Following a record-breaking heatwave and a High Court ruling that the government’s Net Zero strategy breaches its obligation under the Climate Change Act, it is timely that BEIS has just published a suite of hydrogen-related policy updates designed to put more meat on the bones of the Hydrogen Strategy. The update marked the launch of the allocation round for green hydrogen projects to receive revenue support under the Hydrogen Business Model (which is similar to the CfD), with a joint application window available for those also seeking capital support from the Net Zero Hydrogen Fund. As one of the world’s leading support schemes, this is a historic moment for the UK hydrogen economy that will fund an initial 1GW of green hydrogen projects by 2025, as well as help mobilise thousands of jobs up to £9bn of expected private capital needed to hit 10GW of low carbon hydrogen by 2030.
However, a more meticulous approach to policy is needed, which the government has recognised by publishing the Sector Development Action Plan and the first of many planned updates to the Hydrogen Strategy. Alongside this, it announced the appointment of the UK’s first Hydrogen Champion for Industry, Johnson Matthey’s Jane Toogood, who will help coordinate industry investment and deployment.
Optimising Net Zero
As well as being an energy vector for deep decarbonisation, the updated strategy positions green hydrogen as a unique method to improve the integration of renewables. During periods of high wind speeds or irradiation, surplus power that would otherwise be curtailed (i.e. wasted) due to inadequate electrical storage or transmission capacity can instead be used to power electrolysis to produce green hydrogen. This can be stored underground in salt caverns or depleted oil and gas (O&G) fields for later use, either directly or to provide power peaking services during periods of low supply and high demand. For example, National Grid’s Future Energy Scenarios estimates that hydrogen demand in power generation will be 14TWh in 2050 under its Leading the Way scenario. Read more about it here: Green Hydrogen: Optimising Net Zero.
In this vein, BEIS has set out to actively pursue the potential of using hydrogen in much the same way as natural gas is used today, with a view that hydrogen power stations will provide a significant source of hydrogen demand. Later this year it will open a consultation on expanding the requirements for power plants to switch to hydrogen and another on reviewing how the Capacity Market mechanism can be reformed to support investment in hydrogen-fired generation. In RenewableUK’s view, this is a very positive step, but a more careful and strategic view is needed on how electrolysers interface with a renewables-based power to reduce curtailment and grid constraints, including the need for strategic planning (Figure 1).
Figure 1: Leading the Way Electrolyser capacity and Location by Region
Source: National Grid’s Future Energy Scenarios 2022
Hydrogen Pipelines & Storage
Underpinning this is the need for adequate hydrogen transport and storage (T&S) infrastructure alongside production. BEIS has said that it will publish a report later this year on T&S requirements up to 2035 alongside a consultation, as well as create a working group on hydrogen T&S infrastructure in the Hydrogen Advisory Council. Unfortunately, a decision on blending into the natural gas network will remain until next year, with an expectation that even if it is approved, it will not reach commercial scale before 2025. This is disappointing because blending is viewed as a relatively easy way to provide a demand-sink for hydrogen producers while demand for hydrogen is low in the early days of the market.
Furthermore, industry urgently need a decision on the business model for large-scale T&S infrastructure before the planned timetable of 2025. T&S infrastructure is vital for more efficient and effective deployment of green hydrogen at a lower overall system cost, especially where demand and production are not close together. However, large T&S infrastructure projects have relatively long lead times with limited room to accelerate without significant financial commitments ahead of Financial Investment Decision. Government needs to send clear signals to maintain investor confidence so projects can continue to progress and support the 2030 targets.
Local supply chains are critical if we are to get the green hydrogen economy moving. The opportunity is enormous, with the report valuing the cumulative turnover of green hydrogen supply chains at £3-5bn by 2030. Unlocking this will mean leveraging our existing experience, including a wealth of internationally recognised capability in electrolysis technologies, but also adapting existing skills and services found in the O&G, petrochemical and power sectors. Opportunities for hydrogen are massive, with employment in green hydrogen manufacturing plant operations climbing from626 per annum in 2030 to 1708 by 2050 under the Leading the Way scenario (Figure 2).
Figure 2: Summary of hydrogen manufacturing plant operations in 2030 and 2050 under Leading the Way scenario
Source: RUK using numbers from BEIS Supply Chains to Support a UK Hydrogen Economy
Based on annual employment and GVA figures, there are attractive opportunities in electrolyser, compressor, electrical equipment and material manufacturing for cavern storage and green hydrogen production. But due to the nascent nature of the sector, there are several gaps which significantly extend lead times for major components in projects (Figure 3). To strength domestic supply chains, government should create a consistent and supportive framework for green hydrogen production and demand, and encourage investors to develop new manufacturing capacity in the UK by offering internationally competitive support mechanisms.
Figure 3: UK capability and supply chain gaps
The RTFO and standards
Following a consultation last year, the DfT finally confirmed that it will increase the main target in the Renewable Transport Fuel Obligation (RTFO) by 5% and expand its scope to support hydrogen use in maritime, rail and non-road vehicles.
Notably, green hydrogen projects that use electricity that would either have not been produced or curtailed would still qualify under the scheme. This is great news and will provide many developers will an alternative route to market while stimulating demand from the transport sector.
However, it is RenewableUK’s view that the DfT and BEIS should work closely to gradually align their definitions of green hydrogen under both the RTFO and Low Carbon Hydrogen Standard (LCHS) to ensure consistency and reduce the administrative burden of compliance. This is particularly important if the UK wants to export hydrogen to Europe, who has its own separate standard. For example, the EU recently consulted on its RED II delegated acts for defining what is considered renewable hydrogen (Figure 4).
Ensuring these standards are aligned will open the UK up to a significant export opportunity, with BEIS citing data that suggests hydrogen sales could reach up $600bn and the wider value chain at $11.7trn by 2050. Recognising this opportunity, the government have set out to gradually evolve the LCHS into a certification scheme by 2025 so that it can become mutually recognised internationally with other schemes.
Figure 4: Comparison of different definitions of Green Hydrogen across the UK and EU
The update marked the launch of the allocation round for green hydrogen projects to receive revenue support under the Hydrogen Business Model (which is similar to the CfD), with a joint application window available for those also seeking capital support from the Net Zero Hydrogen Fund. As one of the world’s leading support schemes, this is a historic moment for the UK hydrogen economy that will fund an initial 1GW of green hydrogen projects by 2025, as well as help mobilise thousands of jobs up to £9bn of expected private capital needed to hit 10GW of low carbon hydrogen by 2030.
With these updates it is clear that green hydrogen has been positioned as a major component of the both the UK’s energy security strategy and net zero strategy. While there are some shortfalls in particular areas, the launch of the subsidy support scheme and update to the strategy represent a major turning point for the UK’s hydrogen economy.