Hydrogen Strategy in the 20s

The UK government published yet another strategy this week – this time on hydrogen. It looks at using hydrogen boilers to heat our homes instead of natural gas, in the bid to achieve net-zero targets. How realistic, and how desirable, is this asks Victor Hill.

Hydrogen hopes

The UK government’s newly announced hydrogen strategy plans for between 20 to 35 percent of the nation’s domestic-energy needs to be provided by hydrogen by 2050. That entails switching about 23 million homes from natural gas to hydrogen, which produces only water when it is combusted. Home energy accounts for about 15 percent of the country’s CO2 emissions. Thus, the government’s target of getting net carbon emissions to zero by 2050 will not be met unless this issue is addressed.

This enterprise will be much more problematic than it sounds. Firstly, it’s going to be expensive – up to £10,000 per household. And who will pay – central or local government; homeowners and landlords; or a combination of all of these? Domestic-energy bills are already on the up. Secondly, the natural-gas mains will have to be upgraded. Thirdly, many households in rural Britain are not connected to the gas mains and rely on oil-powered central heating and hot water. Fourthly, the hydrogen used will have to be green hydrogen, manufactured using renewable energy – otherwise we may end up generating more CO2 than is the case now.

The issue is highly politically sensitive. Critics on the Tory benches think it could turn out to be a kind of green poll tax which will repel voters – especially in the newly acquired ‘red-wall’ seats in the north of England. But the government thinks that its hydrogen strategy will create at least 9,000 jobs and boost the economy to the tune of £900m by 2030. Ministers have already announced a funding package worth £105m to encourage industry, particularly the construction, quarrying and mining sectors, to shift towards hydrogen power.

This week, the UK’s first hydrogen-heated show homes opened for viewings in Winlaton, in Gateshead, Tyne and Wear. The trial is being run by Cadent and Northern Gas Networks (NGN). NGN calculates that if every home in Britain ran on just 20 percent hydrogen, it would result in a drop in CO2 emissions equivalent to taking 2.5 million cars off the road.

Also this week, the chairman of the UK Hydrogen and Fuel Cell Association, Christopher Jackson, resigned so that he could speak out against the production of blue hydrogen which inevitably produces CO2 emissions.

Reservations about hydrogen boilers

One concern is about the safety of hydrogen domestic boilers. A safety assessment carried out by Arup on behalf of the Department of Business, Energy and Industrial Strategy estimated that hydrogen boilers might cause 65 fatalities a year due to explosions. Currently, with natural-gas boilers, the UK experiences an average of about 17 injuries or fatalities a year due to explosions. Hydrogen is lighter and more easily combustible than natural gas. However, the risk of explosion can be mitigated by installing excess flow valves in the pipe network.

Further, one recent study suggests that blue hydrogen (produced from natural gas), even when it employs carbon capture and storage (CCS), can create more CO2 emissions than burning gas or coal. The process of carbon capture is itself energy intensive and often involves CO2 emissions.

Activists claim that big oil and gas companies are promoting blue hydrogen to prolong the life of their gas businesses. For example, BP (LON:BP) is constructing a blue-hydrogen facility with CCS in Teesside.

Wind farms that make hydrogen

One possibility under consideration is to subsidise the production of hydrogen using excess electricity generated by wind farms. They would power electrolysers which pass a current through water, thus liberating its component elements – hydrogen and oxygen. Some wind farms have been paid to switch off their turbines on windy days when there is excess capacity available to the national grid. The great symbiosis arises because electricity can only be stored in batteries temporarily and at cost, whereas hydrogen can be stored in canisters indefinitely.

The target unveiled this week was for the UK to produce hydrogen equivalent to five gigawatts of power by 2030. Critics have said that that figure is unambitious. The Energy Networks Association, which represents firms in the power-transmission industry, thinks the government should double that target to 10 gigawatts.

The level of subsidy is likely to be the subject of a contest between the prime minister and Kwasi Kwarteng (the business and energy secretary) on the one hand, and the Chancellor, Rishi Sunak on the other. No numbers are likely to be agreed before the spending review which is scheduled for the autumn. Mr Sunak is reported to be concerned about a looming cost-of-living crisis spurred by the simultaneous arrival of inflation and green policies.

A Treasury review of the costs of the pursuit of net zero by 2050 has been postponed until next spring over concerns that it will conclude that the poorest households will be hit the hardest. That would, in turn, provoke calls for additional benefits – and grants to replace boilers with heat pumps and hydrogen boilers, of a mooted £4,000. There is already a grant available called the Domestic Renewable Heat Incentive which will run until March next year. People who join this scheme receive payments for seven years. Moreover, some mortgage lenders including Barclays and NatWest are offering lower mortgage rates or cashback for borrowers who buy energy-efficient homes.

There are thought to be rising tensions between Number 10 and Number 11 Downing Street, with numerous Tory backbenchers openly siding with Mr Sunak. They have even formed a faction called the Net Zero Scrutiny Group. The problem for Mr Johnson is that he is under pressure, as the host of the COP26 climate summit in November, to look like a paragon of green policymaking – even if many of his green pledges have not been fully costed.

Apparently, Mr Johnson and his advisors argue that it will be necessary to encourage early adopters of hydrogen boilers with subsidies in the expectation that, as economies of scale increase, so the price of conversion from natural gas to hydrogen will fall. The same argument was used to encourage the construction of wind-turbine arrays. But some industry analysts argue that many wind farms in the UK would not be economically viable if existing subsidies were withdrawn (as is scheduled for some time in the 2030s).

Mr Sunak believes that the private sector should be encouraged to develop viable green technologies without excessive subsidy. One way to do this might be for the government to write contracts for differences, whereby private, renewable-energy firms would get a guaranteed price for power generated for up to 15 years.

Also, energy security is going to become a more prominent issue so much of this technology will have to be developed at home.

Rolls-Royce (LON:RR) has made an important step in the proposed development of a network of small nuclear reactors (SMRs) by securing £210m in private funding to start the project. It will need to raise an estimated £2bn before it can start constructing the first SMR.

In June, Siemens Gamesa, the German-Spanish wind-turbine giant, announced that it was speeding up work on a prototype technology to produce green hydrogen using offshore wind- turbine arrays. It proposes to connect electrolysers and battery-storage facilities directly to existing arrays.

Hydrogen-powered trains

Hydrogen-powered trains will be deployed on certain UK branch lines such as the Windermere to Oxenholme (near Kendal) line and the Shrewsbury to mid-Wales line from 2023. They will replace existing diesel-powered services. Last year the transport secretary, Grant Shapps, was aboard the HydroFLEX train on its inaugural journey from Long Marston, Warwickshire to Evesham. Hydrogen trains would obviate the need to electrify the many miles of track that currently rely on diesel power alone. In Scotland, a fleet of hydrogen-powered refuse trucks operate in Glasgow.

Investing in hydrogen

In early July, Ineos, the chemicals empire controlled by Sir Jim Ratcliffe, announced it was investing £25m in the Hydrogen One Capital Growth fund. That will give Ineos a 10 percent stake. This is a relatively small investment for Ineos which has revenues of $61bn a year. However, the investment gives Ineos co-investment rights and allows it to appoint a director on the fund’s board.

Ineos’s energy division is run by Brian Gilvary, a former finance director of BP. In 2017 Ineos entered the energy sector by buying what is now Orsted’s North Sea oil-and-gas business and has since expanded its interests in the North Sea.

Ineos is already Europe’s largest hydrogen producer, making about 300,000 tonnes annually, with about one fifth via electrolysis.

The Hydrogen One Fund plans to invest in both private and public companies in the hydrogen sector as well as in CCS. It will focus on developed markets – Europe, North America, the Gulf and Asia. The fund’s parent company was set up by Richard Hulf, a fund manager who has worked for Exxon and Dr John Joseph Traynor, a former Shell chief executive. Simon Hogan, a former Morgan Stanley executive is chairman.

The National Infrastructure Commission (NIC) chaired by Sir John Armitt, has proposed that new CCS projects should be partially financed by new taxes. Households that fly frequently and eat more food might pay £400 a year, while lower-income households might pay £80 per year. But any government that introduced such a levy would most likely face a political backlash.

Separately, Johnson Matthey (LON:JMAT) is now trying to get taxpayer backing for a UK factory which will build components, including membrane electrode assemblies (MEAs) for hydrogen-powered cars. In January, Johnson Matthey announced that its Swindon R&D centre would get extra capacity for work on hydrogen systems. The company is also planning to expand its hydrogen fuel-cell business.

None of the current generation of political leaders will be around when gas boilers are outlawed in 2035 (or whenever it will be). So, their main concern is to look virtuous now rather than misguided later.

Meanwhile, back in China…

Last week the Intergovernmental Panel on Climate Change (IPCC) issued a stark warning (what UN Secretary António Guterres termed a “code red” for humanity) that global warming was reaching the point of no return. Some of the impacts of climate change are already irreversible, it argued.

Recently we learnt from Global Energy Monitor, the American think tank, that the world’s biggest emitter of CO2 – China − is currently constructing or planning 18 coal-fired blast furnaces for steel production and 43 coal-fired power stations. These will collectively release about 150 million tonnes of CO2 per year – about equal to the total annual carbon emissions of the Netherlands.

China is committed to a target of going net carbon neutral by 2060. But the country has stated that it will not cut coal consumption until 2026 across its almost 600 coal-fired power plants. On the plus side, China accounted for about half of all growth in renewables capacity last year.

Consciousness of the impact of climate change has risen in China due to a series of extreme weather events. Fifty people were killed in Zhengzhou, a city of 12 million people in eastern China, after 200 millimetres of rain fell in just one hour on 20 July. Zhengzhou boasts a number of factories operated by Foxconn (TPE:2354), a major supplier to Apple and other leading technology firms.

Almost all of China’s 650 or so major cities are vulnerable to flooding – something that will tend to focus the minds of Chinese leaders.

Ultimately, whether the world will be able to avert runaway climate change/climate catastrophe lies with decisions made in Beijing. To that extent China has already replaced the US as the global hegemon. On that, more soon.

PS

I’m writing this on 19 August. Exactly 30 years ago – 19 August 1991 − I awoke at my parents’ English seaside home to learn from BBC Radio 4 that there had been a coup in Moscow. Mr Gorbachev was under house arrest at his dacha in Crimea. There followed two or three tumultuous days before the world regained its balance – but it would never be the same again. By Christmas Day that year, the Soviet Union itself was undone.

For my part, I swung by Moscow regularly in Russia’s ‘roaring 90s’. The restaurants then were still affordable, amongst them the splendidly muralled Aragvi. I launched a training business for Russian bankers which didn’t do too badly. Anything was possible at that time. Bars jostled with wannabe millionaires from all over.

And then came the age of Putin. But I’ll never forget that day 30 years ago when the world held its breath.