Centrica's Hydrogen Play: Securing Energy Now, Profiting from the Future

The UK's energy landscape is undergoing a seismic shift. With domestic North Sea gas production dwindling and climate targets tightening, companies must pivot from fossil fuels to clean energy—or risk obsolescence. Centrica (LON:CNA), the UK's largest energy supplier, is not just adapting—it's leading the charge. A £20 billion gas import deal with Norway's Equinor (OSE:EQT) and bold hydrogen projects like Singleton Birch position Centrica as a prime investment for the hydrogen economy's rise. Let's dissect why this stock is primed to thrive in the UK's energy transition.

The Gas Deal: A Bridge to Hydrogen

Centrica's 10-year agreement with Equinor isn't just about securing natural gas—it's a strategic bridge to the hydrogen future. The deal guarantees 5 billion cubic meters of gas annually, covering 10% of UK demand, until 2035. But here's the kicker: substitution clauses allow Equinor to fulfill part of its supply obligation with green or blue hydrogen. This dual-purpose contract keeps Centrica's energy portfolio stable now while setting the stage for hydrogen's dominance later.

Why does this matter? The UK aims for 10GW of low-carbon hydrogen capacity by 2030. Centrica's deal directly ties into this goal. By 2035, the hydrogen supplied could power millions of homes—without the carbon. Meanwhile, Norway's status as the UK's top gas supplier (50% of imports in 2024) ensures a reliable partner for scaling hydrogen infrastructure.

The Singleton Birch Project: A Model for Industry
The 7.5MW electrolytic hydrogen plant at Singleton Birch, set to commission in 2028, is no small bet. This project—shortlisted for funding under the UK's Hydrogen Allocation Round 2 (HAR2)—will supply 20% of the energy for MLC's lime production, slashing natural gas use and emissions.

Why is this a game-changer? Lime production is notoriously carbon-intensive. By proving hydrogen can replace fossil fuels here, Centrica creates a replicable model for industries like steel, chemicals, and cement. The Humber Hydrogen Hub, where Singleton Birch is based, aims to become a regional hydrogen network, with pipelines linking producers and users. This scalability could turn the Humber into a “hydrogen valley”—a blueprint for nationwide decarbonization.

Government Backing: HAR2 and Beyond
HAR2's criteria demand projects be operational by 2026–2029, with strict cost and feasibility tests. Centrica's Singleton Birch ticks the boxes: it's technically feasible (electrolysis tech is proven), commercially viable (MLC's offtake agreement ensures demand), and strategically aligned with the UK's 10GW target. If selected, government subsidies via the Hydrogen Production Business Model (HPBM) could cover operational gaps, accelerating ROI.

But the UK's hydrogen push doesn't stop there. The Starmer government's pending decision on 100% hydrogen blending in gas grids—and Centrica's Rough gas storage redevelopment for hydrogen storage—add further upside. If approved, these moves would unlock new revenue streams for Centrica's hydrogen assets.

Why Investors Should Buy Now
Centrica isn't just a gas supplier—it's a hydrogen pioneer. Here's why this stock is a buy:

1. Near-Term Stability: The Equinor deal locks in revenue until 2035, shielding Centrica from volatile gas prices.
2. Long-Term Growth: Hydrogen projects like Singleton Birch and Rough storage create high-margin opportunities as the UK's hydrogen economy scales.
3. Policy Tailwinds: The UK's Net Zero targets and subsidies ensure steady demand for low-carbon energy.

Risk Alert: Regulatory delays or cost overruns in hydrogen projects could slow progress. Investors should monitor the 2028 Singleton Birch milestone closely—success here could catalyze a buying frenzy.

Final Call: Go Long on Centrica
Centrica is doing what few can: leveraging its gas dominance to lead the hydrogen revolution. With a 2028 milestone on the horizon and the UK's energy policy firmly in its favor, this stock is a must-own for investors betting on the green economy.

Action Item: Buy Centrica (LON:CNA) ahead of the Singleton Birch commissioning date. Pair it with exposure to hydrogen infrastructure plays like ITM Power (LON:ITM) for a diversified clean energy portfolio. The transition is happening—don't miss the ride.