Guy Doyle, chief energy economist
Building a hydrogen-based energy economy requires changes across the sector – from power generation to kitchen appliances. To initiate the transition, drive investment and sustain momentum, governments must co-ordinate policies spanning industry and society, and potentially transcending national borders.
Put the right policies in place and change follows. Policy measures have played a key part in expanding renewable power generation. They include carbon taxes, renewables obligation certificates, contracts for difference and feed-in tariffs (ROC, CFD, FiT). In the transport sector, cash support and tax breaks on new electric vehicles (albeit generally small) are playing a part in stimulating a switch to electric vehicles. The ongoing diesel NOx emissions scandal and bans on internal combustion engines in Norway (2020), Germany (2030) and France/UK (2040) will drive the transition faster.
Similar instruments can be used to advance the hydrogen economy. The most effective option – taxing oil and gas at the point of production and import – has not been considered feasible, because it would disadvantage European producers and worsen trade deficits. Instead, the emphasis has been on large point-source emitters, mainly in power generation and industry. They have in turn passed on costs to consumers.
Confusion at the top
Spring 2019 marked a turning point in social and political recognition of the need for urgent and thorough-going decarbonisation of the UK economy. Acknowledging that the world is in the grips of a ‘climate emergency’, signs are that the UK Government will commit to an accelerated reduction of national greenhouse gas emissions, with the object of cutting net emissions to zero by 2050. Detailed policy measures are urgently needed to enable the development of a zero carbon energy system.
There is also a part to be played by industrial policy, which has recently been used in the UK to help create a major manufacturing and supply chain for the offshore wind sector, underpinned by a hefty order book that stretches out to 2030 and beyond.
A secure future pipeline needs to be similarly created for hydrogen – which is a potentially key enabler of a wholly renewables-based energy economy. Germany and Japan are already leading the way on hydrogen as a result of their conducive industrial policies.
In terms of industrial policy, the EC recommends developing a power-to-gas sector, which should bring down costs, reduce curtailed renewables and link the gas and power markets (sector coupling). Central production of hydrogen from electrolysis and decentralised solutions providing stability to the grid should be incentivised. The EC is keen to get things moving. European network operators must provide an interlinked gas and power model as part of their 10-year network development plan, rather than separately as in the past (Brexit makes it unclear whether this will apply in the UK).
They will also have to assess where existing infrastructure could be used most productively in a possible future joint system, including the storage of hydrogen from ‘surplus’ renewable power, where this exists in the gas pipeline and storage network.
However, despite the ambitious plans of the EC, its powers are limited. It has so far not even been able to change current EU fuel tax rules, which apply tax according to volume, not energy content – which discriminates against hydrogen in transport. The EC tried in 2011 to get national governments to tax fuels based on their energy and carbon content but failed to get the unanimous approval needed.
China recently extended electric vehicle subsidies to hydrogen fuel cell electric vehicles. Similar policies here could play an important role in swaying consumer choices, as well as industry decision-making.
A warm feeling
Energy for heating is still dominated by natural gas and attempts at carbon reduction in the UK are limited to the Renewable Heating Incentive, low carbon district heating expansion (mostly CHP), along with incentives for biogas. Policy direction had been towards encouraging electrification, including heat pumps. Hydrogen should figure as a prominent contributor thanks to its ability to displace natural gas.
The UK government has pledged to act on the CCC heating system recommendations, which include using hydrogen in heating and cooking, and should take in the EC policy recommendations too. It has already acted on earlier CCC advice and announced a ban on new natural gas boilers from 2025. This has boosted the testing of appliances that can use a methane-hydrogen mix, which need to steadily move up the scale towards 100% hydrogen.
The CCC and Energy Technologies Institute (a public-private partnership between global energy and engineering companies and the government to pursue low carbon solutions) are working on an assumption that the gas grid will be converted from natural gas to biomethane/hydrogen well before mid-century. An industry workgroup of consultants, energy firms and appliance manufacturers called Hy4Heat, sponsored by the Department for Business, Energy & Industrial Strategy, is exploring the practical challenges and requirements for creating a 100% hydrogen gas supply system. Policy, backed by the strongest government commitment, are required to achieve the transition.
Markets and carbon pricing
Markets can also be used to incentivise hydrogen adoption. Currently, winter power and gas prices are already higher than summer, which incentivises natural gas storage. The same seasonal differentials could encourage inter-seasonal storage of summer solar and winter wind in the form of hydrogen for power generation and heating. If carbon prices are sufficiently high, the summer/winter price differential would widen too, because it would cost more to use natural gas during winter periods with low wind, providing an advantage for hydrogen. Similarly, during the day, power prices tend to be highest at times of peak demand in the early evening, which could incentivise the production and storage of hydrogen (instead of natural gas) overnight or in the morning.
However, it is unlikely that market mechanisms and carbon pricing alone will be enough to achieve the desired results. Governments will also need to follow the EC/CCC recommendations, and even directly subsidise key projects that have the potential to get the ball rolling, such as the UK’s HyNet project to supply industry and 2M customers in the northwest (including CCS for storing CO2 from steam methane/reforming), or a major electrolysis project.
For hydrogen to be cost-effective, especially in transportation, regulations must ensure that all the carbon emissions associated with the manufacturing/production process are accounted for. Such ‘embodied’ emissions include those from manufacturing, mining of materials and end-of-life cycle disposal.
The quantity and cost of embodied carbon makes hydrogen cell vehicles competitive against electric vehicles, due to the high carbon content of the batteries. Batteries also are likely to face growing resistance due to environmental concerns related to both the mining of raw materials for manufacture, and disposal. A carbon tax at the point of production and import would capture all these costs, but that appears a distant prospect, as current subsidies/grants do not vary by product.
Read 'Under 2C: Mission possible’ for more on decarbonisation timelines, challenges and opportunities.