UK Government’s Advisers Urge It to Back Hydrogen Economy in Stimulus Plans

The U.K. government’s official climate change advisory body is calling for fast-tracking investment in early-stage hydrogen infrastructure, as well as prioritizing carbon capture and storage and EV charging infrastructure, as immediate responses to the coronavirus outbreak.

The Committee on Climate Change’s (CCC) annual report (PDF) also covers reforestation and better infrastructure for bicycle users. But its energy infrastructure recommendations come with a greater sense of urgency, given their potential value in combating the country’s dual economic and environmental crises. 

“The U.K. is facing its biggest economic shock for a generation,” said Lord Deben, chairman of CCC. “Meanwhile, the global crisis of climate change is accelerating. “We have a once-in-a-lifetime opportunity to address these urgent challenges together; it’s there for the taking. The steps that the U.K. takes to rebuild from the COVID-19 pandemic can accelerate the transition to a successful and low-carbon economy and improve our climate resilience. Choices that lock in emissions or climate risks are unacceptable.”

The CCC wants the government to allocate funds as quickly as possible for hydrogen demonstration projects and to help seed industrial-scale deployments. The report says it is time that policy support reached “beyond renewable power.”

It urges the development of a comprehensive national hydrogen strategy within the next 12 months to map out progress for the next decade. This will likely cover power, transport, industry and buildings.

A long-overdue draft energy bill could incorporate some of these measures to kick-start their path to legislation.

Support, not subsidies

A new study by Aurora Energy Research, released Wednesday, claims that hydrogen generated from renewable energy and natural gas could provide more than 45 percent of the U.K.’s final energy demand by 2050. Aurora also calls for the U.K. government to support the scaling up of the industry through post-COVID-19 stimulus.  

Evangelos Gazis, lead researcher on the study, told GTM by email that this can be done without direct subsidies. That said, a host of coordinated policy support, right across the hydrogen supply chain will be needed.

“We expect early hydrogen uptake to be driven by certain niche markets in transport and industry, which will not include public support. In the longer term, we expect carbon pricing to drive a fuel switch to hydrogen in industry and power, again with no explicit public subsidy. This will also be driven by initiatives that will accelerate the development of industrial clusters,” he said.

Aurora’s projections are based on a combination of "blue" and "green" hydrogen, derived from natural gas and renewable electricity, respectively.

Those early-stage industrial clusters are already building consortia of interested parties in the private sector. Aurora and the CCC differ on whether public funds will be needed to help drive down costs in the very earliest stages, just as they’ve already done for wind and solar power generation. They agree that supporting commercial-scale demos and urgently developing a policy environment that supports investment will be essential. Action to reduce carbon must be doubled if an interim 2030 target is to be met.

The report estimates that using surplus low-carbon electricity to generate green hydrogen could be worth an extra £3 billion ($3.8 billion) a year. This is the result of less curtailment and higher captured power prices, courtesy of electrolyzers creating demand during times when power prices would be low.

The report compares the costs for the U.K. to reach net-zero carbon emissions via “High Hydrogen” and “Electrification” pathways. Its analysis finds relatively little cost difference between the two, with both coming in at around £450 billion.

The hydrogen pathway will require more investment in gas infrastructure, compared to switching heating and industrial processes to electricity. But it also reduces power grid investments and capacity payments compared to the electrification pathway, especially in winter when hydrogen’s long-duration storage potential comes to the fore.

Subsidies and support coming down the pipe

Calls for public funding support for hydrogen, especially green hydrogen, are gaining momentum. A number of governments have hydrogen strategies in place or are now working on them.

Leaked draft proposals by the European Commission’s directorate of energy showed it is keen to develop an auction-based revenue stabilizing program for green hydrogen projects.

Germany became the latest to join the fray (PDF), providing €7 billion ($8 billion) of funding for the early ramp-up of the industry within its own COVID-19 stimulus package. Germany’s plan permits blue hydrogen as a bridge but considers green hydrogen to be the only acceptable long-term answer. The Netherlands, Portugal, Norway and Japan are among a host of other countries to have released a national hydrogen plan. Calls for the U.K. to follow suit are only likely to grow.

“To meet net-zero [targets] and recover from COVID-19, we need to put a rocket under our economy, and that rocket has to run on clean energy,” Rebecca Williams, head of policy at the trade body RenewableUK, said in a statement. “The CCC is clear about the huge opportunities right across the renewable energy sector and if we can invest early in emerging technologies like floating offshore wind and renewable hydrogen, the U.K. can build world-leading industries.”

Plans for European and U.K. industrial clusters centered on producing and storing the hydrogen are gathering steam. Ørsted and Shell both included green hydrogen plans in their most recent Dutch offshore wind tenders.

Shell is eyeing a major green hydrogen development in its domestic market of the Netherlands, where port infrastructure, oil and gas refining and chemical plants coincide with the North Sea’s offshore wind potential.

That company has not been shy about letting its desire for green hydrogen subsidies be known. A strong carbon price will be an important incentive to allow hydrogen projects to pencil out economically, a number of oil and energy majors in the space have said.

Ørsted has a number of other green hydrogen irons in the fire, including an entirely transport-focused project in its home market, Denmark. One planned project in the U.K. uses biomass as the primary source of energy, which the company will couple with carbon capture and storage technology. That will make the power and the green hydrogen that it generates emissions-negative.