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ANALYSIS: U.K.’s Much-Awaited Hydrogen Strategy May Unlock GBP4 Billion Investment

Posted by Cuckoo James on Oct 1, 2021 11:00:00 AM

The U.K. government aims to attract private investment of 4 billion British pounds sterling ($5.51 billion) in blue and green hydrogen production, distribution, storage and consumption, primarily in the nation's industrial heartlands, via plans outlined in its much-awaited and much-delayed Hydrogen Strategy.

The crux of the blueprint is to "learn by doing" during the embryonic 2020s, with potential for rapid expansion post-2030.

In 2020, Prime Minister Boris Johnson announced the ambition to enable 5 gigawatts (GW) of low-carbon hydrogen generation capacity by 2030, but Whitehall had delayed publishing a strategy to accomplish this because of disputes surrounding the nascent technology among industry stakeholders.

After committing an initial sum of 500 million pounds to the hydrogen sector via 2020’s Ten Point Plan, the newly-published Hydrogen Strategy now estimates the sector will create 9,000 jobs, be worth 900 million pounds and attract 4 billion pounds of private investment by 2030 in its best-case scenario.

"Before hydrogen for heating can be considered as a potential option to decarbonise heat in buildings, we need to generate further evidence on the costs, benefits, safety, feasibility, air quality impacts and consumer experience of using low carbon hydrogen for heating relative to other more established heat decarbonisation technologies" -- Hydrogen Strategy

Key milestones for the Strategy

Key milestones to be achieved under the "2020s Roadmap" of the Hydrogen Strategy, which was developed in collaboration with the Hydrogen Advisory Council, include:

  • Phase 1 carbon capture, utilization and storage (CCUS) cluster, with a decision in 2021
  • Finalise low carbon hydrogen standard by 2022, to ensure production is sufficiently low carbon
  • Finalise business model by 2022, enabling first contracts to be allocated from Q1 2023
  • Launch Net Zero Hydrogen Fund (NZHF) in early 2022
  • Heat neighbourhood trial in 2023
  • Value for money case for blending by Q3 2022
  • Aiming for 1GW production capacity by 2025
  • At least 2 carbon capture, utilization and storage (CCUS) clusters by 2025
  • Heat village trial in 2025
  • Hydrogen heating decision by 2026
  • Decision on heavy goods vehicles (HGVs) by the mid-2020s
  • Ambition for 5GW production capacity by 2030
  • 4 CCUS clusters by 2030
  • Potential pilot hydrogen town by 2030
  • Ambition for 40GW offshore wind by 2030
Decarbonizing gray hydrogen

The 10-27 terawatt hour (TWh) hydrogen currently being produced in the U.K. largely utilizes fossil fuels without CCUS that would lower emissions. Most of the U.K.'s production occurs in chemical plants and refineries. One of the key outcomes of the Hydrogen Strategy therefore is the decarbonization of this so-called gray hydrogen.

Notably, the Hydrogen Strategy thereby commits the U.K. to actively produce blue hydrogen using natural gas and CCUS. The government aims to establish CCUS in four industrial clusters by 2030 at the latest, supporting its ambition to capture 10 million metric tons of CO2/year and funded by the 1 billion-pound Carbon Capture and Storage Infrastructure Fund announced in 2020.

"This approach sets the U.K. apart, giving us a competitive advantage and building on our strengths to ensure we can be confident in delivering our 2030 ambition and beyond," the government outlines in the Hydrogen Strategy.

"However, costs of electrolytic hydrogen are expected to decrease considerably over time, and in some cases could become cost-competitive with CCUS-enabled methane reformation as early as 2025," it says.

Blue hydrogen is controversial among environmental groups, but some analysts consider it well suited to a nation with a ready natural gas supply from the North Sea.

Equally, a key theme of the Hydrogen Strategy is the government's determination to further consult the industry on various first steps, including on designing a low-carbon hydrogen standard and finalizing a hydrogen business model by 2022 to kickstart investment.

As part of the Hydrogen Strategy, the U.K. government has launched multiple consultations, especially on reducing costs for what remains an expensive gas to produce, including in its plan to carve out a 240 million-pound Net-Zero Hydrogen Fund.

The Department for Business, Energy and Industrial Strategy (BEIS) will select new production plants that will benefit from the earmarked funds after a period of consultation.

The BEIS model suggests that around 20%-35% of the U.K.'s energy needs, or 250-460 TWh of hydrogen, would need to be provided by the country's hydrogen economy by the middle of the 21st century

The government also anticipates its recently launched 60 million-pound Low Carbon Hydrogen Supply 2 Competition will develop novel hydrogen supply solutions that will help scale up commercial production.

Regarding the crucial issue of hydrogen storage and distribution, the government hopes the 68 million-pound Longer Duration Energy Storage Demonstration competition will help deliver cost-effective solutions for the development of hydrogen network and storage infrastructure.

The government will also consult with industry on the feasibility of mixing 20% of hydrogen into the existing gas supply and restructuring the existing U.K. National Grid pipelines for hydrogen transmission.

U.K. hydrogen demand

On the demand side, the BEIS model suggests that around 20%-35% of the U.K.'s energy needs, or 250-460TWh of hydrogen, would need to be provided by the country's hydrogen economy by the middle of the 21st century. This could drive up the sector's worth to 13 billion pounds and help generate up to 100,000 jobs.

Demand-side interventions will include working with industry stakeholders to develop appropriate market frameworks, the government said.

The Hydrogen Strategy highlights the role played by the recently launched Phase 2 of the 315 million-pound Industrial Energy Transformation Fund and the 55 million-pound Industrial Fuel Switching 2 competition in 2021 to shift industrial use to hydrogen.

Later in 2021, the U.K. government will launch a number of additional funds to support an industry switch to hydrogen and other low carbon fuels, including via a new 55 million-pound Industrial Fuel Switching 2 Competition and a new 40 million-pound Red Diesel Replacement Competition.

The ultimate share of hydrogen deployment, nonetheless, will depend on the cost of hydrogen technologies relative to alternatives including electrification, biomass and carbon capture, as per the model used in the U.K. Hydrogen Strategy.

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