UK government announces millions in funding for 'low carbon' hydrogen production

• The funding is part of a £90 million package which in turn comes from a £500 million innovation fund.
• It may have potential, but there are environmental challenges when it comes to large-scale hydrogen production.

Sebastian Gollnow | picture alliance | Getty Images

The U.K. government announced £28 million ($36.47 million) in funding on Tuesday for five projects focused on hydrogen production.

The funding is part of a £90 million package which in turn comes from a £500 million innovation fund. The Hydrogen Supply program, as it's known, will focus on five "demonstration phase projects."

These include what the government described as two "low carbon hydrogen production plants," one in the northwest of England and the other near Aberdeen, Scotland. There will be also be a scheme looking to use offshore wind power to produce hydrogen through electrolysis.

The EU has described hydrogen as an energy carrier with "great potential for clean, efficient power in stationary, portable and transport applications."

One of the benefits of using hydrogen fuel cells is that the only by-products are water vapor and warm air, according to the U.S. Department of Energy's Alternative Fuels Data Center.

When it comes to real-world applications, hydrogen buses have been deployed in London, while European railway manufacturer Alstom launched what it described as the world's first hydrogen fuel cell train in 2018.

Major automobile manufacturers that have released hydrogen fuel cell models include Toyota and Honda.

It may have potential, but there are environmental challenges when it comes to large-scale hydrogen production. According to the International Energy Agency (IEA), while demand for hydrogen continues to grow, it's "almost entirely supplied from fossil fuels."

In terms of its environmental impact, the IEA states that hydrogen production is responsible for carbon dioxide emissions of roughly 830 million tons each year. It's within this context that the generation of hydrogen using renewable sources such as wind power is becoming increasingly important. 

A great deal of work needs to be done to re-balance how hydrogen is produced, however: Last October, Wood Mackenzie said its research showed that "less than 1% of all hydrogen produced today comes from renewable electricity." 

In a statement sent to CNBC via email, Rebecca Williams, head of policy and regulation at trade body RenewableUK, said that green hydrogen had "the potential to be a gamechanger in the energy sector, accelerating the transition to net zero emissions."