Hydrogen in the UK and beyond

Anthony Boden, Jon Dyson, and Davis Bigestans at Charles River Associates, tell us what we need to know about hydrogen in the UK and beyond

Hydrogen energy: Where is the UK now?

Over the last few years, we have supported several leading energy companies in considering their approach to hydrogen. In 2023, we saw that the UK made progress considering the future of hydrogen in the broader energy system. The Energy Act 2023 came into force, expanding the Gas Act 1986 to cover hydrogen transport and licensing hydrogen pipeline projects. It also laid the foundations to fast-track the hydrogen business model. ⁽¹⁾

The National Infrastructure Commission’s (NIC) Second Assessment focussed on sectors where hydrogen could play a meaningful role in the UK, most notably stating that there would be limited domestic heat opportunities. ⁽²⁾

In 2024, the Future Systems Operator (FSO) will start considering how electricity, gas, and hydrogen ⁽³⁾ will intermingle as our key energy vectors. We expect significant progress on regulatory frameworks that will underpin the hydrogen system.

The UK has set out a dual-track approach of reaching 10GW of low-carbon hydrogen production ⁽⁴⁾ by 2030, with just under half of our capacity coming from green hydrogen and the rest from blue. This requires significant capacity growth, as almost no low-carbon hydrogen is produced today. ⁽⁵⁾

How is the UK system evolving?

The UK is pursuing a ‘cluster’ strategy for Carbon Capture, Utilisation and Storage (CCUS) development, focussing on groups of high emitters. These are also likely to become natural demand centres for hydrogen, providing producers with more consistent offtake volumes and clarity on what distribution infrastructure is required.

One advantage of linking hydrogen supply to CCUS clusters is that a carbon capture scheme can include emissions from nearby blue hydrogen production and act as a stepping stone towards our green production ambitions. Clusters have an additional advantage as local initiatives that politicians can realise wins from within a given political period, meaning they are less likely to suffer from cyclical constraints or cuts.

These hubs can become interconnected via national hydrogen and carbon networks as they develop. The FSO will be vital in coordinating the way forward for clusters to become networked as part of broader Strategic Spatial Energy Plans. The NIC proposed the draft location of both hydrogen and carbon transmission networks in October 2023.

Blending clean hydrogen into the gas network will also be a demand source to catalyse hydrogen production. Projects such as Future Grid, an off-grid replica of the gas network, led by National Gas, the owner of the UK’s National Transmission System (NTS), are leading the way in understanding the technical implications of blending to ensure the network is best prepared for this. Trial blends will begin on the NTS shortly.

Hydrogen in the UK: What UK regulation changes are coming?

There are no hydrogen-specific regulations in the UK today. This has caused uncertainty for industry players such as our clients, who must navigate existing frameworks for now, whilst the Department for Energy Security and Net Zero (DESNZ) continues with consultations on offshore, transmission and storage (T&S).

On T&S, the Regulated Asset Base (RAB) model is an established methodology used in other utility industries to good effect. It would be relevant to hydrogen ⁽⁶⁾, as the challenges of synchronising the value of existing gas assets with dedicated hydrogen infrastructure are addressed, but other models are possible.

UK regulators will also have to align with those in the EU, particularly on issues such as blend ratios and safety standards, not least to allow both regions to continue using their gas interconnectors.

What is the global picture? Jon Dyson

From our numerous engagements, our analysis shows that if clean hydrogen were readily available and competitively priced, demand would rapidly grow. But this is not the case today. This is where governments can come in, as they did to launch the oil industry in the UK in the 1960s. Policy and regulatory support primarily drive the development of supply and demand centres worldwide. The supply chain, skills, some geographical restrictions, and access to existing infrastructure also influence industry growth.

There has been a difference in trends on either side of the Atlantic: The U.S. is promoting the development of clean hydrogen supply with less emphasis on demand ⁽⁷⁾, whereas Europe is focussing on promoting the use of clean hydrogen. Charles River Associates is currently mapping which global trade routes may emerge based on consumers’ willingness to pay premiums for hydrogen at various green credentials and the desire to support clean hydrogen production by local governments. The supply and demand balance between these regions will drive transmission and transport infrastructure development.

How are countries working together?

The development of the global clean hydrogen sector can be catalysed by players across the value chain working together. An excellent example is the recent partnership between the United Kingdom and Germany, of which hydrogen is a crucial pillar. ⁽⁸⁾ Although each country has a slightly different approach, particularly regarding incentives and subsidies, the partnership indicates both have a shared vision to maximise hydrogen’s potential as a decarbonisation agent within their economies.

As supply and demand centres develop and transmission and transport infrastructure are built to link them together, we should expect to see more partnerships of this nature emerge over time.

References

1. UK GOV, Energy Act 2023: Chapters 61-80, 130-155, [link]
2. NIC (specifics include: ruling out hydrogen for heating, development of hydrogen network of pipelines and storage and hydrogen-fired power generation), pp. 36-44, 55-59, 64-71, [link]
3. UK GOV, Energy Security Bill factsheet: Future System Operator, [link]
4. UK GOV, Hydrogen Net Zero Investment Roadmap, [link]
5. UK GOV, Hydrogen Strategy (Aug-2021), [link]. Currently 700,000 tonnes produced in UK, majority of which is grey, [link]
6. UK GOV, Hydrogen transport and storage infrastructure: minded to positions, p.13, [link]
7. Government Support for Private Investment section, [link]
8. UK GOV, Joint Declaration of Intent on establishing a United Kingdom – Germany hydrogen partnership, [link]