using advice from the National Energy System Operator (NESO), the government will publish a Clean Power 2030 Action Plan.
The Budget also highlighted steps that the current government has already taken to increase investment in clean energy.
These include reversing the ban on onshore wind in England and securing £34.8 billion of private investment around the International Investment Summit.
Other investment in clean energy includes £163 million over 2025-26 to 2027-28 for The Industrial Energy Transformation Fund. This Fund is aimed at businesses with high energy use and supports them in their low carbon transition.
The government has also used the Budget to commit to responding to the Climate Change Committee’s Progress Report and to publishing an updated Carbon Budget Delivery Plan.
Energy Profits Levy (EPL)
The Budget announces an increase in the rate of the Energy Profits Levy (EPL) from 35% to 38%. The 29% investment allowance has also been removed and the levy has been extended to 31 March 2030.
These changes to the EPL are designed to make oil and gas companies increase their financial contributions to the energy transition.
Transport
The new Budget does not explicitly mention the use of hydrogen in the transport industry.
The Labour government were keen to highlight their plans to invest over £200 million in 2025–2026 to support the improvement of electric vehicle charging infrastructure.
They also announced that £120 million will be set aside in 2025–2026 for a plug-in vehicle grant, aimed at helping people to buy new electric vans.
There is no mention, however, of any direct investment into the development of hydrogen vehicles and the related infrastructure.
This investment has the potential to place the UK at the forefront of the hydrogen vehicle industry.
Despite this, the industry can be hopeful that the government’s commitment to clean energy and net zero will encourage private investment in the industry and new policies on hydrogen vehicles in the future.
