Demand-side stuck in first gear: HUK says £20bn hydrogen investment needs a kickstart
The UK has a £20bn pipeline of private investment waiting to go into hydrogen projects. Long-term risk, policy gaps and lack of infrastructure is keeping it locked away.
Hydrogen UK’s (HUK) latest flagship report highlights four key barriers to hydrogen deployment across the UK – economics, policy uncertainty, infrastructure and tech demonstration. All of these are making it near impossible for offtakers to secure contracts. “Hydrogen producers are being asked to march in step before they’ve learned to crawl,” says the report.
Through a survey of members and stakeholders in the Made with Hydrogen campaign, as well as a series of interviews, HUK recognised these four barriers, as well as a number of solutions to get hydrogen funds out of the bank.
Economics and infrastructure
In what HUK refers to as a “commercially immature market dominated by bespoke, one-to-one contracts”, hydrogen contracts are often at least five times longer than natural gas contracts, causing an understandable reluctance among offtakers.
Plus, the low levels of UK ETS pricing means that there’s little economic benefit in switching from industrial gas to low carbon hydrogen. Access to capital expenditure (CAPEX) and development expenditure (DEVEX) funding is also tricky.
Blending excess hydrogen into the gas network might be the solution. This would mitigate existing issues with transport and storage (T&S), creating lower costs and providing a short term fix.
In the long term, development of T&S infrastructure would reduce reliance on costly transport methods like tube trailers, in favour of a dedicated network.
Infrastructure has always been an issue for hydrogen energy – there is no hydrogen pipeline network, and this drives the costs of transporting hydrogen energy up.
Hydrogen UK suggests a clear transition plan to the newly announced funding for hydrogen T&S infrastructure, creating assurance among industry leads on the logistics of the new funding.
Policy and demonstration
Delays to Hydrogen Allocation Rounds (HAR) and Cluster Sequence processes are causing planning complications, and to combat this, HUK recommends that a hydrogen update strategy is released “at the earliest opportunity”.
It is also recommended that hydrogen internal combustion engines (H2-ICE) are classified as zero emissions to encourage the deployment of hydrogen infrastructure.
Switching to hydrogen is an expensive and complicated process at the moment, and HUK notes that many investors are “‘racing to be second’, keen to see processes using hydrogen successfully elsewhere for confidence in their own investment”.
Incentives like CAPEX and DEVEX grants, as well as research and development grants, could encourage investors to take the first step – hopefully, with many more following afterwards.
In conclusion…
A balance of ‘carrots and sticks’ is needed to get more investors interested in the switch to hydrogen, according to Hydrogen UK.
Smoother processes and strong incentives can only happen when industry leads put their money where the methane isn’t.
Once the money is there, the industry will follow – and with a bit of practice, start to march in step.
