In November 2020, the Government published a 10 point plan, laying the foundations to help reach its target of achieving net zero carbon emissions by 2050. It is their vision to build back better, support green jobs and accelerate towards a net zero Britain.

There are, according to the publication, 10 enabling policy areas that need to be addressed to help reach this overarching target:

  1. Advancing offshore wind
  2. Driving the growth of low carbon hydrogen
  3. Delivering new and advanced nuclear power
  4. Accelerating the shift to zero emission vehicles
  5. Green public transport, cycling and walking
  6. Jet zero and green ships
  7. Greener buildings
  8. Investing in carbon capture, usage and storage
  9. Protecting our natural environment
  10. Green finance and innovation

In August 2021, the UK Government followed up the 10 point plan with its UK Hydrogen Strategy. This strategy forms the backbone of the transformation to hydrogen power, with the UK aiming to produce 5GW of low carbon hydrogen by 2030.


What is Hydrogen?

There are predominantly three types of hydrogen – Green, Grey and Blue.

  • Green hydrogen: created through electrolysis of water (where the electricity is obtained from renewable sources), green hydrogen is the cleanest variety as it has substantially no associated carbon footprint
  • Grey hydrogen: whilst cheapest to manufacture currently, is made using fossil fuels which emit large volumes of CO2 into the air as they combust through steam methane reformation. Currently, grey hydrogen accounts for roughly 95% of the hydrogen produced globally[1]
  • Blue hydrogen: is made in the same way as grey hydrogen, but Carbon Capture, Usage and Storage (CCUS) technologies prevent CO2 being released, enabling the captured carbon to be stored underground in old salt caverns and disused oil fields[2]

It is relatively early days and the cost to produce green hydrogen at scale is significantly more than blue or grey hydrogen. However, with demand increasing over the coming decades, it will become competitive. The graph below shows the relative cost per kg of each type of Hydrogen:

There are a number of blue hydrogen projects in the UK and all of these projects are setting a high bar in terms of carbon capture with over 95% CO2 removal from the process considered a minimum[3]. These CCUS technologies will help build demand and reduce carbon emissions in the near term. Blue hydrogen will play a crucial transitional role to low carbon energy but as blue hydrogen manufacturing equipment (which can be applied to existing hydrogen creation processes) is distinct from green hydrogen, manufacturers have the difficult decision on whether to turn to blue or green hydrogen.

By 2050, green hydrogen costs could fall by around 80% from today in most modelled markets[4]. This is due to increased demand, greater efficiency through improved electrolysis technologies, reduced electricity supply costs and improved operating lifetime[5]. However, in the short term, high R&D costs and limited demand is creating some uncertainty about the investment case for hydrogen and its potential returns. However, in the long-awaited Hydrogen Strategy proposals were set out to build the sector using a contracts for difference (CfD)[6] support mechanism. CfDs have a track record of facilitating low carbon tech innovation and incentivising investment and, if perused, could help harmonise with other renewable energy CfDs already in place.


Applications for Hydrogen

Hydrogen has a number of applications. It is already widely used in the petrochemical industry but has further anticipated uses in grid blending, power and transport[7]. Within industry, hydrogen is used for fertilisers and can also be used as a feedstock for high heat industry such as steel and glass production.

Hydrogen also has great potential for domestic heating. Blending up to 20% hydrogen into the gas grid with existing natural gas could save around 6 million tonnes of carbon dioxide emissions every year, the equivalent of taking 2.5 million cars off the road[8]. Power can utilise hydrogen in two ways: ‘grid balancing’, which uses stored hydrogen to convert to electricity when demand is high and ‘curtailment’, which uses wasted energy from wind turbines and solar power that isn’t compatible with the grid and converts it to hydrogen.[9]

In order to meet the carbon budget milestones, the Committee on Climate Change shows where sectors need to be by 2050[10]. This is outlined in the below graph, with the vast majority of sectors being neutral or negative by 2050 and hence not showing on the graph:


Hydrogen: Total Cost and Multiple Energy Vectors is Key

The economic and environmental case for hydrogen is most attractive for large industrial sites, primarily because of their scale. The main industrials are feedstock[11] (eg ceramics, steelworks, glass works etc), hydrogen (eg ammonia/fertiliser plants), power generation and oil refinery sites. On a smaller scale, the case for hydrogen can also be made if multiple energy vectors can be utilised. This reduces the ongoing operational costs and makes the initial investment more financially viable.

Energy vectors are energy forms derived from natural resources which are converted to enable transportation, storage and use of a quantity of energy in another location and time[12]. Integrating renewable energy and energy vectors for use in everyday life is of critical importance and hydrogen, as a clean, stable energy vector, has great potential to help us transition to a greener society.

Although hydrogen is cheaper to store than electricity in batteries[13], the current supply of hydrogen is almost exclusively grey hydrogen. As such, there is little benefit in storing it until it is carbon neutral. In order to encourage storage and excessive hydrogen supply, policies need to be implemented to help incentivise the creation of both green and blue hydrogen.

Ultimately, the business case for hydrogen improves as its use across multiple applications grows. Whether this be through hydrogen vehicle refuelling or heating and grid balancing, the more uses there are in one place the more that usage and value for money will be maximised. If there was to be a priority chain for hydrogen usage at a hydrogen hub, the value chain might look as follows:

  1. Refuelling vehicles
  2. Fuel/feedstock for industrial processes
  3. Domestic heating
  4. Electricity storage/grid balancing

Hydrogen: The Key Challenges

Other than the up-front costs associated with hydrogen creation, the high cost of renewable energy, and also the supply/demand factors, there are a number of strategic challenges when it comes to developing the UK hydrogen industry:

1) Regulation: Regulation currently only allows 0.1% of hydrogen in the gas grid. However, Keele University and Cadent[14] recently demonstrated that mixing domestic heating gas with 20% hydrogen is possible[15]. The 20% hydrogen limit is due to the requirement to change domestic appliances and pipework for mixes higher than 20%.

2) Refuelling infrastructure: Much like electric vehicle charging, the ability to refuel hydrogen vehicles requires hydrogen refuelling stations to be built in numerous locations around the UK. Currently there are only nine refuelling stations[16], making hydrogen vehicle ownership virtually unviable and with huge costs of ownership.

3) Renewable electricity: To power the hydrogen conversion system, renewable electricity sources need to be available and economical so that they can provide enough electricity to generate the hydrogen and keep overall operational expenditure down. This is one of the biggest challenges in the case for hydrogen as renewable energy is still relatively expensive compared to alternative fuels.

Put simply, the greater the uptake of hydrogen, the greater the case for hydrogen. With solutions available and industrial hubs underway, hydrogen is becoming increasingly accessible and its usage will help future-proof society and assist the UK in reaching its carbon targets.


Hydrogen: Where to Locate Production Facilities

The UK is proposing hydrogen production across the nation, utilising both blue hydrogen (CCUS enabled) and green hydrogen (electrolytic) production facilities. The main users of hydrogen currently are in the petrochemical industry and have therefore become the natural focal point for hydrogen technology.

In the Government’s recently published UK Hydrogen Strategy[17], the proposed production projects are depicted below:

Source: Department for Business, Energy & Industrial Strategy

Blue hydrogen facilities are well suited to industrial sites due to the huge energy consumption required in, for example, high heat manufacturing. Any excess hydrogen production opens additional opportunities for hydrogen fuelling hubs. These hubs will be used primarily to fuel hydrogen trains, vehicles and domestic heating. With production of hydrogen on site, they also benefit from reduced distribution costs due to the transport hub and existing infrastructure, although they will have increased costs due to CO2 transportation to empty oil caverns.

Proposed green hydrogen production facilities ideally need to be located near renewable energy sources. A trial project, funded by Fuel Cells and Hydrogen Joint Undertaking (FCH JU), is currently underway in the Orkney Islands called ‘BIG HIT’. The project is particularly viable due to readily available sources of renewable energy nearby along with its insular environment. BIG HIT primarily uses the hydrogen it produces for use in HGVs, ferries, household heating and energy storage from wind turbine curtailment. In the Orkney Islands this curtailment is as high as 30%, so hydrogen enables far greater efficiency of energy creation.[18]

Source: BIG HIT


Conclusion

With the Government strategy now released, the UK has a huge but exciting challenge to scale up both demand and supply of hydrogen. It is one of the 10 methods to reach net zero carbon and can be applied to a range of industries such as transport, petrochemical/industrial, domestic heating and power.

Although hydrogen production has high up-front costs, by 2050 producing green hydrogen is forecast to be more competitive and comparable (if not lower) in cost than grey hydrogen and blue hydrogen, but with far greater environmental benefits. We are at the high part of the cost curve now, but policy-supported investment will help quickly move us to the low part. With these low renewable hydrogen costs, the energy map could be completely re-written.

Gardiner & Theobald is advising both new and existing clients that are operating in the hydrogen sector. As the UK ramps up its hydrogen production capacity, new manufacturing sites and facilities will be required. G&T can provide a range of services in this space relating to both the manufacture and deployment of hydrogen to customers.

For more information about hydrogen in the UK and how G&T can help, contact Emily Wiltshire at e.wiltshire@gardiner.com.


[1] https://www.certifhy.ca/Green%...

[2] Department for Business, Energy and Industrial Strategy, 2021

[3] http://www.ukhfca.co.uk/2021/0...

[4] https://fuelcellsworks.com/new...

[5] International Renewable Energy Agency (IRENA). (2020). Green hydrogen cost reduction; scaling up electrolysers to meet the 1.5 degrees celcius climate goal. Abu Dhabi: IRENA.

[6] A Contract for Difference (CFD) is a private law contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC), a government-owned company. A generator party to a CFD is paid the difference between the ‘strike price’ – a price for electricity reflecting the cost of investing in a particular low carbon technology – and the ‘reference price’– a measure of the average market price for electricity in the GB market. It gives greater certainty and stability of revenues to electricity generators by reducing their exposure to volatile wholesale prices, whilst protecting consumers from paying for higher support costs when electricity prices are high. Electricity Market Reform: Contracts for Difference - GOV.UK (www.gov.uk)

[7] Department for Business, Energy and Industrial Strategy, 2021

[8] https://www.energynetworks.org...

[9] Renewable power-to-hydrogen p9 Renewable Power-to-Hydrogen – Innovation Landscape Brief (irena.org)

[10] Committee on Climate Change. (2020). Progress report to parliament 2020. CCC.

[11] A feedstock is any renewable, biological material that can be used directly as fuel, or converted to another form of fuel or energy.

[12] KBR. (2021, May 28). What are energy vectors. Retrieved from What are energy vectors: https://www.kbr.com/sites/defa...

[13] Renewable hydrogen ‘already cost competitive’, say researchers (carbonbrief.org)

[14] HyDeploy hydrogren blend trial hailed a success | Cadent (cadentgas.com)

[15] Hydeploy. (2021, May 28). Completion of the HyDeploy Trial at Keele University. Retrieved from Hydeploy: https://hydeploy.co.uk/about/n...

[16] Stations | UK H2Mobility

[17] https://www.gov.uk/government/...

[18] https://www.bighit.eu/

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