Policy | Analysis

UK hydrogen strategy aims to generate £4bn in private investment by 2030

The UK has published its first hydrogen strategy, which aims to encourage £4bn in hydrogen investment over the next decade. JP Casey reports.

The project, put forward in a 121-page document by Secretary of State for Business, Energy, and Industrial Strategy Kwasi Kwarteng, looks to take advantage of what the government calls the UK’s unique “geography, geology, infrastructure, and capabilities” to develop a world-leading hydrogen industry.

While the burning of the colourless, odourless gas is nothing new, this process is often not considered environmentally sustainable as a “significant” amount of hydrogen is produced by the burning of fossil fuels, according to the International Energy Agency (IEA).

As a result, the UK aims to develop less carbon intensive sources of hydrogen, such as blue hydrogen, that which is produced from burning fossil fuels within carbon capture and storage systems, and green hydrogen, that which is produced by electrolysis with negligible environmental impacts.

The UK’s strategy relies heavily on blue hydrogen production, with carbon capture and storage projects expected to operate on a “large scale” between 2030 and 2050 and provide a “bulk supply to kick start [the] UK hydrogen economy”.

Widespread support and lower costs

“Consistent with the Prime Minister’s Ten Point Plan, our North Sea Transition Deal, and our Methane Action Plan alike, this strategy can help energy communities realise the full potential of this alternative fuel,” said Mike Tholen, sustainability director at Oil and Gas UK, highlighting a cross-industry commitment for cleaner hydrogen.

“The recognised need for the development of green and blue hydrogen is a sentiment we echo – all options should be made viable if we are to transform the UK’s energy system to a sustainable one.”

The UK strategy also works on the assumption that the levelized cost of cleaner hydrogen production will fall over the next 30 years, making such projects a more attractive investment option. The government expects the cost of producing hydrogen from conventional steam reformation without carbon capture to jump from £64 per MWh in 2020 to £130 per MWh in 2050.

Falling costs are a cornerstone of the UK strategy, which aims to generate its £4bn investment figure largely from private funding.

Meanwhile, the cost of producing hydrogen via autothermal reformation with carbon capture will remain relatively steady, at £59 per MWh in 2020 and just £67 per MWh in 2050.

These falling costs are a cornerstone of the UK strategy, which aims to generate its £4bn investment figure largely from private funding. While the government will supply some funding to the broader UK energy industry, including £1bn towards the deployment of carbon capture technologies, its role is one of macromanagement, as it looks to create an environment to encourage such private investment.

Kwarteng notes in the report that the project relies upon “incentivising private investment and looking to increase export opportunities”.

“Alongside this strategy, we are also publishing a number of consultations – seeking views on our preferred hydrogen business model, the design of our flagship £240m Net Zero Hydrogen Fund, and a UK Low Carbon Hydrogen Standard,” continued Kwarteng in his foreword to the report.

“These are policies that industry, including members of the hydrogen advisory council which I co-chair, have told us are key to drive early expansion of the UK hydrogen economy.”

Private investment

This reliance on driving private investment could help increase demand for hydrogen, which could help overcome what Victoria Judd, hydrogen specialist at law firm Pillsbury, called a “chicken-and-egg” problem.

“By pursuing a ‘twin track’ approach for its hydrogen strategy and promoting the production of both blue and green hydrogen, the UK Government could well resolve the chicken-and-egg scenario that threatens to potentially hobble the UK’s nascent hydrogen industry,” said Judd. “Currently, the supply of hydrogen is unlikely to rise until there is sufficient demand for the gas but equally, demand will remain low until supply rises.

“Some may criticise the strong support for blue hydrogen as part of the hydrogen strategy. But, if hydrogen supply rises, and brings up demand, markets will be far more attractive to developers considering the green approach. We can consider this a run-up before our green hydrogen ambitions take flight.”

The news has been welcomed by actors across the energy sector, with many keenly aware of the role that hydrogen is likely to play in the clean energy transition. The IEA has noted that global hydrogen production will have to reach almost 8Mt a year by 2030 in order to meet the world’s climate targets, up from 0.36Mt produced in 2019.

The UK has made similar predictions for its own energy future, with the hydrogen strategy noting that hydrogen could account for as much as 35% of the country’s total energy consumption by 2050. The government aims to produce 5GW of power from low carbon hydrogen production by 2030, up from less than 1GW today.

Challenges and concerns

Yet some have urged for a more cautious optimism following the announcement, such as GenCell CEO Rami Reshef. GenCell is a provider of hydrogen fuel solutions, and Reshef announced that the UK’s commitment to blue hydrogen ought to operate as a stopgap measure before more environmentally responsible energy infrastructure can be built.

“There are many obstacles to building out a hydrogen economy in the UK, primarily due to the high complexity and cost of hydrogen transport and storage,” said Reshef. “To meet the enormous demand for clean energy, the market is investing in blue hydrogen as a transitional measure until the production of green hydrogen can expand to meet demand.

“Extracting hydrogen on-demand from green ammonia offers a promising method for economically producing and storing green hydrogen, an application being explored by companies across the globe. Ammonia is much easier and more affordable to transport than hydrogen and is an efficient means for storing surplus renewable energy produced from solar or wind.”

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