25 April 2022

It’s easy being green with a hydrogen supply chain

By Will Bennett

Green hydrogen – it’s the missing piece in our energy puzzle that can help us achieve economy wide decarbonisation and secure our energy independence, whilst keeping the lights on. 

The Government’s recently released British Energy Security Strategy (BESS) included a doubling of the 2030 hydrogen production target from 5GW to 10GW, a welcome step in the right direction, but more can be done to incentivise a majority ‘green hydrogen’ supply chain. Green hydrogen is made using renewable electricity and produces no emissions in the process. However, as it stands some 95% of the world’s hydrogen is not green but ‘grey’ hydrogen produced from natural gas, which generates considerable CO2 emissions. 

The Government has taken a somewhat colourblind approach, specifying that only half of the new 10GW target will be made up of green hydrogen. This decision is likely in part to appease fossil fuel interests, but it recognises that it is not possible to transition from grey to green hydrogen overnight. From now on we must focus on investments and policies that promote green hydrogen supply and demand, not only because it is emissions-free, but also because it faces lower technical challenges (no carbon capture is needed) and offers more co-benefits than fossil fuel-derived grey hydrogen. For example, not being exposed to volatility in the price of gas and oil, a vulnerability that the Russian invasion of Ukraine has shone a harsh light on.

The Government rightly recognises increasing renewable generation as the solution to our long-term energy security, and being able to capture and store weather-dependent renewables is key to realising the ambitious targets we have set in the BESS for offshore wind and nuclear. Hydrogen will allow us to store excess energy instead of wasting it and would work hand-in-glove with our significant clean energy expansion goals.

If we are to expand offshore wind with the aim of it powering every home in Britain by 2030, we will need significant amounts of energy storage. In 2021, approximately 3.7TWh of wind power was ‘curtailed’ or wasted because it was unable to be consumed at the time of generation. The value of this wind power wastage is forecast to more than double by 2030 under a 40GW target and reach costs of up to £1.18bn per year. With the offshore wind target now increased to 50GW, green hydrogen can be a relatively low-cost solution to capture this surplus energy and reduce wastage. Renewable electricity can instead be stored in the form of hydrogen, and transported to where it is needed or converted back to electricity later when needed. 

Similarly, with Britain’s nuclear power capacity now set to quadruple under the BESS, having grid-connected electrolysers can allow nuclear power plants to maintain a steady power output without having to ‘load follow’ (whereby output is reduced to accommodate an influx of renewables). The excess nuclear energy can instead be converted to ‘pink’ hydrogen instead. A September 2021 study by Aurora Energy Research, a UK-based analyst firm, found net zero emissions pathways that used renewables and nuclear to produce hydrogen could cut total system spending by up to 9%.

Of course, being a relatively new technology, hurdles such as affordability need government support to be overcome. Pleasingly, last week’s BESS included a ‘Hydrogen Business Model’, which will be the world’s first Contracts for Different (CfD) scheme for hydrogen production and hopefully work to stimulate supply to the market in the same way it did for the phenomenally successful offshore wind scheme. But more innovation is needed.

The adoption of a Carbon Contracts for Difference (CCfDs) scheme, such as that being piloted as part of Germany’s Hydrogen Strategy, could kick-start a hydrogen supply chain here in the UK. It would work by guaranteeing producers of low carbon products (such as green steel, or ammonia) a fixed carbon price to offset the extra cost difference of using green hydrogen in the manufacturing process. CCfDs could therefore be an important instrument to help green hydrogen compete with conventional technologies by creating certainty for private investors and a stable demand. 

A CCfD scheme would work to unlock a new clean and green British manufacturing sector that could supply the world with low carbon products like ‘green steel’, ammonia and e-fuels for infrastructure projects and heavy transport, all while creating jobs and growing the economy. New policies such as setting green steel procurement quotas in infrastructure projects or hydrogen mixing quotas for shipping and aviation fuels would also work to stimulate demand for these green hydrogen products.

With an innovative policy approach the UK can realise the significant benefits from a green hydrogen supply chain and accelerate our transition to a net zero carbon economy in a cost-effective, secure and sustainable way.

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Will Bennett is a Master of Public Policy candidate at the University of Cambridge

Columns are the author's own opinion and do not necessarily reflect the views of CapX.