Greenomics – Ep. 8 | Hydrogen hype: a low-carbon climate solution?

Sarah Nelson:
Hello. Welcome to Greenomics, a podcast from Oxford Economics, where we delve into the complex relationship between climate, nature and our global economy. I’m your host, Sarah Nelson, in the economics and sustainability team here at Oxford Economics. And together will be navigating the changing landscape of the green transition. Each month we’ll be joined by a panel of experts to discuss one aspect of sustainability and unpack what it means for businesses and today’s economy.

Today, I’m handing over to Dr. Matthew Winning to discuss the economics and policy of low carbon hydrogen. You’ll recognize many wonderful Scottish accent from our Cop Roundup episode at the end of last year. Matt is head of climate research at Oxford Economics and has just written two research briefs on hydrogen. One of which asks, Is low carbon hydrogen a Swiss Army knife.

Intriguing. Matt, over to you.

Matthew Winning:
Hello. I am Dr. Matthew Winning, and today’s episode is all about an explosive technology that is all carbon hydrogen is an area of significant interest to everyone from climate folks to engineers, from governments to investors. But it is perhaps hard to separate the wheat from the chaff and dig down into what really matters in order to understand what the prospects really look like for this burgeoning industry.

So I’m going to skip to two interviews that I had with experts in this area. So welcome to today’s episode. Our guest is someone I’m extremely happy to get to chat to it’s Gniewomir Flis, who is an innovation consultant, has dedicated the last seven years to becoming an expert in carbon neutral Hydrogen has experience, spanned several different roles in energy consultancies, various think tank start ups and venture funds.

And notably, he has advised the UK, German and EU governments on many aspects of their hydrogen strategies. Welcome to our podcast.

Gniewomir Flis:
Thanks for having me.

Matthew Winning:
Not at all. Thanks for coming. It’s really appreciated. Right. Let’s kind of delve into this. So hydrogen as a concept has been around for a long time, right? So why now do we see a lot more interest in this area?

Gniewomir Flis:
Right. That’s an excellent question to start with, Matt. I think, broadly speaking, to set the context, the context is the Paris agreement and the need to reduce emissions. And countries obviously started with the low hanging fruit, which is cleaning up their energy supply, their electricity supply. But there was a big elephant in the room during these talks. And as we started getting into the 2020s and the low hanging fruit was achieved, civil society started asking policymakers and decision makers, well, what are you going to be doing about the remaining parts of the economy?

And when we talk about we referred to these parts of the economy as the hard to abate sectors or do we used to refer to them as the hard to abate sectors. So these things counts in them for things like aviation, maritime sectors, industrial production, whether that’s chemicals, petrochemicals, fertilizers and all these all of these sectors had one thing in common in that they were very difficult to electrify directly.

So here comes the zinger. In 2017, a bunch of companies, industrial gas companies, got together with a consultancy called FTI Consulting, and they formed a strategy where they proposed that hydrogen is the answer to all of these questions. Whether you want to decarbonize heavy transportation, what are you going to decarbonize? Industrial production in that? I mean, industrial feedstocks or maybe sources of industrial heat?

Hydrogen is the answer to all that. And some of them also, of course, proposed a hydrogen cars and also hydrogen heating for homes. Essentially, any problem that policymakers sort of refuse to touch was supposed to be solved by hydrogen. And then, you know, as they say, the rest is history.

Matthew Winning:
So it was it was sort of born of the Paris Agreement, and then industry decided to start getting involved, a sense that to put it forward as a potential solution.

Gniewomir Flis:
Yes. Yes. It was more the Paris Agreement said the context and the industry jumped on the opportunity. And I think also one thing I’d like to add to that is also the role of the Japanese government, because Japanese companies have invested heavily into hydrogen. And in 2017, when they saw the hydrogen council forming, they saw their chance to sort of repeat the success story of their LNG sector or how they built up the global LNG sector.

You know, companies like Kawasaki, Mitsubishi, Toyota was a big believer in the hydrogen technology, so they sort of joined that wave. And in two years, yeah, the kind the hydrogen council kept putting up reports which culminated in 2019 with the Japanese government sort of co-hosting the Clean Energy Ministerial. If I’m not mistaken, where they presented a big report with the IEA, the Future of Hydrogen.

And that report just entered the imaginations of almost every policymaker in the world.

Matthew Winning:
And it took off from there. Right. Good. Okay. So from an economic perspective, you know, what are the sort of uses of hydrogen? What are the sort of downstream sectors that might be demanding that hydrogen or in all carbon? Hydrogen as a as an option?

Gniewomir Flis:
Well, that’s the beauty of hydrogen. It’s so versatile. Some people call it the Swiss Army knife of decarbonization can use it anywhere. It’s you can yeah the hydrogen can be used as a feedstocks in the production of chemicals. It can be used as a fuel, whether it’s burned in a fuel cell or an internal combustion engine. It can.

You can even use the internal combustion engines. We have today with small modifications. So, yeah, it is an extremely versatile molecule, but it doesn’t always make economic sense to use it in every use case.

Matthew Winning:
I was just going to say so. Yeah. The possibilities of Limitless, but yes, but potentially it’s the economics that are constraining that or other resources that are constrained in that. Potentially.

Gniewomir Flis:
Yes, it’s the economics and the reason why the economics of hydrogen are constrained is actually because of the physics or chemistry of it. The reason, the fundamental reason being that hydrogen is an extremely small molecule. It’s actually the smallest molecule that there is. And that means that it has incredibly poor energy density and it’s incredibly hard to store it for in large amounts and in any energy system, actually, energy storage is one of the most difficult parts.

That’s why when we think of some of the applications of hydrogen, like, for example, hydrogen in cars, fact there is a whole value chain dedicated to making the hydrogen, compressing the hydrogen, sending the hydrogen to what needs to be, then storing it at a relatively low density, then compressing it again so that it is it fits in the car.

And even then you’re left with quite large tanks, which the needs to. And of course, then hydrogen needs to be transformed back into electricity, which carries and then another efficiency loss with it. Yeah. Yeah. So the physics of hydrogen are very challenging and that’s what impacts it’s some of it’s proposed applications as a fuel.

Matthew Winning:
So yeah, that’s a really interesting footnote. So it’s, it’s the physics determines the economics, which then kind of plays across different sectors and different applications. So in terms of all carbon, hydrogen, yeah. So that would be the place to start. What ways can we make hydrogen that are different to I presume hydrogen currently is, is produced in a fairly emissions intensive way.

Yeah. So yeah. So what are the different options there?

Gniewomir Flis:
Very much so. Currently, most hydrogen is produced using a process called steam methane reforming. That’s where you take steam and methane. Put them in the reactor under temperature and pressure and you get hydrogen and carbon dioxide out. In this process, you normally get 10 to 13 kilos of carbon dioxide for every kilo of hydrogen produced. So it is pretty carbon intensive that 75% of hydrogen is made this way.

Now, there’s also 25% of hydrogen, which is made actually from coal, which is where you gasifier the coal. And then you use essentially the same process that I just described. This pathway is mostly used in China and leads to emissions of around 20 to 30 kilos of carbon dioxide per kilo of hydrogen, so immensely emissions intensive. Now, the third way we sort of you make hydrogen and and this way was actually used a lot in the past.

In the 1920s, actually a quarter of global fertilizer production was made using the process of electrolysis. That’s when you use electricity to separate water molecules into its constituents, hydrogen and oxygen. So this is the third sort of big way that you can use hydrogen. Unfortunately, it is far less economical or it became far less economical with the advent of cheap gas.

So this method of production accounts for maybe 4% of global hydrogen production today. And next to these method, we also have a few other methods. I mean, you can produce hydrogen firmly through extremely high temperatures, like in a nuclear reactor. You can produce it using biomass gasification. But these these methods are rather either niche to nonexistence.

Oh, and actually I forgot one more method, which is actually quite in vogue lately, is tapping natural sources of hydrogen.

Matthew Winning:
Yeah, I’ve heard of this, but not kind of quite understood. It’s finding hydrogen and yeah, it’s in the world.

Gniewomir Flis:
So the theory goes that hydrogen, that water can react with very take for it to rock. So iron ore deposits and you know, it reacts. It does so at high temperatures, which is several kilometers or a thousand meters below the ground. And yeah, when water drips on these rocks, it’s a spontaneous reaction occurs, some hydrogen is produced and some people are now actively looking and drilling for these deposits of earth to crocks where water drips and hydrogen occurs naturally.

Matthew Winning:
Back to the old mining technique.

Gniewomir Flis:
A little bit. Yeah. Yeah. They call them the hydrogen wildcatters. Now.

Matthew Winning:
How? I mean, without going on too much of a tangent, I’m interested in this. How would you? Because I guess it’s quite easy to know when you’ve struck oil, right? Because oil starts pouring out, whereas I guess it’s a bit harder with stuff like hydrogen to know exactly you know, where it’s going to be and how to capture it.

And that sort of thing.

Gniewomir Flis:
It is it is very hard. And here we come back to sort of the physics of hydrogen, where it is an incredibly light gas. It’s also odorless and it’s, well, invisible to the naked eye. So it is very hard to detect it. And I think I heard story where there was a wells somewhere and the drillers, you know, drilled into it and they felt they struck oil, but nothing was coming out.

And one of them lit a cigaret and it just exploded. His face turned out that was hydrogen.

Matthew Winning:
Makes sense. Okay, So we’ve going to get an idea of, you know, hydrogen can be produced in low carbon ways, mostly through electrolysis or I guess you’ve got carbon capture of of whether it’s steam methane reforming or whatever and whole sort of has to happen upstream in the supply chains for us to get to a stage where we’re able to produce, you know, significant quantities of hydrogen in low carbon ways.

Gniewomir Flis:
Mm hmm. I’m glad that you mention carbon capture, because that’s something I hadn’t touched upon. But yes, indeed, the two methods that I described of making hydrogen steam, methane, reforming or steam Methane reforming mainly could be retrofitted or could be constructed from the ground up with carbon capture in mind. Maybe one. Maybe. I should also mention there is another method which I forgot to mention, which is paralysis, where you don’t use steam, but rather use extremely high temperatures to decompose methane into hydrogen and solid carbon, which is almost like another.

You can think of it as another form of carbon capture. But yes, there is carbon capture that you can add to steam methane reformers, the paralytic pathways which you can use to obtain solid carbon, and you can either use it in products or bury it. There’s electrolysis that produces clean hydrogen If it’s powered with clean electricity, whether that’s nuclear or renewables or geothermal based.

Now, there are two distinct things that need to happen for these two methods to scale up, for the carbon capture part. Well, actually, the carbon capture part upstream is pretty developed we have. The technologies are fairly key. Or maybe it was Linda, but the point is they have a technology called the cradle cap where they capture high CO2.

Cryogenically, they’re okay, I mean based process. So there’s a bunch of carbon capture processes that we can use here with carbon capture. The problem is actually mid-stream on the downstream. So we do not have the pipelines, the infrastructure to transport the CO2 and we don’t have the infrastructure to store the CO2 permanently. So that’s the problem with the carbon capture pathways.

That’s what needs to scale up for carbon capture to make sense.

Matthew Winning:
And that sorry, just to come in at this point, that’s probably going to require, I presume, fairly heavy government intervention to build up, you know, things that are monopolies or, you know, pipelines or whatever. It’s going to be hard to do that at a kind of a one off company level to scale up at a country way or something like that.

Gniewomir Flis:
Yeah, certainly. I think the history or other experience shows us that strong government involvement is necessary for this infrastructure to evolve. And we see this in the involvement of the Norwegian government and the Northern Lights Project or the involvement of the Dutch government on, and maybe here there’s more involvement from the local authority of the Port of Rotterdam, which is really facilitating and coordinating all these efforts of offshore from Rotterdam.

But actually, you know, so I mentioned that the midstream and the downstream are the problems, and that’s where government has to play a role. But actually there is one thing that’s also stopping carbon capture methods from scaling, which is related to the upstream. And it’s the problem of methane emissions and methane leakage. So the reason why we aren’t scaling carbon, our carbon capture infrastructure has a lot to do with civil society pushback against methane leakage, because if you have so little as 2% of methane leakage in your supply chain, then no matter how much carbon you capture, some argue that on a global warming potential horizon of 20 years, you’re

actually your emissions are worse than coal. Right? So, the carbon capture part defeats the entire purpose. Right? So here is a another area where government and regulations should force companies wanting to develop carbon capture methods to regulate the amount of permitted methane leakage.

Matthew Winning:
That’s a really good point to know. Okay, so that’s carbon capture. Yeah, that’s let’s go. Yes, to the other one.

Gniewomir Flis:
And then the second the second method being electrolytic pathways where we split our water into hydrogen and oxygen. Here the upstream I would say the main, the major upstream problem of the minute is actually not producing electrolyzers in some places in the world, notably China, as much as 90% of manufacturing capacity for electrolyzers is idle. It is sitting idle and is waiting for orders.

In Europe that number is a little bit lower. So in Europe, maybe half the capacity is sitting idle and waiting for orders. So the manufacturing, the upstream capacity is there. The problem actually with the hydrogen sector at the moment, especially in the electrolytic sector, is a lack of demand. And the lack of demand stems from the fact that electrolytic pathways are just for the moment, not quite well, not even not quite.

They’re massively uncompetitive with traditional hydrogen sources. And even if you add a carbon price to them, as the EU is trying to do so, the EU is actually rolling back free allowances in the next few years because they are implementing also the carbon border adjustment mechanism. Even if they these free allowances are fully withdrawn, there is still a green premium to be paid by the even the best electric to hydrogen projects.

Matthew Winning:
Yes. And so how do how does that change going forward as a case of waiting for the technology to improve essentially, or a combination of that and policy?

Gniewomir Flis:
And that is and this is you really hit the nail on the head there. Many companies are waiting for these cost reductions to come about because the hydrogen sector has promised these cost reductions. You know, you go you go back five years, many reports, many consultants, myself included. So I am guilty. Have been projecting that green hydrogen might be competitive with fossil based hydrogen as soon as 2030?

They in the real world, however, what we’ve seen is that the projected cost reductions have not materialized as quickly as we thought. And that has to do to the fact that actually building electrolytic hydrogen projects is more akin to building a chemical plant than it is to deploying solar panels or batteries. So these projects are a little bit more bespoke every time, which lowers the lowers their learning rates.

Matthew Winning:
Exactly. So the economies of scale aren’t quite there because they’re quite involved or more involved than people think they are.

Gniewomir Flis:
Absolutely. So many companies have been waiting for this cost to fall down, have not been taken for a final investment decision. And it in turn has a has resulted in low orders for factories, which means low capacity factors, utilization factors for factories, which means, you know, financial woes for the electrolyzer manufacturer manufacturers, which means they have to charge higher now.

So, yes, it is a problem where it is a whole chain of events, which means that costs are not falling down as quickly as expected.

Matthew Winning:
Yeah. Okay. So in terms of the future, you know, we’re thinking going forward, maybe they’re not falling at the moment, but and it’s very difficult to see what’s going to happen going forward is hydrogen going to be we know it’s going to be a growth industry over the next kind of couple of decades. But is that going to take place internationally?

You know, is it going to be traded like the way gases or is hydrogen going to be kind of done domestically? But there’s international supply chains for, you know, electrolyzers and stuff like that? What do you kind of see the future playing out for it?

Gniewomir Flis:
Right. Well, that’s an excellent question. And in the minds of many, hydrogen is the new oil. Certainly in the minds of the oil and gas companies. They would like it to be the new oil similarly traded and for similar profit margins. But, you know, it all goes back to what I said earlier about the physical and the chemical properties of hydrogen and that being difficult to store or indeed being difficult therefore to transport, which leads me to sort of actually conclude that hydrogen will be traded, but not as hydrogen.

Okay. Yeah, it’s this, you know, little paradox here where where hydrogen will be traded in the form of its derivatives. So I’m talking here about green ammonia. I expect a lot of green ammonia to be traded. I expect a lot of green methanol to be traded from places which are rich in biomass and rich in renewable resources.

And I expect a lot of other derivatives, such as synthetic kerosene, to be traded or green IRA. None of these or all of these molecules use hydrogen to be to their production, but the end product is not going to be going to be hydrogen. And the only caveat is that, okay, we will have trade in hydrogen derived goods, but we will also have some trade in hydrogen, but only where you are within pipeline distance or there is some way to put the molecule in the pipeline.

Matthew Winning:
So over shorter distances there might be some trade in actual hydrogen and any longer distances is likely to be some sort of.

Gniewomir Flis:
Derivative hydrogen product. Exactly.

Matthew Winning:
Got you, okay, that’s really clear. Very helpful way of thinking about it. Okay. So one final question. I think here is, you know, the landscape at the moment is hard to see exactly where we’re going to go, what the direction or certainly the scale is. I think we know the direction is growth. But, you know, what you’re seeing is it’s there’s a lot of challenges to overcome.

So who is leading the way at the moment, I guess, is my main question and what does the policy landscape look like in different regions or firms for different areas?

Gniewomir Flis:
Oh, my. That’s

Matthew Winning:
Very difficult. Yeah, Yeah.

Gniewomir Flis:
That’s a difficult question. You know, I’ve lost track of the amount of hydrogen strategies that have been put out and hydrogen strategies and with their updates. I think the last time I checked there is something like 60 national hydrogen strategies and there is even more hydrogen strategies that if you consider provincial ones. But I think when it comes to the leaders from hydrogen strategies, I would point to the European Union, which has put forward a hydrogen strategy which has put forward targets for domestic production, but also imports.

Now what are we what are the European Union will actually achieve these imports? I’m very skeptical, but time will tell. It was right. What do you do? European Union has also set binding targets for consumption of clean hydrogen and has allocated substantial subsidies to this. And in fact, we will just find out the results of the hydrogen bank auction soon, which is the sort of first hydrogen auction, well, not globally.

Denmark have the privilege of doing that, but as a region it will be one of the biggest ones. Then the other countries that are leaders is I would say I would point to the US, which has allocated substantial subsidies for the 45, the production tax Credit and Inflation Reduction Act. So there’s a lot of activity going on in the US on that front.

However, I would caveat this by saying that the U.S. US policy support is very supply focused, whereas in Europe we have supply side subsidies and demand side targets. So I think actually that Europe has a little bit more nuance, a little bit more developed strategy, whereas in the U.S. it’s kind of like shooting with a bazooka.

Matthew Winning:
Yeah got you.

Gniewomir Flis:
A subsidy bazooka, right? And then of course, the US is still grappling with sort of the regulatory nitty gritty of how these how these tax credits will be dispersed. So but in any case, you have the U.S., you have Europe, which are really leading and setting the agenda for everybody else to respond with. Japan was one of the first countries to have a hydrogen strategy, but I’m not actually seeing much activity from Japan on that front.

It was very heavy on hydrogen vehicles, but these are not selling well in Japan. So despite being a pioneer, the effects are rather lackluster. But the third region or country nation I would point to is actually China. And we don’t pay enough attention to what’s happening in China. We hear a lot of warnings about what’s happening in China from electrolyzer manufacturers, which are scared of Chinese competition, and I think rightfully so, because last time I checked, China not only has national hydrogen strategy, but also many of its provinces.

I think something like 15 provinces have their own hydrogen strategies. So, yes, these three regions are certainly the US, the EU and China are the ones showing results on hydrogen.

Matthew Winning:
Great, wonderful. I think that’s everything we’ve got time for today. Thank you very much, Gniewomir Flis for your time, for your insights here. I mean, it’s been really interesting to kind of get through the whole thing really quite quickly, but not in a massive amount of detail as well at the same time, and I’m sure hopefully the listeners will appreciate that.

level of insight as well and so thanks very much for joining us. And yeah, speak to you again at some point.

Gniewomir Flis:
Yeah, it was a pleasure. Thanks, Matt.

Matthew Winning:
So our guest now is Paul Henderson, who is the head of hydrogen production strategy at the UK Department for Energy Security and Net-Zero. Previously, he has worked on early stage development of the net zero hydrogen fund, the low carbon hydrogen standard, and played a key role in hydrogen’s position in the British Energy Security Strategy. And as well, Paul has worked on a range of policy areas at DESNZ and its predecessor departments over the last ten years.

Welcome to the podcast, Paul, and thanks for taking the time to speak to us today.

Paul Henderson:
Thanks, Matthew. Great to be here. Really keen to chat.

Matthew Winning:
Yeah, this is great. So I guess we’re just we’re looking for a UK perspective here. You know this we hear a lot about hydrogen at the moment and its role in the future and how it’s going to grow, the importance it might have in decarbonization. And I guess you are right at the heart of what’s happening in the UK around that just now.

So we are sort of are we what is the current situation in the UK in terms of hydrogen production and demand and what we use it for?

Paul Henderson:
Sure. So, so just for the history, I joined the hydrogen team four years ago and at that point there were six of us, right? Hydrogen was a nice shiny idea, but we had nothing. So that was at the stage when we just legislated for net zero about six months previously, and it became obvious that hydrogen as decarbonization option had gone from a niche potential to play a major role in achieving net zero.

So in the last four years we’ve well, we’ve done a lot. Basically, we’ve come out with a hydrogen strategy for the UK. Yeah, we’ve come out with a low carbon hydrogen standard to make sure that any hydrogen we support meets our decarbonization goals. We’ve come out with funding support for projects. So firstly, that was the net zero hydrogen fund to offer development and capital expenditure support.

And then we came out with a hydrogen production business model. The revenue support. So all of that was to try and make production an investable prospect. So where are we now? We’ve got the policy that was in place right? But we still haven’t actually built all these projects yet. These things don’t happen overnight. So we’re starting from a very low base in terms of level of production.

So there’s only about five megawatts of low carbon hydrogen production in the UK at the moment. And our ambition is ten gigawatts by 2030. So in.

Matthew Winning:
Building up quite.

Paul Henderson:
Quickly, we’ve got to scale up really quickly and that’s why we spent the last four years getting all the policy levers in place, working with industry, making sure all the building blocks are there. And now we want to get stuff built.

Matthew Winning:
So I guess my first question would be what is the UK using hydrogen for in what are we what we building it for? So I mean, at the moment does it what is it used for and what do we kind of think it’s going to get used for specifically in the UK?

Paul Henderson:
Sure. So at the moment we use quite a lot of hydrogen in industry, but it’s not low carbon hydrogen. Yeah. So for decades our industry have been using hydrogen in industrial processes is it’s fossil based gray hydrogen. So firstly, we need to decarbonize the whole industrial sector. You’ll also see hydrogen busses just around the country. Yes, certainly some here in London.

So heavy transport is one area where hydrogen can play a key role with the aviation sector. Hydrogen as a liquid fuel, also as a component of sustainable aviation fuel is what we’re looking at, heavy shipping as well. These hard to decarbonize areas, ones that you can’t easily electrify. These are the ones where hydrogen’s could be really important. And then beyond that, I think in the last year or so, there’s been a lot of evidence modeling to suggest that hydrogen gas supply really important role in decarbonizing the power sector.

So that’s in terms of the ability to give you long term energy storage and then cover for those kind of peaks and troughs in energy.

Matthew Winning:
And that’s the really interesting one I think, to discuss, because I think that’s one issue that people see, you know, as we go to a sort of high variable renewable electricity sector and we’re scaling up renewables to electrify other things like home heating, like, you know, road transport, that sort of thing. The question always comes up, doesn’t it?

You know, how do we deal with, you know, peaks and troughs? How do we deal with demand, demand management, all that sort of stuff. And so hydrogen in the UK seems like. Is that the case? It seems like that could play a pivotal role.

Paul Henderson:
Absolutely. So we’ve got you know, we’ve got a world class offshore wind sector, we’ve got nuclear power and we’ve got potential for new advanced nuclear in the future. And we’ve got a range of renewables options in place. Hydrogen can complement all of that. So, you know, if we move towards 2050, we’ve got to use all the tools in our belt.

Basically to hit that net zero figure. And hydrogen can definitely do that. Whether that’s in the power sector, you could have hydrogen powered turbines to produce electricity. You can have the hydrogen also plays a key role in the carbon capture and storage sector. Yes. And that’s also where another area that power can decarbonize. So, you know, there are there’s multiple low carbon sectors developing in sync to try and capture all that.

Matthew Winning:
Yeah. And I guess, I mean, the slightly tricky and not tricky issue, but slightly confusing issue there is you’re using hydrogen to potentially decarbonize or help with the decarbonization and balancing of the electricity grid, but potentially using the electricity to make the hydrogen in the first place.

Paul Henderson:
Yeah. So if you’re using electrolytic hydrogen and then putting that hydrogen straight into a turbine to make electricity, that doesn’t make any sense at all. But if you use kind of a range of production methods. So the UK strategy is to support a range of different hydrogen production methods, including electrolytic hydrogen, including CCS enabled. And we’re looking at potential biomass, biogas projects which could even give us negative emissions in the future.

And there’s a range of other technologies that we see both in our teams and in the innovation area that could contribute in the future. So yeah it doesn’t make sense to do electrolysis straight back to power. But what does help is if you’ve got curtailed renewables that isn’t being used in the system and long duration energy storage, you can then use that energy when you need it clean.

Matthew Winning:
That makes a lot of sense. So at the moment, we’re sort of, as you say, putting in place these policy levers to ramp up from essentially a very, very low levels. And you said the target is about ten, ten gigawatts, is that right?

Paul Henderson:
Yes. So we’ve got an ambition for ten gigawatts by 2030.

Matthew Winning:
That’s production.

Paul Henderson:
Production. That’s production capacity. Yes.

Matthew Winning:
Yeah, I was I struggle with.

Paul Henderson:
The change in.

Matthew Winning:
The production capacity to put all that sort of the you know, going from one thing to another. This can be a bit tricky. So in the context of the UK’s climate targets, what do you think or over what time period to be sort of see hydrogen playing a role? I guess my question.

Paul Henderson:
Okay. So I mean, the UK climate targets are really important here and the kind of the legislation for net zero which is what, kind of pushed hydrogen to the fore in terms of decarbonization, that only came in four and a half years ago. So our carbon budgets 1 to 6 sorry, 1 to 5 had already been set on the old 80% trajectory.

So then when zero comes in, we’re looking from carbon budget six.

Matthew Winning:
Yes.

Paul Henderson:
So that’s kind of mid mid-twenty thirties and that’s actually a nice timing for hydrogen because by that stage we will have built things, we’ll have built production, we’ll build infrastructure, we’ll have transport and storage, not covering the whole of the UK by 2035, but you know, we’ll have good networks to be able to produce, move and use the hydrogen so as carbon.

Budget six that we’ll see the first real decarbonization benefits. You know there will be seven carbon budget five but it’s six and onwards that’s going to make the real impact.

Matthew Winning:
So it’s a case of sort of putting everything in place to make it as effective as possible. Absolutely. When it’s required.

Paul Henderson:
Yeah. And it’s carbon budget seven as a government has six when we expect the real ramp up in demand to come. And that’s why we’ve set our ten gigawatt ambition for 2030 to make sure we’re on the right trajectory for carbon budget. Six to give ourselves options depending on how demand pans out across all these different sectors.

Matthew Winning:
Yeah, and So where were they are? So the sectors predominantly being industry.

Paul Henderson:
Yeah. So we’ve got industry, transport and power. Yeah. So where we’re setting, these are the areas where hydrogen can play a key role. Yeah. You’ve also got heat, so hydrogen could potentially play, play a role that we’ve done a program of tests and trials about high for heating and we won’t be making a strategic decision on that until 2026.

Right. So at that point we’ll think about, yeah, what role could hydrogen play? But I think heat electrification is still our first option. There’s no doubt about that. So, yeah, it’s what role that hydrogen could play.

Matthew Winning:
And when you when industry I guess industry is quite a broad term there. We’re talking about fairly kind of large industry or across a number of areas.

Paul Henderson:
Yeah. And if you kind of look at how the sector is developing, we have major industrial clusters in the UK. This is also where we have our first large scale blue CCS has enabled hydrogen production plants being developed. We also have, if you like, little hydrogen economies being developed on that cluster level. So demand from industry plus often you’ll have other off takers in the area such as transport, and that’s where these little projects will start springing up.

So you’ve got these industrial clusters. We’ve worked with the major industrial sectors for some time now, going back to one of my earlier roles on the Industrial 2050 Roadmaps. For those of you with good memories. So and that was kind of the eight major industrial sectors that that covered. And again, that’s a good kind of proxy for the for industry and how it’s being developed.

But also we’ve got to think outside of those clusters because there’s a lot, you know, as a lot of companies that are off cluster throughout the UK. So we’ve got to look at solutions outside of that kind of mind network for how we how we treat those as well.

Matthew Winning:
Yeah, and I guess that brings up about a question around infrastructure, because obviously the idea of the clusters is that you kind of have the infrastructure there or it’s easy to build infrastructure fairly, fairly quickly. But yeah, is there a sort of maybe not a plan? But the idea that it would you would have potentially pipelines joining up clusters or that sort of thing going forward?

Paul Henderson:
Sure. So I think the way we started with the hydrogen for us was a bit of a chicken and egg scenario. You’ve got production, you’ve got demand. But actually there’s this bit in the middle, which is all about transport storage, because otherwise what you end up with is small localized projects. And for hydrogen to be a new energy vector that can impact across the whole of UK, we need to fill in those blanks, we need that transport network and we need storage and key locations.

So last year we published our consultations on hydrogen and transport storage business models. So again, looking for investable business models for how we can get kind of critical infrastructure built really for the economy. So the first ambition is to have two geological stores of hydrogen by 2030, and then it’s the key transport network. And I think there’s kind of still consideration of how that’s best developed and where the key links should be.

And you will see further, further details and information coming out on that later this year.

Matthew Winning:
Nice. So the policy mechanisms that you talked about at the start, I think it would be nice to go back to them. So you said that you’ve sort of set up a few different things through and actually some funding essentially was available on the production side. And now, it’s a bit more on the, you know, the revenue in the contracts.

What is the carbon hydrogen agreements and stuff. And could you just. Yeah, I guess just explain some of that in a little bit more detail.

Paul Henderson:
Sure, absolutely. So I think the capital fund was the first to come and as government, as a department and we run various competitions and hand out capital fundings that were relatively used to that. So we were able to set that up again fairly quickly once the funding was confirmed. And we’ve handed out development and capital support to, I think about 20 projects so far through the net zero hydrogen fund.

But the real kind of long term investable proposition is to be able to offer revenue support to these production projects, and that’s to cover the cost difference between fossil fuels, natural gas, and how much it costs to produce hydrogen. So that gives that additional revenue support to producers because at the moment, we’re assuming end users won’t pay a huge premium for hydrogen over their kind of existing fuel yet.

So that makes it investable.

We’ve got two routes to that. So one is the is for CCS enabled blue hydrogen products and that goes through the cluster sequencing process. So we’ve got these I mentioned the major industrial clusters earlier. So there’s a process there and we have different tracks of funding toward projects. And we have two hydrogen projects that came through the fast track and we’ll look to expand that.

Yeah, over the coming years. The other mechanism we’ve got is the hydrogen allocation rounds collectively known as the Harrs.

Matthew Winning:
Right?

Paul Henderson:
And we’ve already had the first round and we awarded contracts to 11 projects. So that was announced in December. So just in time for Christmas. And I think that was the largest number of hydrogen projects announced anywhere in Europe. So yep, that’s a great start of that. Very proud of that. And we’ve also launched the second hydrogen allocation round again just in time for Christmas, and.

Matthew Winning:
That’s 2024. So end of this year.

Paul Henderson:
That’s right. So that’s launched. We have an expression of interest round. So we’ve had a lot of interest in that really great to see, yeah, and then those purchases will come through and we’ve committed to annual allocation rounds. So this is, you know, this is going to be a regular occurrence ongoing allocation rounds to keep bringing projects.

Matthew Winning:
Always going to get to that 2030 sort of target. That’s it. So my quick last couple of questions here. One was just don’t pick it up on something. There’s the extra premium that you’re covering with the contracts with these essentially, you know, subsidies for the all carbon production is above the gas price rather than say gas hydrogen produced via gas.

Matthew Winning:
I guess there’s my is my question is that so you’re not comparing it to this the same product that’s being made with you know what with gas, with no carbon capture, but directly with the price of gas.

Paul Henderson:
So say yes. So we’re looking basically at the fossil fuel alternatives. So if you’re an end user, yeah, you might be using natural gas like if you industrial size, you’ll be using natural gas at the moment. And if we want to incentivize these users to switch, then yeah, it is covering that cost gap. Yeah. And there’s very clever mechanism behind it to kind of give certainty to kind of both sides to kind of make sure that government’s getting value for money and make sure it’s kind of investible and there’s certainty for the producer and the end user.

They can be they can be assured that the hydrogen they’re buying is generally low carbon, however it’s produced because we’ll only support volumes of hydrogen that meet a low carbon hydrogen standard. So that means that there’s only a maximum amount of grams of CO2 per magnitude of hydrogen produced that producers can and can have in that production process.

Matthew Winning:
Okay. And my final question and I’ll go off and take one here. So how do you feel you are that we are going to meet this target by 2030?

Paul Henderson:
So, I mean, people I met with would know this is something I mentioned all the time. Our ambition it’s not a target but best, not to mention that. So how confident am I. That we meet our ambition? I’m really confident, actually. I’ve seen how far we’ve come in the last four years. It’s immeasurable just in terms of the efforts and the input we have from industry and then the output we’ve had in in terms of a policy being able to support projects.

So yeah, if we’ve done that much in the last four years, now we’ve got all the groundwork in place. I’m really keen to see what we can do in the next four.

Matthew Winning:
Well, thank you very much for joining us, Paul. That was fantastic.

Paul Henderson:
Absolutely a pleasure. Really nice to be here.

Matthew Winning:
Thank you.

Sarah Nelson:
Back in the room here with Matt, it sounds like you had some really interesting conversations about low carbon hydrogen.

Matthew Winning:
I did. Thank you for handing the reins of today’s episode over to me. It was a joy and yeah, some really good stuff. I think. Hopefully we’ve got some real good snippets in there for people to take away and yes, some nice high level stuff for people to go like, okay, that’s a good, good summary of some of the real, you know, important of it.

Sarah Nelson:
Always good to have a mix. So before I let you sign off for the day, I’m going to test your knowledge on hydrogen with the 2024 for its first Greenomics gamble I have three statements, two of which are true and one is false, and it’s up to you to tell me which one is the lie.

Matthew Winning:
Where do you get these facts from Around the.

Sarah Nelson:
Depths of the Internet, So the first fact or lie is that hydrogen atoms make up 50% of the matter in the universe. Okay? The second is that the number of hydrogen powered forklifts in use increased by more than 80% between 2020 and 2021. And the third fact is that hydrogen has almost three times the energy density of diesel.

So what do you think?

Matthew Winning:
Three times the energy density of diesel? Okay. So I think the second one is entirely plausible because there was probably about five hydrogen powered, but with more than four less drops and there’s probably an extra for that year. Yeah, I think that’s fair enough. The other two I think are there, are there abouts. So I bought the first one was 50% of the matter of the universe is made up of hydrogen.

It could be like, you know, you could getting me here, you could be like 60% or like, 80% or something like that. I don’t know. And the last one was.

Sarah Nelson:
That hydrogen has almost three times the energy density of diesel.

Matthew Winning:
I think that sounds plausible. So I think the first one is the lie.

Sarah Nelson:
Well done. That is correct. Hydrogen atoms actually make up 90%, 90 of the matter of the universe, which is a lot.

Matthew Winning:
Yeah, well, how do you know that is a lot of hydrogen out there, that’s mostly water. Yeah.

Sarah Nelson:
Yeah.

Matthew Winning:
Yeah.

Sarah Nelson:
And actually, there’s 45,000 hydrogen powered forklifts.

Matthew Winning:
Right? Right. You have a number.

Sarah Nelson:
Which is a lot of hydrogen forklifts.

Matthew Winning:
I wonder where they are. That’s interesting.

Sarah Nelson:
Yeah, no idea. And then the hydrogen is three times the density, almost three times intensive diesel, which is why NASA uses it. And it’s space engines, Nice. So that’s it. Well done.

Matthew Winning:
Oh, I’m so happy I got it right.

Sarah Nelson:
Yeah. Well, thank you very much for hosting a discussion today, Matt. And thank you to our guests and to the listeners for tuning in. Please do subscribe on Spotify, SoundCloud or on our website and feel free to write to us at [email protected]. That’s it for today on Greenomics from Oxford Economics, where we know that money might make the world go round, but sustainability makes it a much nicer place to live.

See you next time.