How can the UK Become a Global Leader in Hydrogen?
A recent White Paper has highlighted that hydrogen is critical in the UK’s transition to net zero and meeting the country’s 2030 ambition and for significant scale-up over the coming years. How can the UK become a global leader in hydrogen?
Following the pandemic, it was essential that the UK focused on the opportunity to ‘build back better’ and from this came the launch of the government’s Ten Point Plan to boost investment in energy and low-carbon technologies, including hydrogen.
Westwood Global Energy Group’s White Paper has explored the key factors priming hydrogen for success in the UK market. It outlined three key factors for hydrogen success in the UK market – government support, cost reductions, and supply and demand.
How can green hydrogen become competitive with natural gas?
To meet its 10 GW target, the UK Government introduced two important measures in its Hydrogen Strategy, the Net Zero Hydrogen Fund (NZHF) and the Hydrogen Business Model (HBM), to incentivise the production and use of low-carbon hydrogen.
The NZHF seeks to de-risk investment in low-carbon hydrogen production and reduce lifetime costs. It provides £240 million in grant funding to be used towards the upfront costs of development and capital expenditures.
While the HBM provides ongoing revenue support to the developer through a Contracts for Difference (CfD) mechanism, which has previously proved successful in supporting the development of large-scale renewable projects.
To support 250 MW of green hydrogen production being operational by the end of 2025, the first joint allocation ‘2022 HBM/NZHF Electrolytic Allocation Round’ ran between July and October 2022. A shortlist of successful projects is due to be announced in early 2023, with a second round planned for summer 2023 with contracts awarded in 2024.
Government support is aimed at addressing the high cost of hydrogen relative to other alternatives. This is needed due to the increase in energy prices because of Russia’s invasion of Ukraine.
This temporarily made green hydrogen competitive, however, natural gas prices have since significantly declined back down to pre-invasion levels, once again reducing green hydrogen’s competitiveness.
Until hydrogen can be scaled, and costs are declined, government support will be important in making low-carbon blue and green hydrogen competitive.
Hydrogen’s role in creating a more secure energy system
Currently, the UK is taking a twin-track approach, supporting both blue and green hydrogen production, seeing the advantages of both.
The White Paper revealed that Shell is the largest participant in the development of blue hydrogen projects in the UK: “Vertex Hydrogen (a joint venture between Essar and Progressive Energy) is developing 3.3 GW through its Hynet project.”
All the proposed blue hydrogen projects in the UK are coastal, which provides easier access to the necessary natural gas supply and carbon storage.
The largest green hydrogen project in the UK is Gigastack, the UK’s flagship green hydrogen project led by Orsted, Phillips 66, ITM Power and Element Energy.
The 571 MW project, located in South Killingholme, is aiming to demonstrate the deployment of large-scale green hydrogen production powered by renewable electricity from Hornsea Two – the world’s largest offshore wind farm.
Phillips 66 will offtake the hydrogen as fuel gas for its Humber refinery and ITM Power will supply a 5 MW electrolyser for the demonstration, which aims to scale up to a 100 MW electrolyser system.
Continuing, the White Paper explained that as the UK energy mix and infrastructure evolves, the storage of hydrogen can play an important role in creating a more secure energy system: “It can balance the intermittency of renewables and create value from power that would otherwise have been curtailed.”
How can the UK ensure the right infrastructure is in place?
The UK’s geological formations are a significant advantage as they can be used for the storage of hydrogen. There are two main types of this in the UK – Salt caverns and depleted oil and gas reservoirs.
Due to the advantages of salt caverns over depleted oil and gas reservoirs, the demand for them for hydrogen storage is expected to take off ahead of reservoirs, although lead-time development for both options can take 5-10 years, according to IEA.
Home to one of four salt caverns globally currently being used for hydrogen storage, the UK has a site in Teesside. This site has the capacity for 25 GWh. However, there is potential to convert more salt caverns currently used for natural gas into hydrogen storage.
Another way in which the UK is becoming a global leader in hydrogen is by ensuring the right infrastructure is in place. Hydrogen is difficult to transport over long distances as it requires costly compression or liquefaction, in the past hydrogen has been consumed on the site where it has been produced.
To help reduce costs, hydrogen projects are being constructed close to the demand centre. This is the easiest way to connect supply with demand as there is often a complex, established pipeline system linking many businesses that are near one other.
The White Paper expressed why an established pipeline system is crucial: “Pipelines, especially repurposed, offer the cheapest method of transport in the immediate term.”
Repurposing existing gas pipelines for hydrogen is up to five times more cost-effective than building from new. (National Gas, 2022).
Eventually, demand will move further away from the supply, resulting in the need for a more extensive pipeline distribution network. Project Union is one of the projects in the UK aimed at achieving this.
Project Union is the largest hydrogen pipeline project planned in the UK, spearheaded by National Gas. The project aims to create a hydrogen backbone for the UK by repurposing 2,000 km of pipeline (25 per cent of the UK’s natural gas transmission pipeline) to hydrogen.
It will be done in phases starting from 2027, with the initial backbone to be completed by the early 2030s and will initially link the industrial East Coast clusters of Teesside and Humber.
As the White Paper highlights, the UK can become a leader in the creation of a highly competitive and successful hydrogen economy. Although risks and challenges are still prominent, these can be mitigated to secure investment and government policies will be crucial.
