Harnessing Low Carbon Hydrogen – Market and Investor Risks Remain High

By Ciara Shannon, Green Finance Community Hub and Eden Works Green

This week, it’s been exciting to see the first ever UK Hydrogen Week celebrate some of the many UK hydrogen projects in the pipeline. The buzz is testament to the growing momentum of hydrogen’s potential to decarbonise a range of hard to abate sectors such as long-haul transport, chemicals, fertilisers, iron and steel.

To be clear though, right now, most hydrogen production is fossil-fuel based and the UK currently produces and uses about 700,000 tonnes of hydrogen per annum. Very little – if any – so far is low carbon.

But things are moving very fast with low carbon hydrogen demonstration projects being announced almost every week. The government is investing up to £240 million via the Net Zero Hydrogen Fund and it is developing an investor roadmap and business models and has outlined plans for a globally recognised low carbon hydrogen certification scheme. The European Commission has also published its definition for green hydrogen that now clearly states that nuclear-derived hydrogen – pink hydrogen – will not be labelled as “green” within the European taxonomy.

Getting “green” status is seen as a way to help unlock billions of pounds in funding for the nuclear industry. But, in the UK it is not yet clear if nuclear will get this status – the UK’s Nuclear Industry Association thinks that the UK should follow the science and label nuclear as green in its sustainable finance taxonomy to make it “cheaper and easier to finance nuclear projects from a wider pool of capital and (according to them) the UN confirms nuclear has the lowest lifecycle carbon, lowest land use, and lowest ecosystem impact of all electricity generation technologies.”

Long Term Reassurance on Cost and Viability Needed

In the UK – according to the Green Finance Institute (GFI), growing the UK’s green hydrogen industry could generate a cumulative GVA of £320 billion by 2050, including £250 billion of exports, and up to 120,000 new jobs by 2050.

Before this can happen, there is still a lot of work to do to find the most economical way to produce green hydrogen and as hydrogen is currently a nascent area of energy policy – better long-term funding and policy reassurance is needed to support early producers and users of green hydrogen.

If they get it right – the rewards will be substantial. According to research done by the RMI [1]for the EU, supporting early producers and users of green hydrogen: spending up to €15 billion to offset investment risks, between now and 2030 could generate more than 20 times as much private spending on advanced clean energy technologies.

First Mover Risks – Hacking Through the Thorns?

Image source: Carboncredits.com

The “first mover disadvantage” is presently a major barrier to scaling up quickly. For example, the current high electrolyser costs could make these projects uncompetitive in the future. At the sane time, to be financeable, a hydrogen project must also have an off-taker, but right now, for off-takers the risk is signing on to long term contracts that could lock them into paying higher-than-market rates in the future.

Green hydrogen is still 2-3 times more expensive than blue hydrogen (produced from fossil fuels with carbon capture and storage). Most hydrogen forecasts show cost parity between green and blue hydrogen somewhere between 2030 and 2040 and falling technology costs and rising carbon prices will ensure green hydrogen outcompetes fossil alternatives. [2]

Multi-Coloured Hydrogen Opportunities for Cumbria

The North West of England has the industry, infrastructure and innovation to make low carbon hydrogen energy a reality and Cumbria has significant potential to contribute to this opportunity.

In our (the Green Finance Community Hub’s) Green Investment Plan for Cumbria – that was set up originally to look at alternatives to the coal mine (we have since expanded our focus) – we commissioned Arup to consider more deeply an emerging hydrogen strategy that included a large-scale, grid-connected green hydrogen production facility located at (or near) Harker, north of Carlisle. This would provide a means to overcome England/Scotland’s grid constraints using the strategic road network to distribute energy whilst unlocking the expansion of further onshore renewables.

Second, the plan is to use surplus power from the existing Robin Rigg offshore wind farm (in the Solway Firth), to generate green hydrogen and oxygen from an electrolyser located near Workington, adjacent to a wastewater treatment plant. The final effluent (treated water) from this plant would provide the water input to the electrolyser, and surplus electricity from the wind farm would be used to split the water into hydrogen and oxygen. The innovation proposed at Workington demonstrates a ‘circularity’ in energy use that could be replicable across the country at wastewater sites.

Diagram source: Arup, UK

Project Collette

At the heart of our thinking on green hydrogen in Cumbria is Project “Collette” (as in collective) which would be a 1.2 GW community-focused offshore wind farm that would use excess power to produce green hydrogen, and this would create, effectively, a storage buffer to deal with the intermittency of wind as a means of transfer of energy to shore. We calculated, between 850 and 1100 Kt C02e of savings each year and these savings could be enough on their own, to significantly contribute to savings needed for Cumbria to meet its net zero targets. An essential component though is ‘Anchor’, high energy users or off-takers that offer a ready market for green energy generation, thereby underpinning the investment rationale either for the community, for the business or in a partnership.

The giant among such potential off takers in Cumbria is Sellafield, but there are many other large companies, institutions and utilities with large buildings and energy demands such as United Utilities, Electricity Northwest, Stagecoach, BAE Systems, Westmorland General Hospital. All of these have a decarbonisation agenda and offer potential hydrogen investment opportunities with a community element.

Moving All Things Forward at Once

At this early stage of low carbon hydrogen development and production, all methods and technologies for producing and using hydrogen should be explored to get the market moving. But most hopes rest on “green” hydrogen.

Excitingly, already in development, is Carlton Power’s Barrow-in-Furness Green Hydrogen project that would supply hydrogen directly to Kimberly-Clark’s paper mill along with other industrial off-takers in Barrow and the wider area. The project is initially expected to be 35 MW produce 3500 tonnes of hydrogen every year, with expansion capacity planned as demand grows. [3] Carlton Power is a good example of an organisation taking first mover risks, as detailed earlier and as described in our recent podcast[4].

In Cumbria, in addition to its green hydrogen potential, it is very likely that new nuclear generation including small modular reactors (SMR) will be able to deliver pink hydrogen by the next decade.

More controversially, there is also the Morecambe Bay Gas Fields with the Barrow Gas Terminal operated by Spirit Energy that offers a blue hydrogen opportunity with a massive carbon use and storage (CCUS) potential. Importantly, hydrogen allows vast quantities of clean energy to be stored for long durations for use in peak demand and seasonal energy balancing. [5]Then there is the ongoing testing by DNV at Spadeadam in Cumbria that is working on building up the case for hydrogen in domestic heating.

Potentially, Cumbria has many investable hydrogen projects to help jumpstart the UK’s hydrogen economy and it is exciting to be part of it (albeit in a small way). Given Cumbria’s significant net zero contribution and job creation opportunity, it makes little sense that a coal mine has been approved as part of the mix.

[1] Source: https://rmi.org/tackling-investment-risks-to-accelerate-green-hydrogen-deployment-in-the-eu/

[2] The cost of green hydrogen production is quantified using the levelised cost of hydrogen (LCOH) and this is driven by different technologies and scenarios for production. Green hydrogen is made by the electrolysis of water powered by renewable energy sources; it does not produce CO2 and so is the ‘cleanest’ option

[3] Source: https://www.carltonpower.co.uk/news/kimberly-clark-and-carlton-power-enter-partnership-agreement-to-launch-breakthrough-green-hydrogen-project-in-barrow

[4] Listen to our podcast – Harnessing Low Carbon Hydrogen – Hacking Through the Thorns? Click – https://apple.co/3E8i8lm. (recorded Jan 19, 2023)

[5] Hydrogen can be stored in salt caverns, depleted gas fields or as compressed gas or liquified at various strategic points.