Shapps drops hydrogen levy on suppliers

Electricity and gas suppliers will not be liable for the government’s controversial hydrogen levy, Grant Shapps has confirmed.

The secretary of state for energy security and net zero has tabled a series of amendments to the Energy Bill as it resumes its passage through Parliament next week.

The key amendment removes the obligation on suppliers to pay the levy, which was designed to provide revenue support for low hydrogen production. The levy will now only apply to gas shippers.

The amendments also remove a number of license conditions on suppliers that would have facilitated the levy’s introduction.

Under the levy’s initial design, suppliers would have passed on their payments to households through their gas and electricity bills.

The support through the levy, which is not due to come into force until 2025, is designed to bridge the gap between the operating costs of hydrogen and fossil fuels.

However the thinktank Onward calculated that reaching the government’s target of 10GW of hydrogen production by 2030 will require around £3.5 billion of support per annum, which would add £118 to the typical energy bill by the end of this decade.

Polling conducted by Onward for a report, published in June, showed 43% of the public  opposed the levy’s introduction.

The government’s move brings the bill in line with a vote by the House of Lords earlier this year to back a Labour amendment to scrap the levy on households.

Shapps has previously signalled in interviews that the government had gone cold on the hydrogen levy.

A number of prominent Conservative backbench MPs, including former business and energy secretary Sir Jacob Rees-Mogg and ex-Tory leader Sir Iain Duncan Smith, had backed an amendment to scrap the levy.

Conservative MP for Stoke-on-Trent Central, Jo Gideon, said she was “pleased” that ministers have listened on the levy.

“Supporting the UK’s hydrogen industry is vital to decarbonise British industry and secure manufacturers’ future, like the ceramic producers in my constituency. But the cost shouldn’t fall on households. This sensible compromise will take us closer to net zero, create jobs and limit the costs to billpayers.”

Jack Richardson, head of energy & climate at Onward, said: “Dropping the hydrogen levy is the right decision to maintain public support for net zero and deliver politically sustainable funding for the industry. Hydrogen will be a crucial part of the mix but probably not for home heating, so it would be unfair to directly raise household bills by up to £120 from 2030 to pay for it.”

However, writing on social media, Stonehaven director of policy Adam Bell described the move as an “absolute PR victory for the government, managing to label shifting the hydrogen levy away from suppliers and onto shippers as somehow a win for consumers.”

“Shippers take possession of gas as it moves through the network and sell it to suppliers at the far end,” he added. “If you think shippers won’t jack up their prices in response to this – which will be passed through to consumers – I have a gas transmission pipe to sell you.

“Government remains allergic to using taxpayers’ money to fund this kind of thing, even though it is manifestly better in allocational terms. But this way it doesn’t end up on the Exchequer’s books, which is more important than common sense apparently.”