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UK’s “twin track” hydrogen strategy sets it apart from greener Europe

30 August 2021 Cristina Brooks

The UK government published a long-awaited plan to use hydrogen to decarbonize industry, transport, and heating to meet the country's 2050 net-zero goal.

The UK was originally expected reveal the strategy in the spring of 2021, but its publication was delayed prior to its release on 17 August.

The strategy pledges funding for both hydrogen and end-user sectors in pots totaling about £900 million (over $1 billion), while ensuring that existing mechanisms for renewable fuels are tweaked to support green hydrogen.

For the transportation sector, the use of hydrogen in buses as well as in fuel for trains and airplanes will be encouraged by as-yet undetermined millions in funding. The government also promised £55 million to convert industrial machinery to run on hydrogen and £40 million to convert heavy machinery to run on hydrogen. It predicts that 20-35% of the UK's energy consumption in 2050 may rely on the gas.

Support for hydrogen in the heating sector is still undecided. Secretary of State for Energy Kwasi Kwarteng told a parliamentary committee that when it came to deciding which heating technologies should get the most support, scenarios out to 2050 were unclear. He added that no technology would be a "silver bullet." A future consultation this year will "inform [the UK's] 2026 strategic decision point on the future of hydrogen" for use in hot water boilers, prior to a hydrogen heating trial set for 2023.

Potentially, mixing 20% hydrogen in natural gas networks would achieve a 7% reduction in emissions for those networks, according to the government. Several private projects already are looking at injecting hydrogen into UK gas grids. For example, the 2018 HyDeploy project and 2021 Northern Gas Networks trail in Winlaton in northeast England studied the prospect.

But the strategy only deepens the mystery on key subsidies meant to spur low-carbon hydrogen-linked investment.

On the day it was released, the UK called for responses to three consultations related to this issue. It is consulting on environmental standards for hydrogen; a proposed fund for low-carbon hydrogen producers (the Net Zero Hydrogen Fund); and importantly, a hydrogen business model that will determine the level of subsidies for a range of "production technologies and possible end-users."

In the hydrogen business model proposal, the government envisions a subsidy scheme that would be like the one that successfully grew investment in renewable energy. This scheme, called Contracts for Difference (CfD), advances 15-year government contracts agreeing to pay stable revenues.

National blue hydrogen aims unusual in Europe

With the plan, the UK would join nine countries whose hydrogen strategies promise to pay subsidies to grow the fledgling field of low-carbon hydrogen production.

The UK's target of 5 GW of "low-carbon hydrogen production" capacity by 2030, pledged in a November 2020 industrial policy plan, puts it on par with Germany and Italy, but behind France's 6.5 GW.

"Various government supports have already been announced over the last couple of years: in China and the US to name just a few — then there are a lot of EU policies, for example in France and Germany," said Deborah Mann, senior director of IHS Markit's European gas, power and energy futures team.

But the UK's target aims for a mix of green and blue hydrogen in as-yet unknown quantities, in contrast with those of European neighbors Germany and France subsidizing only green hydrogen for now, although low-carbon hydrogen standards in France remain to be confirmed.

"That is something that the UK is doing very purposefully. The UK is well placed to do so because of its geographical proximity to potential storage for CO2," said Mann.

She said the low-carbon hydrogen target could include not only hydrogen made from natural gas or renewable electricity, but also electricity generated by new nuclear power plants.

Both blue and green hydrogen face production barriers. For green hydrogen, the electrolyzer technology is not yet affordable. For blue hydrogen, the carbon capture, use, and storage (CCUS) aspect presents a similar technology and cost hurdle.

Kwarteng has previously said the UK will only be able to produce 1 GW of blue hydrogen if two CCUS plants came online by 2025 as expected, but CCUS projects in other nations, for example, the Mongstad project in Norway, have suffered from crippling delays in the past.

The groundwork for the foray into blue hydrogen was laid by the government with its focus on CCUS subsidies in the years prior to the strategy's release. The UK launched a consultation on business models for CCUS in 2019.

Then in 2020, the government announced the Carbon Capture and Storage Infrastructure Fund (CIF) that saw the allocation of £1 billion to CCUS projects. In March of this year, Prime Minister Boris Johnson announced an Industrial Decarbonization Strategy which promised to establish five low-carbon clusters using technologies like CCUS and hydrogen, and pledged to force industry to make steeper cuts to emissions—about 66% by 2035 and 90% by 2050.

The UK sees itself as having a geological advantage in global hydrogen markets: the ability to store the waste CO2 required in depleted oil and gas fields as well as in salt caverns, IHS Markit analysts say. It shares this geological advantage with the Netherlands.

By subsidizing hydrogen and CCUS players that may use offshore caverns, the UK aims to build its future on its current offshore energy sectors. "Over time … we anticipate that hydrogen will follow in the footsteps of established sectors like offshore wind and oil and gas to be able to put in place bold commitments to UK content," the government said in the strategy.

The UK's CCUS focus would allow a rapid ramp-up of blue hydrogen production, allowing the country to reach critical mass for hydrogen infrastructure, whereas a commercial green hydrogen market could be further away, said Mann.

Blue hydrogen controversy

The inclusion of blue hydrogen in the strategy stoked controversy at the UK Hydrogen and Fuel Cell Association, leading to the resignation of its chair, Chris Jackson.

Jackson called blue hydrogen "at best an expensive distraction, and at worst a lock-in for continued fossil fuel use that guarantees we will fail to meet our decarbonization goals."

But the UK Hydrogen and Fuel Cell Association officially supports the UK's strategy on blue hydrogen, going so far as to say it should target four times more blue and green hydrogen production by 2030.

The association lamented that the hydrogen business model had not yet been published and said investment decisions had been delayed.

Oil and gas majors like BP, Eni, Shell, and Equinor have published various plans for involvement in fossil fuel-origin blue hydrogen schemes in the UK.

Trade association Energy UK, representing companies such as Shell and BP as well as utilities like British Gas, praised the strategy's support for "hydrogen and CCUS, both of which can deliver new skilled jobs" in oil and natural gas sector hubs, for example around Scottish North Sea ports.

The chief executive at standards organization Microgeneration Certification Scheme Service Company, Ian Rippin, opposed the strategy's proposed use of hydrogen for heating but not transport, shipping, heavy industry, and aviation. "Using green hydrogen to heat our homes is up to five times more expensive than current natural gas prices, and up to seven times less efficient than using renewable energy to power a heat pump," said Rippin.

On the other hand, a manufacturer of electrolyzers used for green hydrogen production supported the plan. "The industry needs a policy landscape in place that identifies priorities and support mechanisms for rolling out green hydrogen production in the UK and that's just what today's Hydrogen Strategy sets out," said the CEO of British electrolyzer manufacturer ITM Power Graham Cooley.

The UK's Renewable Energy Association noted that the strategy should be backed by standard methodology, such as those now under consultation, to define when hydrogen is low carbon.

And the UK government acknowledged a need to ultimately switch natural gas-sourced blue hydrogen supplies to renewable electricity-sourced, green hydrogen to reach net zero.

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