London (August 17, 2021) – The UK Hydrogen Strategy released today highlights hydrogen's potential for playing a critical role in the UK's long term decarbonization plans and keeps options open for supporting the development of both the supply and demand sides of the market.
The UK government's "twin track" hydrogen strategy recognizes the challenges of focusing solely on green hydrogen produced from renewables – particularly as the required new renewable build to decarbonize the power sector is already considerable. Platts Analytics currently estimates that between 2022 and 2030, the UK is already looking to triple its offshore wind capacity and roughly double its onshore wind and solar installed MW.
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. Such projects tend to also be small – with an average capacity of around 2,277 metric tonnes H2/year (mt/year).
In contrast, our total UK announced blue hydrogen project capacity for 2030 is 2.26 million mt/year, well over the UK's stated low carbon hydrogen target of 5 GW (1.31 million mt/year). This capacity – producing hydrogen from natural gas and sequestering the resulting CO2 emissions - is driven by three large projects with in-service dates between 2027 and 2029: Humber Zero VPI Immingham: DelpHYnus: HyNet North West. Overall, UK blue hydrogen projects in our database are much larger - averaging over 320,000 mt/year. Nearer term, overall announced projects with online dates before database fall below the UK's interim 2025 target of 1 GW of clean hydrogen (260,000 mt/year).
"Among the key advantages of blue hydrogen in the UK are that it can produce industrial scale volumes; leveraging ample UK geological storage capacity for captured CO2 in the form of exhausted gas wells and salt caverns as well as access natural gas from the North Sea" said Anne Robba, Manager of Future Energy Signposts, S&P Global Platts.
"These attributes help make UK natural gas-based hydrogen production with CCS currently three times cheaper than hydrogen produced via electrolysis," said Jeffrey McDonald, Hydrogen Pricing Specialist, S&P Global Platts.
On the demand side, incumbent hydrogen demand from oil refining, ammonia and chemicals, is seen as providing early adoption opportunities while the UK strategy looks to promote and grow more novel demand for low carbon hydrogen in hard to decarbonize sectors.
However, strong incentives and policies are needed to drive the uptake of low carbon hydrogen to replace incumbent hydrogen demand. Much stronger supports are needed for hydrogen to directly displace fossil fuels. For example, the UK carbon price needed to drive cost parity between blue hydrogen and natural gas for heat applications has ranged around GBP200/mt CO2 versus a current price of GBP44/mt CO2. Carbon prices to achieve similar parity for green hydrogen would be considerably higher still.
Clear policy signals are critical for the market – particularly around the specific design of support mechanisms and how the policies value the differential decarbonization potential of hydrogen. These will be spelled out as part of upcoming consultations. "The UK government has a vital role to play in setting blend targets to drive more novel hydrogen demand, similar to what is occurring in the biofuels market," Platts Analytics' Robba said.
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