Learnings

Outcomes

The final document sets out the advice given by Addleshaw Goddard to stakeholders involved in the development of onshore geological hydrogen storage facilities specifically relating to the following regulatory areas:         

·       The pertinent consenting requirements relating to the storage of hydrogen in the subsurface arising under:  The Gas Act 1965 (1965 Act) Planning Act 2008 (2008 Act). It also provides details of compulsory acquisition processes available in each jurisdiction.

·       The pertinent regulatory requirements relating to the storage of hydrogen in the sub-terranean mineral layer arising under: the Gas Act 1986 (1986 Act), the gas transporter licences held by SGN and ScGN and other legislation (including the Energy Act 2023 (Energy Act)) and policy developments relevant in this context; and

·       The land law basis for acquiring and using cavities in the sub-terranean mineral layer for hydrogen storage, the differences and benefits of freehold or leasehold structures, typical legal and commercial terms of these structures and the potential use of commercial agreements in terms of the 1965 Act.

The legal assessment was undertaken with no specific property interests or development scenarios in mind. Due to the significant amount of varying property interests and development scenarios on and offsite, our analysis and comments relate to an overview of land law and development consenting in terms of onshore underground gas storage development only. Therefore, the summary and the detailed analysis should be used only as a guide when forming a high-level hydrogen consenting strategy.

The final report recommends that detailed advice in relation to any specific project, considering the specification for the proposed storage solution and the proposed corporate and commercial structure, is obtained at an early planning stage to ensure compliance with the law as applicable at the relevant time. This is particularly important given the pace at which the legislative framework relating to the onshore storage of hydrogen is likely to change in the near future.

Consenting: 

There is currently no comprehensive planning and consenting framework or regime dedicated to hydrogen, including its storage across the UK. This is no different to any other energy project. Other than perhaps the Development Consent Order (DCO) regime applicable in England, there is a minefield of fragmented legislation and consents that would be required to be navigated. Any statutory consents and their associated processes required will also depend on who is applying; what development components are applied for and included in each application; the legal jurisdiction; whether land rights need to be compulsorily acquired; and associated site-specific issues. The final report has set out a high-level overview and non-exhaustive list of the likely consents required in both England and Scotland. This accounts for both common and distinct regimes; the consenting authority from which they may be obtained; and some observations, including associated timescales. The report also considers in detail the most significant consenting requirements relating to the storage of hydrogen in the sub-terranean mineral layer arising under:  1965 Act and 2008 Act. This also includes details of compulsory acquisition processes.

An overview of some of the main consenting findings is as follows:

·       There needs to be a statutory provision in place to authorise and control the underground storage of gas across England and Scotland under the Storage Authorisation Order (SAO) under Section 4 and Schedule 2 Part II of the 1965 Act. This is gas storage specific, including hydrogen.

·       DCOs are relevant to the extent that it is deemed a Nationally Significant Infrastructure Project (NSIP) in England under the Planning Act 2008.

·       Planning Permission is required in England and Scotland for the development or operations in, over and underground including the material change of use of land and mineral extraction, unless it falls within a statutory undertaker’s permitted development – planning permission granted under The Town & Country Planning Act 1990 (TCPA 1990) The Town and Country Planning (Scotland) Act 1997 (TCPSA 1997).

·       Hazardous Substance Consent must be granted prior to hazardous substances being introduced/stored in, on or under land in England and Scotland according to Planning (Hazardous Substances) Act 1990 and Planning (Hazardous Substances) (Scotland) Act 1997.

·       An Environmental Impact Assessment (EIA) may need to be completed prior to and accompanying statutory consent submissions – governed by several statutory regimes.

·       Must acquire access rights by agreement where third parties control necessary land. Otherwise, must rely on compulsory purchase.

The legal analysis found that in most cases the action required under the relevant statutory regimes is no different to any gas storage or pipeline development and is not hydrogen storage specific.

It also should be noted that the Scottish Government is currently considering a review of consenting legislation and significant barriers in relation to Hydrogen. Additionally, the EIA process is currently undergoing reform in both Scotland and England through the Levelling Up and Regeneration Act 2023 (LURA) where it serves as a framework to replace the current EIA process under regulations to follow. In addition, the LURA makes changes to the CPO and DCO process in England. It is unclear when they will come into force but it is designed to improve the speed, flexibility, and resilience of the NSIP regime so it can better handle the increasing pipeline of energy and other infrastructure projects.

Regulation:

An overview of some of the main regulatory findings is as follows:

·       1986 Act - The definition of "gas" under the 1986 Act extends to hydrogen, and hydrogen storage facilities in the sub-terranean mineral layer can fall within the meaning of a "storage facility" under the 1986 Act (whether they do will depend on the specifics of the relevant storage project). Owners of such hydrogen storage facilities are currently subject to certain obligations under the 1986 Act. 

Gas Transporter Licence:

The key obligations which may apply to SGN in the context of a hydrogen storage project relate to:

(a)   the limitations on activities which can be undertaken imposed by a permitted purpose under the gas transporter licence (under Standard Special Condition A33); and

(b)   the functional unbundling requirements in relation to any trading business which (amongst other) concerns itself with the storage of gas in storage cavities in natural strata (under Standard Special Condition A33). 

The gas transporter licences also include several obligations relating to "transportation arrangements", which may involve the use of facilities for the storage of gas in connection with the licensee's independent system (as defined in the licence). The transportation of gas with the content of hydrogen in excess of 0.1% through the existing gas networks within GB is not currently allowed (see the Gas Safety (Management) Regulations 1996). Therefore, the connection of hydrogen storage to a licensed pipe-line system could be of limited practical benefit at this stage, thereby limiting the circumstances in which hydrogen storage would be captured under the licence. This is subject to the following developments, however: 

(a)   the Energy Act gives the SoS (as of 26 December 2023) the power to grant, extend or restrict a gas transporter licence (only in relation to persons designated in relation to a specific hydrogen pipe-line project under the Energy Act) in respect of the conveyance of hydrogen through pipes for the purposes of a specific project. Where a licence is granted pursuant to this power, an additional analysis with respect to the regulation of hydrogen storage arrangements under such licence will be required; and 

(b)   Further policy developments with respect to allowing the blending of hydrogen into GB gas distribution networks. In December 2023, the Government issued the response to their blending consultation and made a strategic policy decision to support blending of up to 20% hydrogen by volume. However, the Government are yet to take a decision on whether to enable blending following the completion of the safety assessment and review of blending safety evidence, considering any implications from the safety assessment on blending’s feasibility and economic case. This analysis will therefore need to be reviewed in light of any such future decision. 

The final report also provides an overview of ongoing developments relating to the storage of hydrogen. The main point to highlight here is that the Energy Act gives the Government the framework to introduce a revenue support mechanism for hydrogen storage facilities in the UK. The Government anticipates that the business model supporting the development of hydrogen transport and storage infrastructure should be finalised by the end of 2025. This is likely to introduce further changes to how commercial arrangements relating to the operation and use of hydrogen storage are regulated (with the Government currently keeping the market framework and industry commercial arrangements under review with a view to introducing amendments where necessary). This may include the introduction of a code (equivalent to the Uniform Network Code) specifically for hydrogen. The Government is likely to seek further input from the stakeholders on any such arrangements (through a call for evidence and/or consultations).

Property:

Land law can easily govern robust arrangements for utilising land below the surface for hydrogen storage. There is a direct comparison possible of all elements between the two jurisdictions i.e., England & Wales and Scotland with only a few key differences e.g., maximum length of leases. The actual structure of the deal and the extent of ancillary rights depends on the specific location of the proposed development.

An overview of some of the main property findings is as follows:

·       A public Gas Transporter (GT) shall not develop or use any such strata for the storage of gas except in accordance with a Storage Authorisation Order (SAO) granted by the Secretary of State (SoS)/Scottish Ministers (SM) in such strata and the kind of gas are in their opinion suitable for such storage. 

·       There is no requirement for a separate planning application for gas storage and additional infrastructure can be included in the application as long as (a) the carrying out or construction of any surface works, boreholes or pipes associated with an underground gas storage which in a SAO are shown as approved or (b) the bringing into use or operation of an underground gas storage in accordance with a SAO, constitute development under planning legislation, deemed planning permission is taken to be authorised in making the order.

·       A GT cannot dispose of a right to store gas by CPO other than to another GT or the person who would have been entitled to grant that right if it had not been acquired.

·       The UK Gas Regulation defines a storage facility as "a facility used for the stocking of natural gas and owned or operated by a natural gas undertaking (…)". Hydrogen is not captured by the definition and therefore the provisions of the UK Gas Regulation relating to storage facilities and the obligations on the storage facility operators will not apply to a hydrogen storage facility.

·       The definition of gas under the UNC does not extend to hydrogen. Consequently, the provisions in the UNC relating to storage will not currently apply to a hydrogen storage facility. As part of the facilitating of the H100 project, a narrow modification to the UNC was put in place. One of the key elements of the modification included widening the definition of ‘gas’ to include hydrogen within UNC arrangements associated with the H100 project. This modification, however, is restricted to the application to the H100 projects and does not have wider implications for the UNC.

·       Legislation relating to the identification and comparison of potential real estate solutions e.g., property rights obtained to store Hydrogen in the subsurface are generally not hydrogen specific.

1986 Act:

While several other gas sector-specific legislative instruments have recently been amended or will require amendments in due course to include hydrogen within their scope (for example, the Gas Safety (Management) Regulations 1996), the definition of "gas" under the 1986 Act applies to hydrogen. This means that the provisions of the 1986 Act will apply to any hydrogen-related activities (including storage) regulated by the 1986 Act.

Whether the operation of a hydrogen storage facility in a sub-terranean mineral layer falls within the scope of the 1986 Act will depend on the precise factual matrix of each project relating to the following three key factors: 

a)    the territorial and geological location of the storage facility (i.e., whether the storage is located in porous strata, or in cavities in strata) or whether the facility is located on the ground, etc. 

b)    the physical state of the hydrogen stored (i.e., gaseous state or liquid state); and (c) whether the storage of hydrogen is linked to the activity of conveying gas in a pipeline system.

A storage facility owner is prohibited from undertaking the following activities in the UK53: 

a)    the production of gas; 

b)    the supply of gas to any premises; 

c)     shipping and;

d)    any other sale of gas. 

Ofgem noted in their guidance that a storage owner may only act as a shipper where necessary for the efficient operation of the facility or of another storage facility. This means that the unbundling requirements do not prevent storage owners from contracting with a transporter to provide storage services, provided that they comply with this requirement.

Planning Act 2008:

The 2008 Act, outlines that a development for an Underground Gas Storage Facility will be considered a NSIP, and therefore requires a DCO to be granted if it meets the requirements noted below:

·       Where the Development creates underground gas storage facilities or starts to use underground gas storage facilities and the working capacity is expected to be at least 43 mscm, or the maximum flow rate is expected to be at least 4.5 mscm per day.

·       Where the Development alters underground gas storage facilities and the effect of the alteration is expected to be increased by at least 43 mscm the working capacity, or to increase by at least 4.5 mscm per day the max flow rate.

Lessons Learnt

The project achieved the desired outputs, therefore there are no particular takeaways to be drawn from this project.