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Britain needs to develop a clear policy framework for hydrogen

Britain needs to develop a clear policy framework for hydrogen

Britain needs to develop a clear policy framework to support the UK Government’s target of 5GW of low-carbon hydrogen by 2030, the Westminster Energy Environment & Transport Forum’s Growing the hydrogen market in the UK virtual event on Wednesday (May 26) heard.

Chris Jackson, Chair of the UK Hydrogen and Fuel Cell Association (UK HFCA), said any policy developed has to have a social licence behind it and also needs to clear, simple and actionable in a short timeframe.

“We are trying to achieve something that hasn’t been done in economic history, in a time frame that we’ve not done it before. Policy in that context therefore has to be simple so that it can be understood in a very complex sector,” Jackson said.

Highlighting the scale of the challenge, Jackson said, “I think in energy people sometimes lose sight of quite how dynamic and significant what we’re trying to do is.

“If we were to just decarbonise the current global hydrogen economy, today we produce 70 million tonnes of hydrogen a year, it’s a $135bn market that emits the same level of CO2 as the UK and Indonesia combined.

“Simply decarbonising global hydrogen production already is a massive net zero opportunity for companies to develop new technologies, but also in the fight towards achieving the Paris climate objectives.

“We then talk about pace of transition. We are trying to, in the next 30 years, accelerate an energy transition faster than at any other point of human economic history.

“Electricity went from a new energy source to 20% of our total final energy consumption globally in 120 years.

“If you read reports like the Hydrogen Council’s or the IEA’s, we are now talking about hydrogen going from almost 0% of global final energy consumption today to between 10-20% of global final energy consumption in a period of 30 years. So an extremely fast time period; an extremely clear pressing need for that.”

When it comes to creating policy to enable hydrogen rollout, Jackson said, “We have to look at how we offer the carrot and stick incentives around end users to make the transition to net zero fuels like hydrogen, and hydrogen derived fuels like green ammonia and green methanol.

“We also need to look at ways to incentivise first movers so that they’re not disadvantaged and penalised for being those first movers, so we can get lessons learnt from those people. And there’s organisations that are willing to take a leap, but they’re not then disadvantaged for that.” 

The UK HFCA has been looking at both the blue hydrogen side and the green hydrogen side.

“To give an idea, it’s very unlikely to see a blue hydrogen project under a £1bn of capex,” Jackson said.

“Simply, the scale of the infrastructure required to put the blue hydrogen in place will require those large projects and it’s likely then that only several locations will be appropriate for blue hydrogen.

“We [UK HFCA] are therefore supportive of the idea of a cost-effective approach which the government has been advocating.

“We also see some of the benefits of a sequencing approach, which is something the government has again advocated, which is taking learnings from the first two projects that they’re [UK Government] likely to approve in September or October this year and using those learnings to improve on policy for the next two clusters.

“The key is making sure, however, that that learning and that delay from the first projects to the second does not become a perpetual delay, such that people who are investing time and resources into this are not then tracked and penalised for moving second.”

Jackson said there is the need for a longer term vision, which is where the UK Government’s hydrogen strategy is needed to lay out the case for where it sees the greatest role for hydrogen.

“Is it aviation? Is it road? Is it industrial heating decarbonisation or residential homes? That creates then the framework for investment and people to understand where they should be deploying their capital and their R&D investments towards,” he said.

“And then underpinning that needs to be an initial price support mechanism to get around what I flagged in the beginning, this first mover disadvantage, and to incentivise people to come in, to reduce costs, to scale up and to get that knowledge base that we have so that we can learn from best practise, we can iterate on that and we can avoid paralysis by analysis.”

Strong, clear policy landscape

These thoughts were echoed by Richard Halsey, Director of Capabilities at Energy Systems Catapult, who also called for a strong, policy landscape in the UK during the virtual event.

“Our whole energy system analysis sees the UK possibly using between 200 and 300 terawatt hours of hydrogen per year, which is broadly equivalent to the size of our power sector today.

“Integrating hydrogen to this scale alongside the rapid parallel changes in the rest of the energy system in less than 30 years is incredibly ambitious, and we’re going to need a really strong, clear policy landscape for this to be delivered.”

Energy Systems Catapult’s research supports the need for a twin track approach which the UK Government has also been endorsing.

“Hydrogen clearly has the potential to be used in lots of different sectors. We see quite a lot of uncertainty around its role, particularly in domestic heat in the UK, and this really reinforces the importance of understanding that this [hydrogen] is an option for decarbonising heat and its relationship with other low carbon heating technologies.

“For the next decade, I think we expect hydrogen use to develop very significantly across different parts of the UK, driven by the activity around our industrial clusters.”

Halsey continued, “We need research and innovation to build the evidence base and demonstrate hydrogen as an efficient and effective energy matter, and to better understand its role in decarbonising different sectors before making big ticket policy decisions and choices.

“This should be supported through a clear focal point and creation of effective research innovation ecosystem that aligns production, distribution and end use, and ensures that we take a whole system approach to thinking about how we can integrate hydrogen as part of our wider net zero energy system, and also responds to the emerging global market opportunity for UK innovations.

“We need to introduce suitable mechanisms to manage the uncertainty in areas of decarbonisation that relate to hydrogen, and particularly around network investment, that could recognise the likely local, regional and national variability that we will see.

“In the longer term, we need to look to align effective carbon prices and we need to ensure that there are appropriate decarbonisation drivers and comprehensive strategies for different sectors that collectively work together to deliver our net zero ambitions and commitments.

“And we also need to ensure that we have a clear systems approach to driving coordinated policy and action.”

CfD route for hydrogen

Giving a legal perspective on what’s happening in hydrogen in the UK was Ross Fairley, Partner at Burges Salmon.

“I was once on a panel where someone said, ‘Well, you can tell that this technology is moving and taking off because when we have lawyers involved in conferences, there’s clearly something in it.’ I think it was a rather tongue in cheek disparaging comment, but actually, he’s probably got a point because I think we are probably a very good indication of when things are getting moving, when things are happening,” Fairley said.

Burges Salmon is already advising on hydrogen as the law firm helps organisations achieve and capitalise on net zero.

“We’re supporting the blue hydrogen clusters and the funding arrangements, and also the planning of consenting for those projects,” Fairley said.

“We are supporting consortium agreements with various parties and we’re seeing a lot of early-stage NDAs and memorandums of understanding, and early supply contracts as people begin to realise that this is a sector that is very interesting.

“We’re just seeing the early stages of transport looking at hydrogen and what it means. Transport is slightly behind, particularly in the large transport – trains and in aviation, but we’re seeing a lot of developments in that. But there’s a big investment cycle that needs to be worked into their thinking when it comes to hydrogen.”

The UK Government, at the moment, is looking at business models for the support of hydrogen, and particularly blue hydrogen, Fairley said.

“They’re debating all sorts of business models and the thinking seems to be, although it’s not finalised, that there’s a Contracts for Difference (CfD) route being considered,” he continued.

“That leaves open quite a lot of questions that we need to have to think about because hydrogen is different to electricity. The CfD is viewed as being very successful for electricity, but if you think about hydrogen, it has lots of different uses and lots of different demands, and different models attached to it. So is the CfD the right method to promote all types of hydrogen?

“Green hydrogen is at a slightly different stage to blue hydrogen; it’s a different beast. And maybe the CfD, it’s not the one size fits all, particularly for the early stage green hydrogen projects. We need to have a think about that and provide the right support mechanism to let that flourish.

“If you have a CfD where you’re competing all sorts of technologies to drive down the price, if you do that too early, then you knock out a lot of learnings and a lot of potential technologies and projects that actually could play a very meaningful role.”


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