The mood is very much in favour of the strategic spatial energy plan (SSEP). But what impact will this have on hydrogen’s prospects?

At the system planning level, hydrogen’s role has been identified as providing long-term energy storage.

Generating power with hydrogen is not an attractive proposition. Low-carbon hydrogen is a premium fuel and the round trip efficiency is punitive. But system planning for net zero requires keeping an eye on the worst case scenario.

Driving progress

Strategic spatial thinking was at the heart of Electricity Networks Commissioner Nick Winser’s comments to the Aurora Hydrogen Conference in Westminster this week.

Winser set out his initial call for a strategic spatial energy plan (SSEP) in August 2023. The concept won support from both sides of the political divide. The commissioner cited the request from Secretary of State Ed Miliband and head of mission control Chris Stark to National Grid ESO’s Fintan Slye as evidence of this.

The new National Energy System Operator (NESO) will launch on October 1. That month it will sketch out the SSEP as requested by Miliband and Stark, Winser said.

He referred back to the Climate Change Act for providing the stability needed for government to strike long-term agreements.

“It gives binding obligations for ministers to come forward with plans that can deliver on the carbon budgets. And we’ve seen how well that works,” Winser said. “One of the discussions around that is how to back up that commitment at a policy level with policy mechanisms so the targets are hit.”

“Spatial planning is here”, he said. The “real work” will be in how to deliver this most effectively. He highlighted the challenge of community relations, finding a balance between the need for clear communications and a need for planning speed. This will be a “big part of the decarbonisation path forward”.

The plans must find a balance between communicating with communities while not being “overbearingly slow”.

Policy plans

One next step, Winser suggested, was publishing a national infrastructure policy, approved by Parliament. This would “set out what we are going to do” and provide some “narration” around asset plans.

There is an interplay between hydrogen, electricity and CO2 transmission, Winser said.

“If you use large amounts of renewable power, particularly in Scotland, build some core hydrogen network, then you could … potentially build less electricity transmission and trade that off. Then you end up with a strategic planning question around how much capacity do you need to build in the electricity system?”

Scotland lacks geological capacity for storage, at least in the near term. To secure Scottish hydrogen to smooth out the strains on energy supply, it will need to be delivered to storage sites south of the border.

CO2 would flow into Scotland for storage, therefore, while hydrogen flows the other way.

Dalia Majumder Russell, partner at CMS, backed the importance of building transportation and storage.

“It’s frustrating that storage in the UK has been delayed because unlocking that would help the offtakers and the producers balance peaks and troughs.” A hydrogen network would be able to create “more opportunities. So, if one offtaker fails, you can send that product elsewhere.”

She said it was a “difficult piece” but crucial to creating a market.

Into the details

But how does Winser see hydrogen playing a part in the UK’s energy mix? The National Infrastructure Assessment (NIA) called for a “core hydrogen transmission network”, alongside a carbon capture system.

The hydrogen network would link Grangemouth and North East Scotland, Teesside, Humberside, Merseyside and South Wales. National Gas Transmission is working on Project Union, which will cover 2,500 km of hydrogen pipelines.

For the NIA, hydrogen can provide a means of overcoming inter-seasonal energy storage challenges. By 2035, it said, there should be at least 8 TWh of hydrogen storage and “low carbon gas generation” of 30 TWh. The latter would start off being gas-fired power, with carbon capture and storage (CCS).

The aim is to safeguard UK power generation when renewable energy supply is exceptionally low.

A Royal Society report from 2023 also found in favour of hydrogen storage, although it went further. Its report called for 60-100 TWh of hydrogen storage capacity, with an estimated cost of around £100 billion to achieve this target.

The Royal Society noted wind has a higher variability than solar, which will cause particular challenges for the UK.

“Winter wind droughts, which occur when wind speeds over the North Sea are low, pose the biggest challenge”, it said. At this point, when wind speeds are low, temperatures are also low, spurring high energy demand.

Efficiency challenge

A number of attendees at the conference discussed the capture of cheap power at certain times of the day, with the aim of blending gas into the grid.

Such a move will reduce the carbon emissions, but blending is limited to 20%. And, given hydrogen’s energy content, this can only provide a 7% reduction in CO2 emissions from combustion.

Hydrogen specific power stations, in Winser’s model, face challenges in efficiency. Hydrogen-to-power plans have an overall efficiency of around 45%, compared with the use of renewable energy direct.

Using hydrogen in this way may be three times more expensive than green energy direct.

And hydrogen also struggles in efficiency terms when compared with pumped storage hydro (PSH), which can achieve efficiency of 70-85%. PSH is limited to certain geographies and is likely to play a part.

Cost comedown

Progress can be made to improve efficiency, although this will be slow in coming. It may be that the best way to create demand for hydrogen is by tackling prices.

Deniese Ramsundarsingh, development director at Octopus-backed Hyro, welcomed the successes of the first hydrogen allocation round (HAR), but said more should be done to bring the costs down, at the Aurora conference. “The cost of electricity is pretty high and that’s a major cost for hydrogen.”

Another speaker at the conference said power costs might account for 50-70% of the cost of hydrogen.

There are ways to pass on power costs to offtakers. Hydrogen prices, for instance, could have a link to the input energy, allowing both parties to share some of the risk.

Power prices have come down considerably from renewable sources. Recent research from IRENA reported utility scale solar PV project prices had fallen by 12% from 2022 to 2023. Onshore wind was down 3% and offshore wind down 7%.

While solar prices have continued to trend downwards, the recent Allocation Round (AR) 6 results show increases for offshore wind.

Push and pull

But are lower hydrogen prices the answer? Alexander Voigt, the CEO of HH2E, warned against such assumptions, calling attention to upwards pressure on hydrogen’s competitors.

“We all underestimate the cost of the [EU] ETS prices on energy costs, starting in 2027. From my point of view, we will see CO2 prices that most people here in the room cannot dream of,” he said. Carbon prices are likely to increase, in the EU and UK.

There is “no reason” that hydrogen prices should go below 8 euros per kg before 2030, Voigt said. “Come from the other end, see how other sources of energy will be priced.”

But there is a problem of relying too much on sticks, rather than carrots, Deniese Ramsundarsingh, development director at Octopus-backed Hyro, said.

Penalties can move an offtaker, she said, but they are sometimes in “industries that are on their knees. Another cost, another penalty can be quite significant”.

She suggested that there should be a carbon price high enough to “bring people to the table” but not so high it “brings the offtaker to their knees”.

Strategy over price

Lower priced hydrogen would draw more entrants to the sector, but for the foreseeable future it will be reliant on direction from the government.

Commenting on Equinor’s recent announcement that it was dropping plans for a blue hydrogen pipeline, Voigt said there was a “belief that the free market will simply enable projects like that. It’s proof that this will not work out, not in these large volumes”.

There is an acceptance that the UK and EU must use carrots and sticks to drive hydrogen forward.

There are strategic reasons for adopting green hydrogen, particularly when squaring the circle of decarbonisation and energy storage. Such a move would help insulate the UK from global headwinds. But such geopolitical insurance does not come cheap.

If the government wants to achieve long duration energy storage via hydrogen, it will have to pay – and to keep paying.

Energy prices from solar and wind have fallen incredibly over the last 10-15 years. But so too have battery prices. IRENA found battery storage costs down by 89% from 2010 to 2023.

Battery storage developers can operate subsidy free, with prices continuing to fall. Hydrogen storage faces technical challenges and relies on subsidies.

Investors have responded to state support for hydrogen projects, both in the UK and the EU. Winser’s strategic planning shows the direction, but hydrogen will continue to rely on state intervention for the foreseeable future.

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