UK hydrogen strategy welcome step for industry, but details needed for investment

The UK government's hydrogen strategy, published Aug. 17, will give the market confidence, industry leaders said, but details will be needed as soon as possible for companies to make investment decisions on project feasibility.

The strategy reinforces the government's aim of developing 5-GW of low-carbon hydrogen by 2030, and launches consultations on market structure, carbon intensity measures and blending hydrogen into gas grids, as well as indicating roles for hydrogen in industry and transport.

But details on contracts for difference and a hydrogen production strategy will not be released until 2022.

The strategy "will definitely improve market confidence", UK Hydrogen and Fuel Cell Association CEO Celia Greaves told S&P Global Platts. "But whether a project is feasible will depend on the detailed numbers. So we do need those as soon as possible."

Equinor, which is developing one of the world's first large-scale blue hydrogen projects at H2H Saltend in the UK, said: "The Strategy is a welcome step forward but, as expected, will not be enough to make final investment decisions."

Greaves said the funding and subsidies required were hugely dependent on the types of business models the government brought forward, adding that targets for specific sectors could be useful once further details around that, the production strategy, market mechanisms and carbon standards were determined.

Siemens Energy UK and Ireland Vice President Steve Scrimshaw said the strategy set "a clear road map for development of this important sector".

"To make this a reality, we now need to see a real pipeline of projects come to life," Scrimshaw said in a statement. "Not only will this action start us on the path to deep decarbonization across many sectors, but it will also provide certainty to the supply chain that the UK is a good place to invest."

Further details would also be required for regulation of the hydrogen sector, which overlaps with both gas and power sectors.

"Given the role that hydrogen is meant to play in the industrial sector, heating and transport, as well as in electricity grid system management, the need for a holistic review and approach to setting the frameworks within with hydrogen projects can develop and operate is critical to achieving the aims the UK government has set itself," Dalia Majumder-Russell, partner in global law firm CMS's Energy & Climate Change team, said in a statement.

Twin-track approach

Some in the industry also questioned the UK's twin-track approach of supporting natural gas-based 'blue' hydrogen with carbon capture as well as zero-carbon 'green' hydrogen from electrolysis of power, powered by renewables.

"By investing in blue hydrogen, the government will ensure that the UK is locked into a fuel import strategy that by design cannot be a net-zero solution and that will channel billions to the largest energy companies instead of supporting and growing leading UK small and medium-sized enterprises," the CEO of green hydrogen company Protium, Chris Jackson, said in a statement.

However, UK gas network operator Cadent's Chief Strategy and Regulation Officer Tony Ballance told S&P Global Platts: "Our expectation is that blue hydrogen is an extremely effective way of decarbonizing the economy", with new CCS systems capturing around 97% of CO2 emissions.

And production targets might not be achievable without blue hydrogen. S&P Global Platts Analytics said the twin-track approach recognized the challenge of building the renewables capacity needed for a solely green hydrogen strategy.

"Platts Analytics Hydrogen Production Asset Database shows total green hydrogen production capacity for announced projects with online dates through 2030 as rather limited, totaling only 44,000 mt/year," it said in a statement. "Such projects tend to also be small, with an average capacity of around 2,277 mt/year."

A few large blue hydrogen projects by 2030, by contrast, were already seen totaling 2.26 million mt/y, "well over" the 5-GW target, equivalent to 1.31 million mt/y, Platts Analytics said.

Blue hydrogen is, for now, the cheaper of the production pathways.

Platts assessed the cost of producing hydrogen via alkaline electrolysis in the UK (including capex) at GBP6.41/kg ($8.87/kg) on Aug. 16. PEM electrolysis production was assessed at GBP7.79/kg, while blue hydrogen production by autothermal reforming was GBP2.74/kg (including capex, CCS and carbon).

Bolder ambition

Many in the hydrogen industry have called on the government to increase its level of ambition around the hydrogen production target.

"Industry believes that with the right support, a 20-GW mix of green and blue hydrogen power could be deployed by 2030," the UK HFCA said in a statement.

The government said it wants to maintain its status as a leader in the low-carbon hydrogen field, and Greaves said higher targets would underline the UK's international standing.

"It is a statement of intent," Greaves said, adding that higher targets were about "the level of ambition that we are communicating to international competitors and partners".

Cadent also sought more ambitious goals from the government, whilst welcoming the strategy as a good first step. "We believe there are opportunities for the UK to go further and at a faster pace to ensure we are at the forefront of the hydrogen revolution," Ballance said in a statement.

"In the Northwest alone, 3 GW of hydrogen could be produced by the HyNet project Cadent is part of, with up to GBP2 billion of private investment being deployed and creating wider economic growth," Ballance said.

The UK HFCA said the government would need to spend more than the GBP240 million it has allocated to fund the deployment of low-carbon hydrogen.

"While the sums announced today are a welcome start, a commitment to further investment through the Comprehensive Spending Review and the Treasury's long-awaited net-zero review is needed in order to provide investors and the industry with confidence that the UK will really back hydrogen," it said.