James Richardson speech to WEETF on the hydrogen economy

The Commission's Chief Economist shared his thoughts on hydrogen's future contribution to a lowcarbon UK economy.

Published: 26 May 2021

By: Rob Mallows

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Image of hydrogen molecules

The following remarks were given by our Chief Economist James Richardson at the Westminster Energy, Environment & Transport Forum event on Creating the hydrogen economy, which took place earlier today.

“Hydrogen seems to inspire equal parts optimism and scepticism. Perhaps that’s only to be expected from a new technology. But I thought it would be helpful to set out what I think we broadly do know; what we don’t know; and a few areas that perhaps deserve more thought.

What we do know – or at least seems reasonably clear

It’s pretty clear that hydrogen has a role to play in decarbonising. Crudely, decarbonising any one thing can take one of three routes: you can electrify, with zero carbon electricity; you can substitute a zero carbon fuel; or you can capture the CO2 either at the point of emission or directly from the air, and put it back underground.

Of course behaviour change also has a role, but unless you reduce demand to zero you still need one of these three routes.

Electricity is a great energy source. We’ve made more progress decarbonising electricity than anything else. But it can’t do everything. You can’t electrify a container ship, a transatlantic flight or some industrial processes.

Nor can you attach carbon capture and storage to a ship or a plane, or for that matter a cow. You may be able to remove CO2 after the fact – we’re currently doing a study on that. But there is only so much land for planting trees and engineered solutions like direct air capture are never going to be cheap.

So there is a role for alternative fuels. That basically means hydrogen or hydrogen-derived fuels. There simply aren’t enough biofuels to go around.

We also know that hydrogen can give you high temperatures; that it can act as a chemical reducing agent; and that it’s easy to store in large-scale static environments. It is a lot more energy dense than batteries. Those are all useful properties.

But we also know that low carbon hydrogen is a pretty expensive fuel. You make it either from natural gas combined with carbon capture and storage or electricity, so the laws of thermodynamics make it more expensive than natural gas or electricity.

And if you make it from natural gas – so-called blue hydrogen – there are still some emissions from methane leakage and imperfect carbon capture. So there is a further cost for offsetting that.

Some people argue that hydrogen will be so expensive you should only use it if you absolutely can’t electrify. I don’t think it is quite as simple as that. Fuel costs aren’t everything.

Capital costs matter too. And the cost of electricity isn’t fixed, it varies across time and space. Commission modelling suggests hydrogen could play a significant role in backing up the electricity system because hydrogen powered back-up generators will have low capital costs and produce electricity when its price is highest.

There may also be a role for hydrogen produced with very cheap surplus electricity on very windy or sunny days backing up the system. But load factors on electrolysers look quite low, so it’s not a slum dunk.

Finally, there is the question of scale. Domestic heating in the UK today uses about 300 TWh of natural gas.[i] Replacing that with ‘green’ hydrogen, assuming a 70 per cent efficiency would require about  420 TWh of generation.

A rapid scale-up of energy infrastructure is possible. Petroleum products went from 10 Million tonnes to 106 Million tonnes between 1946 and 1973, or around 110TWh to 1,200 TWh.[ii] Electricity went from around 40TWh to around 245TWh in the same period[iii] a sixfold increase in 27 years.

Of course different energy vectors aren’t directly comparable, but scaling up energy production on this order of magnitude is not without precedent. But generating green hydrogen at this scale would only be possible with very large amounts of floating offshore wind. You run out of seabed for fixed, and we don’t know that floating will be so cheap.

What we don’t know

Of course with any new technology there are lots of things we don’t know. I want to highlight four.

First, we haven’t got the safety case. Hydrogen is a familiar substance in industrial environments, but in the home or in ships or aircraft it isn’t. Nothing is going to move forward until safety has been established.

Secondly, we really don’t know what will happen with costs. There are lots of estimates of cost reductions, especially for electrolysers. But they are just that – estimates. It’s easy to point to success stories of cost reductions, such as offshore wind or solar.

But not every technology looks like that. Nuclear power is at the other extreme, where costs have not fallen at all over 70 years.

A lot will hinge on what actually happens with costs. In many cases, hydrogen is competing against potential alternatives, so cost will be a key factor. This also means we don’t know the balance between so called blue – methane reformed – or green – electrolysed – hydrogen. But blue would need to account for the costs of offsetting methane leakage and residual emissions. The government is right to be pursuing both at the moment.

And we don’t really know what it would cost to convert the existing gas grid to hydrogen, even allowing for the billions that are already being spent as part of the Iron Mains replacement programme – that programme after all is not designed to build a hydrogen grid even though it takes you a lot closer to one.

Third, we don’t know what will happen with small scale ‘on the go’ storage. Some applications, such as aviation are dependent on better small scale, portable storage options than we have today.

Costs and storage then interact to generate the fourth uncertainty: will there be a global market in hydrogen? Most energy vectors today operate in regional or global markets.

The combination of cheap electrolysers, cheap solar electricity in sunny places like Australia or North Africa, and ‘on the go’ storage would make the comparison with the UK electricity price very different. But we just don’t know.

Where we don’t know, we might want to invest in finding out. We might want to keep options open. But we shouldn’t fall for wishful thinking.

What we might want to think more about

I also want to touch briefly on two aspects that don’t seem to get much airtime in the debate.

Firstly resilience. We published a report on this last year, and Covid has surely reminded us of the importance of taking it into account in decision-making.

At the moment, if the power goes out most of us can still heat our homes; and if the gas goes out we can huddle round an electric heater.

If homes go entirely electric we would need a different back-up. That might be batteries – for example in electric cars – but only if the home is equipped for that. As we make decisions, we need to consider how to maintain the level of resilience we want – and what that will cost. It’s too late when the power goes down.

Secondly, choice. Much of the debate is about optimising solutions for society. But in society, people often value having a choice.

Of course not all choices work. There can’t be any high carbon choice. The choice between ocean liners and aviation didn’t last long. But I value the option to have an iPhone or Android, or to live in an old house or a new one.

Our models don’t really capture these. But real policy-making needs to.

Conclusion

Put this together, and I think what you get is this: hydrogen will most likely play a role in backing up the electricity grid, in industry, in shipping and perhaps in some heavy land transport though electricity will prove a tough competitor there. Cars, vans and light trucks will all go electric.

Aviation remains highly uncertain. And so, for different reasons, does domestic and commercial heating.

Here much of the above comes into play: the higher fuel costs of hydrogen versus the higher capital costs of heat pumps and bigger radiators; the scale of heat demand versus the prospects for international trade; and the benefits of choice and resilience.

Finally, of course, we need to make rapid progress. We’re looking forward to the government’s Heat and Buildings and Hydrogen Strategies, and the overall Net Zero strategy – and hopefully we will see those soon.”

Notes

[i] Digest of UK Energy Statistics

[ii] National Infrastructure Commission, historic energy dataset

[iii] Department for Business, Energy & Industrial Strategy, Historical Electricity Data

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