Industry update: the 6 missing pieces still needed to solve the green hydrogen puzzle

Mohsen Garcia, Senior Adviser at boutique advisory firm Finergreen, told the roundtable he has witnessed a growing interest in hydrogen projects in Europe (particularly in Spain) and internationally, with most (if not) all of these projects arising out of joint ventures or partnerships between representatives of different parts of the hydrogen value chain.

Jane Toogood (UK Hydrogen Champion) emphasised the importance of hydrogen clusters in her keynote address at the REA Conference “The Hydrogen Economy” in November 2022. While participants to the roundtable agreed that industrial clusters are integral to the future of hydrogen production, they found the current network was not as holistic in its approach as it could be. A quick glance at  the Hydrogen Network Mapping completed as part of the Western Gateway project will show that the South West will not be served by such clusters in the same manner as other parts of the country would be.

Alex King of Tower Green Holdings Ltd agreed: as it stands, the cluster network is not integrated enough to meet the UK Government’s 10GW hydrogen capacity target by 2030.To support the UK’s hydrogen ambitions we need to consider the opportunities for hydrogen usage in other industries as well.

Emily Summers of Simply Blue Group and James Harrison of OWC pointed out the significant opportunities for FLOW (floating offshore wind) to support green hydrogen production. The technical details will need to be worked out (for instance, can an electrolyser sit on top of a floating offshore wind turbine base at sea? Will water need to be desalinated, before it is used by the electrolyser), but this is certainly a promising collaboration (not least due to the number of FLOW developers looking at the Celtic Sea).

A recurring theme throughout our roundtable discussions was the urgent need for the UK Government to enact a comprehensive regulatory framework governing the hydrogen market.  A consensus emerged that unless the current situation changed, the UK was at risk of falling behind other nations who had prioritised developing effective regulatory frameworks. As Mohsen highlighted, detailed hydrogen strategies are already operative in Portugal, Spain and Chile. There is considerable activity at EU level, as well as China and the US, where the Inflation Reduction Act is seen as a game changer in spearheading the hydrogen economy.

BEIS acknowledged the need to create a supportive and regulatory framework that enabled the UK to become a competitive, integrated low carbon hydrogen market when it published the UK Hydrogen Strategy. More recently, BEIS’ latest Hydrogen Strategy update to the market describes how it has continued to review non-economic regulatory issues.

BEIS also published the Hydrogen Production Business Model (HPBM) Heads of Terms alongside the update to the market.  An example of concrete progress, the HPBM provides a framework for the principal terms and conditions between the government-appointed party and low carbon hydrogen producer, with a full-form Low Carbon Hydrogen Agreement to be released in May 2023.

While BEIS’ efforts to introduce a regulatory regime are encouraging, the fact remains that the UK has no regime specifically governing hydrogen production, transportation or storage. More importantly though, as the Commons Science and Technology Committee highlighted in its report on ‘The role of hydrogen in achieving Net Zero’:

“The Government’s hydrogen strategy and subsequent updates to the market provide a framework with an intention for further consultations rather than early or firm decisions.” –  This is not conducive to creating investor confidence in the UK hydrogen market.

A problem that is not unique to the green hydrogen debate, but one that presents another barrier to the deployment of green hydrogen facilities is the availability of a suitable (in terms of cost and connection timeframe) grid connection, to be able to supply a green hydrogen facility with the electricity needed to operate.

We are currently seeing grid connection offers with a connection date that goes well beyond 2030.

There are a number of factors that affect the cost of hydrogen production but roundtable participants were keen to point to two key factors: (i) the cost of electrolysers and (ii) the cost of renewable electricity (for green hydrogen production specifically). It is anticipated that globally the cost of hydrogen production will decrease significantly from the current global range of between US$2.7-8.8/kg, to a range of US$2-6/kg by 2030. Our roundtable participants were optimistic that the current high price of green hydrogen in the UK would follow the steady global decline.

Whilst the availability of electrolysers will remain an issue in the short to medium term, it is anticipated that as demand increases, so will supply. At the same time, as more electrolysers come online, the rate of learning around the operation and maintenance of the equipment will increase, which should also impact the price.

But one question remains, will offtakers be willing to pay more for green hydrogen as opposed to blue or grey? We will need to wait and see how the market develops in this respect.