UK hydrogen, good news bad news

Mixed news today in the UK on the hydrogen front – the Government has issued an update to its hydrogen strategy cancelling the Redcar Hydrogen Village Trial and approved hydrogen blending into the gas system. The first is good news, fully in line with what science, engineering and economics would dictate – the second is… not.

 The Redcar decision deals a near-killer blow to hydrogen heating in the UK and kicks the legs out from under any idea that we will be moving to a hydrogen economy, as opposed to just using clean hydrogen in a few industrial applications, perhaps for shipping and aviation fuels, and in long-duration grid balancing. It also means that the debate on how to decommission our gas distribution networks – and how to pay for it – is about to hit the front pages.

 Blending hydrogen into the gas system is one of the daftest policy decisions I have seen in 20 years doing this. I don’t usually respond to government consultations, but on this one I did. The arguments for it are so weak, the costs so immense, that I felt compelled.

 There were a bunch of other hydrogen-related decisions, most of them relating to producing some of the stuff (albeit on a tiny but expensive scale) and getting it to industrial users, and therefore fairly sensible. Some of it is being spun as a huge win for the gas industry – Christmas presents under their tree, according to Cadent’s Director of Strategy Dr Angela Needle on the BBC 4 Today Programme this morning, but in reality it is more like a few baubles.

 Redcar deals killer blow to hydrogen heating

First, the Redcar Village Trial. This dates back to 2018, when the Government initiated a programme called Hy4Heat, kicking off ten work packages to investigate what would be needed in order to switch homes over to using 100% hydrogen, in the same way that in the 1970s our homes were switched over from town gas to natural gas after the latter was discovered in the North Sea.

It has been a long and winding road since then, with the main pushers being the UK’s gas network companies – Cadent, NGN, SGN and Wales & West Utilities. With hydrogen cars receding in the rear-view mirror of EVs, they know that hydrogen heating is the last chance saloon for their gas distribution assets. Nothing brought this home more clearly than the statement by the UK’s National Infrastructure Commission that the gas distribution networks need to be decommissioned by 2050 if the country is to meet its legally-binding 2050 decarbonization target.

The gas distribution companies have hung everything on hydrogen, funding research and lobbying, including paying into the Energy Utilities Alliance, whose CEO Mike Foster was recently caught funding a PR campaign designed to “spark outrage” about heat pumps. They have no plan B: NGN’s Long-Term Resource Plan contains 73 mentions of the word hydrogen, but not one of the words “heat pump” or “district heating” – the first the biggest threat to their business, and the second the only opportunity to have a business in the long term.

The regulations around gas distribution utilities mean that if they can persuade Ofgem to keep adding investments they make to their regulated asset base, they can earn a fixed return on it for up to 45 years – that’s out to 2068. When the government eventually tells them the game is up and their pipes have to be decommissioned, they will demand compensation not just for their investment, but for foregone profits. Their plan is clearly to keep investing for as long as possible, which is why it is so important for them to maintain the simulacrum of a hydrogen heating future even when a real one does not exist.

 That is why two more developments this week were also significant. First the government kicked a consultation on the Future Homes and Buildings Standard, which stated that:

 “We found no practical way to allow the installation of fossil fuel boilers while also delivering significant carbon savings and ‘zero-carbon ready’ homes. As such, we do not expect fossil fuel heating, such as gas, hybrid heat pumps and hydrogen-ready boilers, will meet these standards.”

 At the same time, Ofgem kicked off consultation on the RIIO-3 Sector Specific Methodology for the Gas Distribution, Gas Transmission and Electricity Transmission Sectors, which will govern the way gas networks are regulated (and paid for) from 2026 through to 2035. It may sound like a dry exercise but it is anything but – it will throw fuel on the fire of the national debate about decommissioning the networks, started by this year’s National Infrastructure Review. It says what has until now been the quiet part out loud:

If there is a limited or no role for hydrogen in domestic heating then a higher proportion of the gas network will need to be decommissioned.

 Buried in the finance annex of the consultation document is this bombshell:

 “It may be appropriate to create a mechanism in RIIO-3 to pre-fund future decommissioning liabilities and spread the burden of this expected future expense over current and future generations of consumers. The introduction of such a charge would put further upward pressure on current network charges within consumer bills…

 …adjustment of the profile so that the GD RAV [Gas Distribution Regulated Asset Value] is fully depreciated by 2050 would increase bills by a total of £43 (or 37%) per annum.”

So the cancellation of the Redcar Hydrogen Village Trial means the country is rapidly approaching an inflection point. It is becoming very hard to pretend that the gas distribution networks have a future beyond 2050, and we need to start planning – and funding – their decommissioning.

The government says it will make a final decision on hydrogen in 2026, and the gas companies’ hopes now hang on a small and faltering trial in Fife, where SGN is hoping to put hydrogen through new pipes into 300 homes. It says 270 households have signed up, but let’s see what happens as homeowners realise what that means in terms of fabric changes to their homes, safety, air quality and so on.

A final word on this, about my own role. In cancelling the Redcar trial, the government said it was “due to issues in obtaining a robust, local hydrogen supply”. Of course it wasn’t – it was because the local residents had finally woken up to what was about to be done to them, and started to protest, very vocally.

I was so appalled at the misinformation being spread first by Cadent and then by NGN in their efforts to bounce the residents of Ellesmere Port and then Redcar into supporting the trials, that I made myself available as an expert to the local community. It has been an utter pleasure working with them, and I have learned more about democracy, decency and communication from then than they can possibly have learned about hydrogen from me.

Along the way I have been accused by the gas companies, local councillors and MPs of spreading misinformation and untruths. None of them have ever pointed to a single inaccurate statement I have made. If they ever do, I will happily issue a correction and an apology. You can watch my appearance at a public meeting in Ellesmere Port here, and read my write-up of NGN’s constantly-changing narratives about safety here (the bonus is that you'll get a sneak peak of the big project I am about to launch - my Substack, The Thoughts of Chairman Michael).

And if any of the C-suite of those gas network companies ever want to come on Cleaning Up and explain their positions, I will happily and courteously host them.

The foolishness of blending

Blending is one of the most foolish ideas we have seen in decades in the energy policy aren. As mentioned, I don’t usually respond to government consultations, but on this one I did. The arguments for it are so weak, the costs so immense, that I felt compelled.

For those interested in my logic, you can follow this link to a copy of my consultation response (and get another sneak peak of the big project I am about to launch - my Substack, The Thoughts of Chairman Michael).

Let me just deal with one issue that is being touted as the killer argument for blending: the idea that the gas grid should act as a reserve offtaker for when an industrial hydrogen user is unable to use the hydrogen being produced, for whatever reason.

The suggestion is that rather than waste hydrogen when its main customer cannot take it, you inject it into the gas grid. The problem is that as soon as you do so, you are taking something that has cost £3 to £4/kg to make, and reducing its value to the value of its heat content, which is around £0.80/kg.

At the same time you are increasing the cost and complexity of managing your gas grid by far more than the value of the natural gas saved, because now you have varying levels of hydrogen at different points in the network, challenges in metering the energy you are delivering (because hydrogen has a lower calorific value per unit volume) concerns about embrittlement, and so on.

The argument being made is that all this is required in order to get developers to build projects. It is not. The way this is dealt with all the time in commodity and process industries is that users contract for supplies on a take-or-pay basis. If you did this for hydrogen the following would happen:

• Hydrogen users would bear the cost of their own inability to offtake reliably, as of course they should as part of the normal risk of running their business;
•  The hydrogen price would be a bit higher, because hydrogen users would no longer be able to socialise some of the costs onto all other gas users – they would be paying for some hydrogen that they may not be able to use;
• Those hydrogen users and others would have a strong incentive to invest into pipeline connections around industrial hubs, so that hydrogen they can hedge risk and sell excess hydrogen to other users use, recouping the slightly higher cost of hydrogen;
• What will for a long time be scarce and expensive supplies of hydrogen would not be adulterated and rendered much lower value by mixing them with natural gas;
• There would be no incentive to push hydrogen into use cases like power generation, heating and transport, which are far more cheaply and effectively decarbonised by direct electrification.

 Instead, what this blending decision means is that if you are buyer of clean hydrogen, and for whatever reason you cannot pay, the government is going to buy something that cost around £4/kg to make, sell it to someone who only values it at £0.80/kg, incur vast additional system cost to do so, and make every gas user or taxpayer in the country pay. It’s utter madness.

The good news is that after spending a few hundred million pounds of tax-payer an gas-user money on it, the madness of buying at £4 and selling at 80p must surely become abundantly clear to all, and a course correction will inevitably follow. I will put some champagne on ice for that one.