The UK Government has committed to axing a tax on electricity used in electrolytic hydrogen production in an attempt to lower the costs of the energy carrier.
Alongside the Chancellor’s Spring statement today (March 26), the Treasury said the government would work to remove the Climate Change Levy (CCL) costs from electricity used in electrolysis.
The CCL is an energy tax on commercial users to encourage businesses to become more energy-efficient and cut carbon emissions. Currently, the electricity CCL is charged at £0.00775/kWh.
Now, the government will conduct a review of the CCL to “simplify” it for hydrogen producers and “ensure it does not act as a barrier to low-carbon electrolytic hydrogen production.”
Electricity is the single biggest OPEX cost in electrolytic hydrogen production – accounting for up to 80% of the total levelised cost of hydrogen (LCOH).
Trade body Hydrogen UK welcomed the move, saying the commitment to a review was a “pivotal moment” for the sector.
However, the actual impact of removing the CCL remains unclear, as many producers already avoid the levy by sourcing electricity through Power Purchase Agreements (PPAs) backed by Renewable Energy Guarantees of Origin (REGOs).
The government’s consultation will conclude on May 7, 2025.
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