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Hydrogen is expected to have a substantial role in the decarbonised UK energy system over the coming decades. Total UK consumption of hydrogen is anticipated to increase from 0.7 million tonnes (Mt) in 2020 to between 3-19 Mt by 2050.
The importance of hydrogen to the UK’s future energy system and industry is reflected in government policy. In November 2020, the UK government published its Ten Point Plan for a Green Industrial Revolution,
which proposed a target of having 5GW of low carbon hydrogen production capacity by 2030 (and 1GW by 2025). Building on this, one month later, the Energy White Paper set out the UK’s strategy for the energy transition over the next decade, which amplified the role that the government sees hydrogen playing in its energy mix.
In August 2021, the future role of hydrogen was consolidated in the long-awaited and first ever UK Hydrogen Strategy, which reinforced prior commitments but also set forth a roadmap for how these commitments are intended to be achieved over the 2020s (see further at paragraph 6.1 below).
At present, virtually all hydrogen is used in the UK as an industrial feedstock in the chemical industry and in oil refineries, but there is potential for a shift towards green hydrogen across a range of sectors, most notably in the following areas.
Transport sector use
Whilst batteries have a role to play in decarbonising passenger vehicles, hydrogen (hydrogen fuel cells or similar) is seen as a potential solution for larger road vehicles, marine and rail transport which needs longer range and refuelling times comparable to internal combustion engines. The UK has a number of policy initiatives to investigate the role of hydrogen in transport. For example, the UK government has committed to invest £3 million in 2021 to establish a multi-modal hydrogen transport hub in Tees Valley focusing on hydrogen research and demonstrations.
Furthermore, Network Rail’s cross-industry Traction Decarbonisation Network Strategy considered areas for deployment of overhead electrification, battery and hydrogen trains.
It now plans to showcase its low-carbon train technologies at COP 26 in Glasgow, including a hydrogen-powered HydroFLEX train.
The challenge for rail freight is that current alternatives to overhead electrification, such as hydrogen or batteries, do not have sufficient power on their own to pull heavy freight trains, so bi-modes may be an alternative way to reduce emissions.
Hydrogen use is also popular in the context of decarbonising public road transport, particularly buses. Wrightbus already manufactures zero emission hydrogen buses (which use hydrogen fuel cells) and has committed to introduce 3,000 buses in the UK by 2024. In the Hydrogen Strategy, the government also highlights that up to £120 million of funding will be provided by the Zero Emission Bus Regional Areas scheme to begin delivery of 4,000 new zero emissions buses, either hydrogen or electric, and supporting infrastructure. These developments have garnered interest from numerous local authorities keen to use hydrogen-powered transport partly as a way of improving local air quality as well as creating local jobs.
Industry sector use
UK industry uses around 0.7Mt of hydrogen every year as a feedstock for a number of processes. At present, this is primarily produced from natural gas (i.e. grey hydrogen). However, with the development of carbon capture technology over the coming decade, this hydrogen can be decarbonised by capturing the carbon dioxide emissions using the steam reformation method. Alternatively, there may be some industrial processes which are situated in locations suitable for green hydrogen (i.e. hydrogen made by electrolysis, often using renewable energy power). In addition to feedstock, such hydrogen would also be used for heating in many industrial processes such as in cement production and in the chemicals industry. One such example is the HyNet project in North West England which proposes to develop a hydrogen cluster in which blue hydrogen is produced to supply a range of industrial sites, with the carbon emissions of these sites directly captured.
Heating sector use
The UK has an extensive gas network providing natural gas to more than 80% of homes as well as to commercial buildings for heating. Decarbonising heating is key for the UK’s overall net zero aims, therefore a number of pilot heating projects have been undertaken so far. For example, the HyDeploy project led by Cadent, in partnership with Northern Gas Networks and others, is testing an injection of up to 20% hydrogen into the natural gas network feeding 100 homes and 30 faculty buildings. The results of this study are key to demonstrate the viability of blending the existing gas supplies (methane) with hydrogen. As part of the Hydrogen Strategy, the government has also committed to deliver a hydrogen for heat neighbourhood trial by 2023, and a village scale trial by 2025 to gather more evidence in relation to the safety and feasibility of hydrogen heating. These trials intend to inform the government’s 2026 strategic decision on the future of hydrogen for heat. In terms of hydrogen appliances, the government expects to consult on the case for enabling or requiring new natural gas boilers to be easily convertible to use hydrogen.
2. Market prospects for hydrogen
The hydrogen market in the UK is at an early stage with significant prospects for growth over the coming years. The Committee on Climate Change have advised that hydrogen will be a key enabler for the UK to meet net zero targets. To date, much of the funding has come from the public sector. In March 2021, the UK government’s R&D body, UK Research and Innovation, awarded £171 million of funding across nine hydrogen projects.
Furthermore, in May 2021, the UK government announced a £166.5 million funding package to drive forward the technologies and development needed for a green industrial revolution. As part of this package, £60 million is allocated to support the development of low carbon hydrogen in the UK and scale up efficient solutions for producing hydrogen through electrolysis.
The Hydrogen Strategy also outlines several other pots of funding that are or will be in place to support the range of commitments therein, such as the £240 million Net Zero Hydrogen Fund.
The UK government continues to work on developing business models that support investment in hydrogen projects and, alongside the publication of the Hydrogen Strategy, launched a consultation on proposed models.
Whilst many in the industry had anticipated that the preferred business model for hydrogen will be based on the offshore wind Contract for Difference (“CfD”) scheme – and the contract will be with a government owned counterparty – the consultation sets out a number of options as well as giving an indication of the government’s preferred approach (and reasons behind it). Namely, the consultation states that the hydrogen CfD will be a variable price support model whereby the reference price will comprise, at least initially, the highest of two proxies (methane gas price and sales price achieved by the producer). Project eligibility is yet to be determined and is subject to a separate consultation. Similarly the government is developing the standard against with low carbon hydrogen projects will be measured. The government’s ambition is to finalise the hydrogen business model in 2022 so as to enable first contracts to be allocated from Q1 in 2023.
Because of the relatively nascent status of the hydrogen projects there has been little M&A activity in the sector and relatedly, little by way of private financing to date. This is expected to change once the UK government clarifies the legal frameworks for hydrogen projects.
3. Challenges facing hydrogen projects in the UK
Reducing the cost and securing demand
As with any emerging technology, production and processing of decarbonised hydrogen is more expensive than current processes for producing grey hydrogen. Accordingly, development of hydrogen at scale is seen as a key requirement for reducing overall costs. Some projects predict that the cost of delivering green hydrogen at scale by 2050 could be cost-competitive with the current methane reformation processes. In part, the key variable for determining the price projections also depends on the production method, the electricity, gas or biomass feedstock price, the carbon price, and also the seasonal temperature variations which would vary demand for hydrogen heating. Current forecasts estimate that in 2050 the value of hydrogen in the UK would be in the range of £428bn, while the global market value could be at least £380bn.
Overcoming the current price uncertainties and lack of demand forecast is therefore key for developing successful hydrogen projects. In this regard, the certainty of long-term contracts is seen as critical for minimising some of the perceived risks.
Legislative framework gaps
In common with many jurisdictions, the UK does not have a well-defined legislative framework for hydrogen projects in the various sectors. While the Hydrogen Strategy outlines a roadmap of key archetypes and milestones that the government expects to see in terms of the production and use of hydrogen across the 2020s, it suggests that an initial network regulatory framework is not expected to be in place until 2025 at the earliest. Until then, networks are envisaged to be delivered through existing frameworks. This creates a number of gaps and uncertainties which need to be addressed before the hydrogen economy can flourish.
4. Regulation of hydrogen
There is very little legislation that specifically relates to hydrogen. Instead, hydrogen projects must navigate the existing legislative landscape that applies to gasses more generally. Hydrogen is captured under the definition of “gas” in the Gas Act 1986 (the “Gas Act”) and is therefore regulated as part of the gas network.
The UK gas market is regulated by the Gas and Electricity Markets authority, operating through the Office of Gas and Electricity Markets (“Ofgem”). Anyone engaging in gas supply, gas shipping or gas transportation, or who participates in the operation of gas interconnectors, or provides smart metering in respect of gas must have a licence to do so under the Gas Act. The licences include measures relating to the safe operation of the gas network and provisions relating to price controls. An entity wishing to transport hydrogen (or carry out another activity regulated by the Gas Act) through gas pipelines may therefore require a licence and as part of this must demonstrate a credible plan to commence licensed activities and permit a risk assessment to be carried out by Ofgem as part of the process for obtaining the licence.
Further, a gas licensee must also comply with various industry codes, such as:
The Uniform Network Code – sets out the common rules governing the gas transportation arrangements between licenced gas transporters and shippers, as required under their licence. Every licensed gas transporter must have its own network code, incorporating the Uniform Network Code, and governing the terms on which it will transport gas. It includes a Transportation Principal Document, which sets out the gas transportation arrangements between gas shippers and transporters and an Offtake Arrangements Document which sets out arrangements between different transporters.
Independent Gas Transporter Uniform Network Code – sets out the common rules applying to independent gas transporters. It aims to harmonise the network code arrangements of Independent Gas Transporters, who operate extensions to the gas network such as those serving new housing developments.
Supply Point Administration Agreement – this is a multi-party agreement to which all gas transporters and suppliers are required to comply with. It facilitates supply point administration, being the change of gas supplier.
Retail Energy Code – this enables end consumers to switch energy suppliers.
Injection into the gas grid – blending hydrogen into the existing gas networks
Pursuant to the Gas Safety (Management) Regulations 1996, the concentration of hydrogen that can be injected onto the UK gas network is 0.1%. As mentioned above, this is being tested to increase the hydrogen blend to up to 20%. If successful, the regulations will need to be amended to allow for this higher blend.
Real estate and consenting
Major hydrogen projects are likely to be nationally significant infrastructure projects which require a development consent order under the Planning Act 2008. For smaller projects (or pipelines) such consents may be instead regulated through the Town and Country Planning Act 1990.
In addition to ensuring the relevant consents are obtained, land rights need to be secured the same as for other infrastructure. As such access rights would be needed from production and storage facilities to ensure they are fit for the purpose of large-scale industrial transportation which may be through private contracts or under the compulsory acquisition powers that may be available. In the case of re-purposing existing infrastructure, variations to existing rights are likely to be needed to reflect the necessary technological upgrades and/or regulatory issues.
In relation to storage of hydrogen, an Environmental Impact Assessment may be required if hydrogen is to be stored on site or if there are pipelines carrying hydrogen pursuant to the Town and Country Planning (Environmental Impact Assessment) Regulations 2017.
Health and safety laws
Hydrogen, like other gasses is heavily regulated from a health and safety perspective. The Health and Safety Executive (“HSE”) requires compliance with the following regulations:
Gas Safety (Management) Regulations 1996 – concerns the flow of gas through the network. All gas transporters must prepare and submit a safety case to HSE. This identifies the hazards and risks, explains how they are controlled, and describes the system in place to ensure that controls are applied. The gas transporter will be audited to ensure compliance with their safety case
Pipeline Safety Regulations (1996) – concerns pipeline integrity. These regulations set out requirements in respect of pipeline design, construction, installation, operation, maintenance and decommissioning. For example, pipelines should be equipped with emergency shut down valves and its design should take account of the need for maintenance access.
Storage of Hydrogen is regulated by The Planning (Hazardous Substances) Regulations 2015 and/or the Control of Major Accident Hazards Regulations 2015 (“COMAH”), depending on the quantities involved. COMAH sets a high bar of requiring operators to take all measures necessary to prevent a major accident and limit consequences for human health and the environment. The operator must have in place various strategies, including safety plans, emergency plans and a Major Accident Prevention Policy.
Under the Hazardous Substances Regulations, consent is required to store two or more tonnes of hydrogen, and a further consent is required where storing five of more tonnes of hydrogen.
The Dangerous Substances and Explosive Atmosphere Regulations 2002 sets out requirements for the use of equipment and protective systems in potentially hazardous environments, including those where hydrogen is produced or stored.
Transport of hydrogen by road
The European Agreement concerning the International Carriage of Dangerous Goods by Road (“ADR”) regulates the transport of hydrogen, which is classified as a dangerous good under Annex 5 of the ADR. Hydrogen transport is excluded through ten tunnels in the UK, based on its ADR classification.
Drivers transporting hydrogen must be appropriately trained, and vehicles must meet specifications required for hazardous cargoes.
The Pressure Equipment (Safety) Regulations apply to the design and manufacture of tanks used to transport hydrogen.
5. Regulatory bodies
There is no specific regulatory body which is responsible for the regulation of hydrogen projects. Instead, a number of regulators would have responsibilities depending on the activity in question.
Local Authority / Town and Country Planning Authority
Regulates the use of land
Undertakes Environmental Impact Assessment
Usually has the role of the hazardous substance authority in relation to storage
Health & Safety Executive
Assesses local authority decisions and signs off driver training
UK Vehicle Certification Agency
Approves hydrogen transport vehicles
Oil and Gas Authority
Regulates new pipelines and decommissioning
Regulates the gas network
6. Upcoming developments
The UK Hydrogen Strategy 2021
In August 2021, the UK government published its long-awaited and first ever Hydrogen Strategy for the UK. As highlighted throughout this chapter, the Hydrogen Strategy reinforces prior commitments (such as the ambition for 5GW of hydrogen production capacity by 2030) but also provides clarity on plans for the near future to develop a hydrogen economy in the UK, taking a “whole-system” approach. In particular, it sets out (amongst other things):
a detailed roadmap of key archetypes and milestones that the government expects to see in terms of production, networks and use of hydrogen in the early, mid and late 2020s to reach its 5GW goal, as well as an indication of the intended direction from the mid-2030s and beyond;
the way forward to developing a hydrogen business model and revenue mechanism, namely, launching a consultation on the proposed models with the ambition to finalise this in 2022;
a commitment to a “twin-track” approach for both natural gas based “blue” and electrolytic “green” hydrogen production methods, and a proposal to develop a UK low-carbon hydrogen standard to clarify what “low-carbon” really means;
that work is ongoing with the Health and Safety Executive to assess the potential for 20 % hydrogen blending into the gas network, and a call for evidence on the future of the gas system is to be launched later in 2021; and
methods and indicative metrics for tracking progress against the Strategy’s key outcomes.
The government expects that 20-35% of the UK’s energy consumption in 2050 can be met with hydrogen and that it can be used in sectors ranging from heating to heavy industry, land, air and maritime transport. However, while the Hydrogen Strategy was welcomed by many in the industry, legal analysis and the development of new laws and an industry framework is yet to come with new legislation likely to be needed.. This is in addition to navigating the HSE and environmental regulations, whether as part of consenting such projects or in trying to get them built.
Hydrogen Projects in development
There has been a number of hydrogen projects developing over the course of 2021. Notably, the following have been successful in securing public funding to progress demonstration of the role that hydrogen can play in the UK’s energy, transport, industrial and heating sectors:
Dolphyn Project: led by Environmental Resources Management, this project is developing the design of a 2MW prototype of the technology that combines offshore wind power with seawater to produce green hydrogen, that can then be piped back to shore. Initial designs include a 10MW floating offshore wind turbine, together with a water treatment unit and electrolysers for localised hydrogen production.
HyNet: led by a core consortium of Progressive Energy,ENI UK, Cadent Gas, Essar Oil and others, HyNet involves the development of a hydrogen production facility in the north west of England to be part of the UK’s first net-zero industrial zone using carbon capture and storage technology.
Gigastack: led by ITM Power Trading Ltd, in collaboration with Orsted, Phillips 66 and Element Energy, the project is to demonstrate its capacity to provide large volume, low-cost and zero-carbon hydrogen, through gigawatt-scale polymer electrolyte membrane (“PEM”) electrolysers. It will use the electricity generated by Ørsted’s Hornsea One offshore wind farm to generate renewable hydrogen for the Phillips 66 Humber Refinery.
Acorn: led by Pale Blue Dot Energy, this hydrogen production plant is focused on the delivery of an energy and cost-efficient process for hydrogen production, using natural gas produced in the North Sea, with carbon capture and storage technology for the associated emissions.
HyPER: led by Cranfield University, in collaboration with Gas Technology Institute and Doosan, this project is working to design and build a pilot-scale hydrogen supply system based on new technology involving steam (the “sorption enhanced steam reforming process”) that may be capable of bulk hydrogen production. Construction commenced in April 2021.
South Wales Industrial Cluster (“SWIC”): led by a partnership of utilities, power generation and heavy industry companies, SWIC aims to decarbonise various sectors in the region such as energy, oil, chemicals, steel and cement. To that end, collaborators, including RWE, Shell, Tarmac, SIMEC Atlantic Energy and Tata Steel, are working to devise options to support regional hydrogen deployment as well as carbon capture technologies.
Northern Endurance Partnership: led by oil and gas majors such as BP, Shell, Eni, Total and Equinor, this project aims to create an offshore carbon dioxide transport and storage network and develop a large-scale blue hydrogen production plant that will connect to and decarbonise industrial sites throughout the Humber region.