Fourth report - The role of hydrogen in achieving Net Zero

To meet the 2050 Net Zero target, decisions need to be urgently taken by the Government, which will help define hydrogen’s place in the UK’s overall decarbonisation strategy. These decisions should be integrated across Government, in policy areas such as those identified in the Ten Point Plan for a Green Industrial Revolution. Decisions on hydrogen should be made in an international context and take into consideration the approaches of other countries both in terms of lessons to be learned and collaborations to be pursued. The Government should, in the next two months, outline a series of decision points between now and 2050 that will determine the role of hydrogen in the UK, in each policy area identified in the Ten Point Plan for a Green Industrial Revolution. This should be accompanied by an outline of the scientific and technological progress that needs to be made to allow hydrogen to play its part in our energy system.

Hydrogen has several distinctive features as a low-carbon gaseous fuel and could contribute to the UK’s energy system, including through improving resilience and energy security. Whilst in some applications hydrogen is less efficient compared to alternative low-carbon technologies, the wider energy system benefits of deploying hydrogen must be acknowledged, and we welcome the Government’s whole systems approach in its Hydrogen Strategy. Consideration should be given to broader benefits, such as system resilience and national security, as well as price competitiveness as a fuel, in implementing the Hydrogen Strategy. (Paragraph 31) Hydrogen production

The Government has chosen at this stage to support the development of both green and blue hydrogen. We heard that the initial adoption of blue hydrogen will be cheaper than green hydrogen, and ready to use in certain niche industrial settings sooner. However, several analysts have argued that green hydrogen will become cheaper than blue hydrogen over time.

There is uncertainty about the extent to which blue hydrogen can play a role in a Net Zero economy in the mid to long term, even if it may be cheaper and ready to deploy in certain industrial settings sooner than green hydrogen, as some industrial users already possess the necessary infrastructure. The Government should not be dependent on either blue or green hydrogen alone in the short-term. The Government’s decision to continue using blue hydrogen should be dependent on the standard CO₂ capture rate reaching 95% by 2030 and in excess of 99% well in advance of 2050. In its response to this Report the Government should set out its expectations of how much CO₂ could be captured in hydrogen production and which industrial settings it sees as being ready to utilise blue hydrogen prior to 2050.

Carbon capture, utilisation and storage (CCUS) technology should be an area of priority research interest for the Department for Business, Energy and Industrial Strategy, and a strategic priority for UK Research and Innovation. (Paragraph 56) 72 The role of hydrogen in achieving Net Zero

Several countries are prioritising green hydrogen in their hydrogen strategies, and it seems likely that international interest in demonstrably low-carbon hydrogen, including green hydrogen, will continue to grow. This offers an opportunity for the UK to become a leader in green hydrogen production and development. The Government needs to provide more clarity in its updates to market on the hydrogen strategy, with a view to guaranteeing significant green hydrogen development over the next decade. In its response to this Report, the Government should set out how it intends to support the development in the UK of green hydrogen projects at scale during this decade, to ensure that green hydrogen can be produced in the UK and so it can become cost-competitive with blue hydrogen. This should include additional efforts to reduce the cost of electrolysers.

The Government should set a 2030 target for green hydrogen production to ensure that full-scale development of green hydrogen is incentivised to take place in the short- term and to make it more likely that the UK develops a green hydrogen production capacity. The Government should be clear whether any targets it sets are for capacity to produce, or are an expectation of how much hydrogen the UK expects to produce and use. The Government should also indicate when grey hydrogen production will be phased out. (Paragraph 66) Hydrogen applications

Energy storage for electricity generation is widely recognised as an important component of the Net Zero economy, and there are several potential technologies available for energy storage. Hydrogen has unique features as a means of energy storage, since as a clean-burning gas it can be transported through existing infrastructure and stored safely for long periods of time, if necessary. We welcome the Government’s recognition of the potential role of hydrogen as an important means of energy storage. The Government should continue to provide the necessary policy support and infrastructure for grid-scale energy storage technologies. Findings from hydrogen energy storage trials should be recorded and shared between trials to ensure that as much is learned as possible.

Hydrogen can undoubtedly help key UK industrial sectors decarbonise. There is a widespread recognition of the importance of regulatory reform and an effective business model in incentivising a switch to low-carbon hydrogen use. We welcome the Government’s use of industrial clusters to trial the use of hydrogen. The Government must design and establish effective mechanisms to capture and learn the lessons from these trials and demonstrably apply the lessons from the industrial clusters to be set up by 2025 to those which will be in operation by 2030.

Passenger battery electric vehicles for road transport have established a seemingly unassailable lead over other green alternatives, meaning that it looks likely that hydrogen will play in the near future, at most, a small part in decarbonising passenger cars.

Whilst there is lower round-trip efficiency compared to electrification, hydrogen vehicles have the advantage of shorter refuelling times and longer ranges. This therefore makes hydrogen a potentially viable alternative to electrification for HGVs, but widespread adoption of hydrogen in HGVs can only be achieved with an The role of hydrogen in achieving Net Zero 73 assurance that hydrogen will be widely available across the country. Whilst other countries have given commitments to hydrogen refuelling stations, the UK has been more reticent to date. More trials for heavy goods vehicles, beyond those already announced and forthcoming as part of the Zero Emission Road Freight demonstration programme, need to take place in the next five years to ensure that a firm decision can be made on the role of hydrogen in HGVs in time to develop the infrastructure needed to deliver carbon emission reductions. Trials could be localised to minimise the initial infrastructure requirements. Any early adoption of hydrogen HGVs is likely to require subsidy by the Government to overcome the higher cost for the operators.

We welcome the trials of hydrogen buses which are taking place in the UK. The Government should continue to support such trials and come to a rapid view of the contribution that hydrogen-fuelled buses can make. Trials should consider the implications for other applications such as HGVs, and the decisions the trials will help to inform.

Hydrogen has a modest but potentially critical role to play in decarbonising the rail network, where electrification is not suitable or cannot be delivered in time to contribute towards meeting Net Zero. Whilst trials and demonstration projects are underway in hydrogen trains, there is no clear plan to develop the role of hydrogen in this sector. Some countries, such as Austria and Germany, are already using hydrogen trains. In response to this Report, the Government should set out the lessons it has learned from the use of hydrogen trains overseas and how it will use this information in trials of hydrogen trains in the UK. In response to this Report, the Government should set out the lessons it has learned from the use of hydrogen trains overseas and how it will use this information in trials of hydrogen trains in the UK.

The Government must identify, with industry, the train lines where it is unlikely that electrification will be viable before 2050 and start trials of hydrogen trains on these lines in the next five years.

Hydrogen has an important role to play in decarbonising shipping and aviation, but parts of the transport industry want more clarity from Government about the intended role of hydrogen since there are significant infrastructure requirements and substantial costs that need to be met. There are also significant infrastructure requirements associated with hydrogen deployment in aviation and shipping but the likely ‘winner’ from amongst the potential low-carbon technologies in these sectors has yet to emerge and the choice will be internationally, rather than domestically, determined. In its response to this Report, the Government should set out its strategy for participation in international fora to shape a global outcome on the role of hydrogen in shipping and aviation.

The Government should use its influence internationally, following its leadership of COP26 and involvement in Mission Innovation, to set standards and timelines for decisions on the role of alternative fuels and hydrogen within aviation and shipping. In these areas the Government should seek to lead the development of standards that can be adopted internationally. (Paragraph 120) 74 The role of hydrogen in achieving Net Zero

Hydrogen could play a role in domestic heating, but the extent of its potential is still uncertain and looks likely to be limited rather than widespread. We are unconvinced its deployment will prove to be economically viable by the time the Government has said it will determine the role of hydrogen boilers, in 2026.

Overall, whilst there are a variety of possible applications of hydrogen technology across every sector of the UK economy, we agree with the Government that on the basis of present knowledge and the technology available it seems that the role of hydrogen will be to decarbonise specific, limited areas where electrification is either not possible or clearly not optimal, such as the industrial clusters currently developing hydrogen capabilities. The clusters may also offer a future production option for some of the hydrogen required in other applications. The Government should prioritise the use of hydrogen in those sectors where there is a genuine prospect of technical, feasible and economically viable deployment. The Government should work closely with businesses and international partners to set, in the 2020s, a realistic strategy for the adoption and use of hydrogen in these sectors. (Paragraph 137) Hydrogen metering and the role of Ofgem

Metering is an essential component of any use case for hydrogen in domestic settings. We have heard that the current generation of gas smart meters are designed to measure volume flows of natural gas which are much lower than hydrogen volume flows for the same energy delivery, so are unlikely to be compatible. Larger volume capacity meters, or alternatives which measure mass flow, may be required.

The energy regulator Ofgem has not worked on understanding hydrogen domestic metering and has not been able to say whether the current roll-out of smart meters will prove ineffective if hydrogen is used in domestic metering. Ofgem was also unable to provide cost estimates for how expensive a hydrogen-ready smart meter roll-out would be under different scenarios, or what the cost implications would be for the consumer. This has arisen, it was suggested to us, because the responsibility for domestic metering is no longer within the remit of Ofgem. Domestic metering is an issue that has been overlooked, and we are concerned that Ofgem is not fulfilling its specified remit of protecting the consumer.

An urgent project on metering domestic hydrogen use needs to be undertaken. This should include an assessment of: • whether and when the current generation of gas smart meters need to be (a) adapted, or (b) replaced; • what technology could and should be used in new meters to accommodate different fuels and to reflect the timing and pace of different transition scenarios; and • the likely costs of domestic metering under the various scenarios. This work should be completed by the beginning of 2024 to ensure that a resilient approach to metering has been developed to underpin the Government’s decisions on the role of hydrogen in domestic heating and to lay the foundations for an appropriate pace of change should the decision be to adopt hydrogen for domestic heating. (Paragraph 154) The role of hydrogen in achieving Net Zero 75 The Government’s hydrogen strategy

Several countries including Germany, Japan and Singapore have well developed hydrogen strategies with significant public funding to support the development of infrastructure, production and use of low-carbon hydrogen. Through public- private partnerships, Germany and Japan have structures intended to enable the development of a regulatory framework and provide confidence to consumers for private investment. The UK’s main international competitors in this field also tend to have specific bodies responsible for the delivery of their government’s targets. Given the evidence received on the importance of whole systems performance, the Government should designate or create a single department or agency with responsibility and accountability for delivering cross-departmental Net Zero commitments, including those relating to delivering the hydrogen strategy.

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. The Government’s understandable desire to keep its options open pending market and technological developments may not provide the clarity that investors require to proceed. The Government needs to trade the risk of failing to meet Net Zero if decisions on how to reach it are not taken soon enough against the risk of pursuing unproven technologies or solutions that are not cost-effective which would then set the UK back at a later stage. Alongside the series of decision points between now and 2050 required to determine the role of hydrogen in the UK, the Government should, in its response to this Report, set out clear criteria to identify the potential role of hydrogen in each sector.

There appear to be opportunities and advantages in the UK accelerating its decarbonisation of the economy by focusing on hydrogen and becoming a leader in low- carbon hydrogen production, distribution, and deployment for multiple purposes. But, as discussed in this Report there are still uncertainties which entail the risk that technologies do not prove reliable in time, or require excessive costs for consumers and taxpayers. We welcome the Hydrogen Sector Development Action Plan as a step towards making these choices.

The Government should identify its priorities for hydrogen in the economy and recognise the opportunity of hydrogen development in delivering Net Zero and developing a resilient energy system. In its response to this Report, the Government should set out what further work has been done and what more is planned to identify the sectors where the UK has a competitive advantage that it can deploy, and prioritise funding and large-scale deployment in those areas initially.

Whilst much of the technology needed for hydrogen exists and can be scaled up with sufficient policy incentives, innovation in low-carbon hydrogen technology remains important. This includes both the further development of techniques and technologies that are already proven, and the further development, and bringing- to-market, of projects that are less well-known. Funding bodies, like UKRI, having identified the need for such research, should reflect this in their funding programmes. In many cases, such research is more efficiently funded through our grants system than indirectly through subsidised deployment. (Paragraph 191) 76 The role of hydrogen in achieving Net Zero

As with other low-carbon systems, there are costs associated with the development of infrastructure and the uptake of hydrogen use within every use case. The relatively higher prospective cost of low-carbon hydrogen will increase overall costs of, for example, manufacturing, transportation, or heating. There is a risk that because of these costs and impacts on end user prices, the companies and other entities forming these new hydrogen-based, low-carbon, value chains risk failure from non- competitiveness. (Paragraph 197) The role of hydrogen in achieving Net Zero 77