Clyde & Co is presently assisting with the development of various hydrogen projects. These have presented several distinct challenges worth highlighting to the wider market.
The hydrogen for energy market is today enjoying unprecedented momentum. In July 2022, the UK government’s ‘Net Zero Hydrogen Fund’ operated an initial application round for £240m worth of funding for the development and deployment of hydrogen production technologies.
Despite these headlines, commercial applications of hydrogen are nothing new. Its use is currently essential in ammonia production and has been widely used for 100 years or more. Hydrogen has traditionally been derived from fossil fuels (methane steam reforming), giving the global hydrogen production industry a substantial carbon footprint.
Hydrogen: The Law
As with all emerging renewable technology, cost and regulation will be at the centre of its success. Accordingly, there are several legal factors that will undoubtedly shape hydrogen’s future:
Gaps in the legislative framework - The UK does not have a well-defined legislative framework for hydrogen projects. Instead, hydrogen is captured under the definition of “Gas” in the Gas Act 1986 and is therefore regulated as part of the wider gas network.
Health & Safety - Extensive health and safety regulation inevitably leads to increased costs. Legislation sets a high bar for operators to take necessary preventative measures to limit consequences for human health and the environment. Understanding hydrogen’s risk profile (discussed below) will be a necessary hurdle if it’s to compete with alternative energy sources.
De-risking Hydrogen - Risks regarding flammability or leakage are not new risks. However, these risks will be increased due to the expanding scale and influx of new developers. Hydrogen producers/off-takers/insurers must consider risk, not only in production, but in transportation, storage and distribution.
Demand - The certainty of long-term hydrogen contracts is seen as critical for minimising price uncertainty and lack of demand.
Hydrogen: The Future?
Hydrogen has proven to be one of the prime contenders for challenging the natural gas-based status quo of many commercial and industrial sectors. Key factors in hydrogen’s popularity include:
No Greenhouse Emissions - Hydrogen combustion solely emits water vapour.
Availability - It is the most abundant element in the universe, in unlimited quantities.
Versatility - A wide variety of fuels are able to produce hydrogen, including renewables, nuclear, natural gas, coal and oil. It can also be transformed into electricity and methane to power homes and feed industry, and into fuels for road and aviation transport.
Storage - Hydrogen could be stored using the existing natural gas networks in industrial nations and subsequently converted back into electricity via hydrogen fuel cells.
Time - Unlike traditional battery technology, hydrogen stored will not lose its potential energy over time and therefore can form part of a ‘back-up’ energy generator strategy.
Challenges: Halting Hydrogen
The widespread use of clean hydrogen in global energy transition strategies faces several challenges:
Energy Density - Hydrogen carries a third of the energy density when compared to natural gas, therefore it requires triple the volume of hydrogen to generate the same energy as its equivalent in methane. This can be overcome through either increasing pressure or volume (flowrate) throughput of current systems but there are obviously cost implications.
Hydrogen Burns Hotter - Hydrogen burns at much higher temperatures than methane, this leads to increased emissions of Nitrogen Oxides which are strictly controlled by EU law and would require further investment in removal technologies to prevent release to atmosphere.
Hydrogen Safety - The combustion of Hydrogen carries a different risk profile than natural gas – on the one hand, hydrogen usage in homes removes the carbon monoxide risk from poorly maintained boilers and on the other hydrogen has a broader flammable range and a lower ignition energy than methane, which could increase its risks (although, as noted above is less dense and will disperse more quickly).
Inefficiencies: The Clean Hydrogen Chain - Approximately 78% of industry heating could be provided by electrical means at a lower economic cost than green hydrogen due to the energy loss at each stage of the creation and subsequent burning of clean hydrogen.
Current Infrastructure - It is estimated that the unmodified existing natural gas infrastructure would only be able to tolerate a 0.1% by volume introduction of hydrogen into the system. At 100% hydrogen, the existing infrastructure would need significant overhaul including the compression stations, materials and valve bodies.
This high-level overview is the first in a series of Clyde & Co articles that will analyse the development, implementation and deployment of hydrogen in key industrial sectors to achieve Net Zero.
To hear more expertise from Clyde & Co, as well as other experts in hydrogen, law, finance and other fields, sign up to our Legal & Commercial conference this November 15th at the Pan Pacific hotel in London.
Authors:
- Richard Elks, Partner - Richard Elks: Clyde & Co (clydeco.com)
- Rebecca Armstrong, Partner - Rebecca Armstrong: Clyde & Co (clydeco.com)
- Richard Turner, Senior Associate
- Harry Sawyer, Associate