Adrian Del Maestro
Welcome to the latest episode of our ‘Innovation in Energy’ podcast series, my name is Adrian Del Maestro and I am the director of research in PwC, UK.
Our series on innovation in the energy industry has covered a diverse range of topics from electric vehicles to drones. Today, we are discussing hydrogen.
Hydrogen appears to be in the ascendency after many years on the periphery of policy discussions. The energy industry is increasingly talking about hydrogen and our clients are referencing the importance of hydrogen more and more. Now, hydrogen is not a new idea. The first hydrogen fuel served vehicle was developed in the 1950s, and in the UK, town gas sourced from hydrogen replaced by natural gas in the 1960s. But, there certainly seems to be a revival of hydrogen and the question we shall be addressing today is, are we on the cusp of a golden age of hydrogen or is it a false dawn?
In this podcast, we shall explore the applications and benefits of hydrogen, the challenges and what needs to be done in the UK to reach this hydrogen pathway. To help us, I am joined by four guests, who each bring a special expertise and perspective.
Janine Freeman, who is a director in our PwC deals practice with a focus on new energy and M&A; Sam Hollister, who is the Director of Economics and Corporate Services at Energy UK; Ed Syson, who is the Chief Strategy and Safety Officer at Cadent Gas,; and Alan Thomson, who is the Global Leader for Energy Systems at Arup.
Welcome to you all and thanks for being here. Alan, I would like to start with you first. Could you help us in placing hydrogen into some kind of context, what are the different applications of hydrogen as a fuel and what are the benefits?
If you think about the overall energy system from supply through generation to demand, there are a number of ways that we can move, store, supply, and use energy. Electricity is perhaps the most well-known one, but then natural gas is as well. Liquid fuels such as petrol and diesel are the others. These are sometimes referred to as energy vectors. Well hydrogen is just another energy vector, but it has unique characteristics, it’s molecular rather than electron based. It enables us to do things like move it over long distances and store it for long periods of time, and in that respect it works, in a very complementary way to electricity and helps us to decarbonise some of the other elements of our energy system, which are little bit more tricky, particularly into transport and heat.
Alan, that’s very helpful. Alan talked a little bit there about the importance of decarbonisation of heating, which is going to be a major challenge for the UK sector. Maybe Ed, as your company is playing a very important part in this area, perhaps you can give us a flavour of the activities you are undertaking.
Yes, perhaps it’s worth saying for a start that actually the approach to this, certainly from a gas distribution perspective, which is where Cadent is coming from, it is critical that we are looking at this as an industry wide approach. Everything I am talking about certainly is with collaboration across our industry, but we have two main projects, two main hydrogen projects that Cadent has particularly gained momentum with at the moment.
First one is hydrogen blending, where we are working with Northern Gas Networks with support from the HSE, Ofgem and BEIS. We are looking at blending up to 20% hydrogen with natural gas for the Keele University campus. Now that campus is a mixture of residential and industrial-type load, so it gives a really good feel for how this will work in practice when we blend hydrogen. The benefits of that are pretty straightforward. It means that we can introduce lower carbon heating with no impact on consumers at all, because the goal is that there is no change to appliances, no change to the pipelines, simply you are feeding a different gas into the network and operating it.
As you said in your introduction, which has been here before with town gas, we think it should work, we are pretty certain it will work, but we’ve got a lot of demonstrations to go through to prove that it will work and work safely. That’s on the residential and commercial side. One of the benefits of that, I think, as mentioned in the CCC report recently was that it has a potential to help us build supply chains and that’s where our second project is really focused.
Looking up in the North West around the Liverpool Basin, a project we think of as high importance, we are looking at the network level implication. So, connecting our carbon capture and storage with production of hydrogen through methane reformation, carbon dioxide is stripped off methane effectively and put into depleted field off the Liverpool Basin. The hydrogen is then used in that area, either directly for industry for heating or take that off to feed in to a blended or 100% hydrogen distribution network downstream. Really that is how to build that supply chain up, and it’s much wider than gas for heat. It brings in concepts such as connecting to industry for direct capture of the carbon dioxide straight into carbon capture and storage as well as methane hydrogen reformation.
A bit more challenging as lots more involved there, but the benefits are great. Why we are doing it? The aim of that is essentially to take about two million homes off the methane system onto a hydrogen network by 2023, which will remove about a million tons of carbon dioxide. Actually for the North West, it’s a good source of low carbon heating for their industry and should lead to increase competitiveness and increased jobs, so good for the local economy too. Those are two areas that we are particularly looking at.
It’s really interesting. So Janine; Alan and Edward have painted a very evocative picture of some of these applications and benefits of hydrogen. I wonder if you could build on this further, across at least a couple of dimensions. Perhaps you could talk a little bit about what’s happening internationally vis-à-vis the promotion of hydrogen? Which countries and companies are doing interesting things in that area? Then secondly, specifically in terms of transportation, as you know well, electric vehicles have stolen the lime light, but is there an opportunity for hydrogen in transportation too?
Yeah, sure thank you. Internationally first, yes there is a huge amount going on across a whole range of different hydrogen technologies and different uses of hydrogen. For example, we won’t be surprised to hear that China is channelling some of its industrial muscle into the development of hydrogen fuel cells, they have in mind in particular, larger vehicles like busses and trucks.
In Australia, we are seeing some great advances, particularly on the back of the major developments and renewables in Australia that are proliferating over there, meaning their production of hydrogen from clean sources of power is becoming very popular and increasingly investible. Interestingly, in Australia, they don’t really have a very ready market for that hydrogen, and so they are looking to export their hydrogen to other countries and one of the key countries that they are looking to export to is Japan.
Japan is really interesting. They published about 18 months ago, a hydrogen strategy, which set some really ambitious targets and goals for that country in terms of decarbonisation, but obviously particularly in terms of hydrogen. For example, including within it the range of 15-30 gigawatts of power generation capacity to be powered by hydrogen, 800,000 vehicles to be fuelled by hydrogen on the road by 2050, so some really clear targets that are driving change in Japan.
In places like in South Korea, Hyundai is looking to spend 7 billion dollars on the development of different hydrogen technologies and systems focused particularly around cars, drones, and shipping. Back here in Europe, as well as the great things we’ve already heard about going on in this country, another example is in Germany where there is a 10 megawatt electrolysis facility being developed, which should be commissioned next year on a Shell refinery site. All over the world, there is huge amounts of investments and developments in the hydrogen space.
Coming onto transport, another interesting angle for hydrogen. Clearly, we can see that the major global automotive industry has placed a big bet on electric vehicles. A huge amount of investment is going into electric vehicles by those companies, but what we also know that almost all of those companies are also investing in some way in a hydrogen solutions as well as electric vehicles. We know that batteries are perhaps better suited towards smaller vehicles, but for larger vehicles, we need another solution as well, and that’s a reason there are lot of these companies looking at this technology too.
As an example, we’ve seen an initiative that’s being led by Toyota, Daimler, and BMW, leading a coalition of about 13 of the global organisations from around the world looking to invest about 10 billion dollars over the next 10 years in hydrogen technology and hydrogen infrastructure. So yes, electric vehicles are clearly happening, but definitely hydrogen has a role to play in transport.
That’s great Janine, that’s been very helpful scene setting. Sam, your organisation, Energy UK, recently published its report on the future of energy, perhaps you could just bring this down at a more granular level. How do you seen hydrogen benefitting the consumer?
Thanks Adrian. Yeah, we’ve just published a report looking at the future of energy and I think what’s really interesting is to think about the context that we are in at the moment. We’ve just had the Committee on Climate Change, advising the government around how we can reach a zero economy by 2050. We’ve also had the Extinction Rebellion, putting climate change on the political and public agenda. What’s really interesting is this is really important on the next stages of decarbonisation journey that we actually bring customers along on, and I will go into that in a little bit more detail.
We see that customers are going to need a range of options and hydrogen is going to have a key role to play. I will pick up a little bit in a minute around what Edward was talking about injecting a fuel blend. But actually if you think about the journey we’ve taken over the last 10 years, particularly in the power sector, we decarbonised to such an extent, where actually coal is playing a much smaller part of the generation mix. We’ve seen large investments in offshore wind as well as over decarbonisation technologies. That’s going to happen without the customer particularly playing a key role in this. It’s going to happen behind closed doors and actually everyone in electricity makes it decarbonised to an extent, just because of the investments that are taking place.
What’s really interesting is we look to some of the other vectors as Alan mentioned around heat and transport. Actually, the majority of us use methane gas for heating our homes. Actually, we are going to have to get customers to make an active decision to change that heating source. Whether that’s going to be hydrogen, whether that’s an electrified system, or even maybe a hybrid solution, which is using both electricity and gas. Actually, it is going to need customer’s investment take up and so buy in, and I think for that all of the things that we are talking about today need to be easily accessible and attractive to customers. I think that’s really interesting and what Edward was picking up on there, around the blend, is actually one way that we can start to use the existing infrastructure in ways that customers and business are used to, without actually having to rip up and start again. That’s really interesting, let’s think through what we need to do for customers, and make sure that it’s not just happening to them, but they actually are buying into this process.
That’s great Sam. I think, we’ve got a good founding in terms of our understanding of the application and benefits of hydrogen. Clearly, there must be challenges there because we’ve been talking about hydrogen and the hydrogen economy for some time. So, let’s talk about those challenges.
Janine, I would like to turn to you, can you explore the economics of hydrogen? You spend a lot of time speaking to your investors, about the major obstacles facing hydrogen production for example. What are the common themes, what are the key highlights that we need to be aware of?
It’s probably worth setting the context a little bit for this point around the cost of producing hydrogen. In the world at the moment, about 95% of our hydrogen is produced through processes based on fossil fuels or wood. Clearly, if we are looking to use hydrogen as part of our low carbon economy, we need to move away from those base sources to power the hydrogen production. There are two main processes that are developed and are beginning to be invested in that can do this.
The first is, through that process of reforming methane for example and producing hydrogen through that process, you can capture and store the CO2 that’s emitted through CCS, carbon capture and storage systems. That therefore effectively decarbonises that pathway. The challenge with that though is that you are adding in another cost and quite a complex and major investment potentially into the production of hydrogen. We are already seeing examples of this, I talked about an example up in the North West already where you’ve you got cluster of industry that is able to come together and create economic scale, where CCS, carbon capture and storage, can be economic for harnessing that process and producing clean hydrogen, so that’s one route.
The other route for producing clean hydrogen is through a totally different process, which is via electrolysis of water using clean power as the energy source, i.e., renewables. That technology is increasingly becoming more economic and more investible as the components of the cost of that come down. Of course the cost of solar and wind power is falling rapidly year by year, so the cost of the power is getting cheaper, but also the cost of the electrolysis technology itself and the equipment required for that is also undergoing a lot of investment and the cost is coming down as well.
I can see, in a relatively short time, it’s starting to be the case, the projects producing hydrogen from electrolysis are becoming investible and economic.
Thank you Janine. Maybe Alan, if I turn to you, Janine talked about the production process for green hydrogen. One of the key things I am interested in is debunking some of the myths that you hear about this. So, there is this concept around an excess renewable supply being channelled into production of green hydrogen, it’s perfectly viable perhaps you would like to elaborate a little bit on that?
I think, we need to differentiate between an excess supply or supply that would have been curtailed otherwise, because of lack of demand and one which is specifically generated to produce hydrogen. I think, the former, using curtailed wind for instance, when there is no demand, has its place at the moment. I suspect that place will gradually decline as we get more of an ability to respond with demand end of the scale, either through storage and gobbling up energy with storage, or through turning up of certain pieces of equipment and increasing the demand.
In terms of renewable generation, which is specifically for electrolysis, and therefore green hydrogen, I think is a significant potential, because if we look at the areas of prolific natural resource be that a sunshine or consistent wind, they tend not to be in the locations of demand, so the ability to geographically shift that energy from one location say Western Australia through to European markets, pretty much the only way you can do that is through hydrogen, or one of the hydrogen carriers like ammonia or liquid organics at the moment.
I thinkthat the ability to geographically shift is important, the other component, which is important, is the ability to time shift. If the energy, as it will with sunshine comes during middle of the day, but you actually want to use the energy in a different season, then hydrogen is a great way of seasonally transferring that’s energy. Not quite so useful in terms of day to night transform, different forms of battery are probably more appropriate for that, but certainly the longer time horizons really does work quite nicely.
Very valid points, thank you Alan. Maybe Edward, you talked a lot about the interesting projects that your company is undertaking in terms of hydrogen for heating solution, where are the challenges there, you alluded to it, maybe you can build on it?
There are several, but it’s perhaps we are just focusing on some of the strengths, if you like, but we are finding where the challenges are, which really is picking up. Sam said about consumers and customers. One of the key benefits, I guess, what we are trying to do in the use of hydrogen is actually in the home, the domestic setting and there is probably very little that we actually need to do to convert. It’s all to be proven, but essentially the boiler is the main focus and that could change anything from adjusting the burner tips all the way through to a worst case a replacement boiler.
In the context of the consumer, the challenges are probably quite minimal. What we do have to do though of course is to prove that all of those assumptions are right and actually it is as safe a methane, etc., and that’s the process we are going through at the moment. Of course the challenge is, blending only takes you so far. So, putting in up to about 20% with existing equipment is a first step, but to go beyond that we believe you will have to start changing some of that infrastructure, but it’s a relatively contained problem, because most of that challenge now sits with the network. You can imagine in that scenario where you are starting to move from effectively 0% hydrogen to 100% in all sorts of different pathways, you end up with various forms of mixed networks, possibly some networks being 100%, some being blended by methane, we are already dealing with that on our network.
The network challenge is not insignificant, but that’s what the industry is set up to manage essentially, so we are working through that at the moment. Conversion, looks like it would be technically possible, we’ve done this before back in the late 60s and early 70s, but all of that has to be proven. I think, picking up on something Sam said earlier, actually one of the key challenges would be customer acceptance should have a key role to play in any rollout, getting those messages across to make sure people understand the options, it’s going to be quite important.
Okay. I understand there is clearly lots of potential benefits from hydrogen, lots of opportunities there, you’ve all alluded to some of the challenges across the different vectors and spectrums. How do we create an environment that allows us to realise the hydrogen pathway in the UK? So, maybe Sam, from your work at Energy UK, you worked closely with the government, what kind of policy needs to come into play to secure that environment that will foster innovation and investment at the level that’s required?
Yeah, I think what’s been quite clear is the various challenges as well as the various opportunities and options that are facing us as we look to decarbonise. One of the things that we’ve really thought about at Energy UK, and one of the things that’s in our report, is that we don’t need to make policies that are particularly targeted as a single solution. There are lots and lots of trials going on, lots of innovation, lots of research, which I think is really vital. But we shouldn’t be in a place where we are picking winners, actually depending on what that customer choice is, depending on what’s the most investable framework, what it is that we think that is going to get us to where we need to get to. We see a need for an open market-wide policy framework. We’ve seen what the carbon price, for instance, has done on electricity, and how that’s really played a very key signal into decarbonising the power sector, so is there a way that we can utilise a similar mechanism to how we continue to decarbonise across other vectors, such as heat and transport.
One thing is that we’ve mentioned customers throughout this, actually one of the areas that we really need to pick up on is the local area delivery as well. It was interesting with Ed where he was talking around the opportunities there are for jobs, for customers, for local business, and utilising that local infrastructure. That’s one area we would like to see developed is actually what are those kind of local area solutions. As we look to the early 2020s, we need to continue trialling, researching, and innovating like those around the table are today already.
Thanks Sam. So, Edward and Sam talked about some of the work that your firm is doing in this area, you’ve got a lot of practical experience, what do you think are the essential ingredients underpinning a successful hydrogen economy?
Got a fair few to get through actually to make the case. I think, getting pilots in at scale, proving that we can actually do this, technically and socially. Public understanding, so making sure that people understand what we are proposing, and the difference between methane and hydrogen, if we were to go that way, but I think broader than that, to move from energy being electricity, to energy being a range of sources that actually will vary from region to region potentially. There is a lot of work to do around policy, market design, a lot of work there for government and industry regulators. We need to get those incentives in the right place to at least not get in the way and hopefully help the progress. I think, in that we have to really make the case. It is not just about decarbonisation, but there is real jobs, there is real benefit to this outside of any narrow view, but important. Finally, for me is the piece around leadership. I think it is really important that industry plays its part, but it’s not just ours to lead, we’ve got to view this in a much broader perspective, it’s not just heat. We’ve got to look at carbon capture source, industry, heat for industry, transport we touched on, and ultimately domestic heat, but how those all fit together, I think it’s going to be absolute key to this, and the consumer is going to be at the centre of that.
Thank you Edward.
Alan, we’ve talked a lot about government policy, I suspect there is an angle here around what government ambition is in terms of setting a clear vision and strategy. You do quite a lot of work advising national governments in this area, what would your recommendation be to build this hydrogen pathway?
Many of the projects that we just talked about are helping us to move forward on that journey, and if you like, we are learning by doing, we are getting practical experience, and really understanding what the challenges are. I think, in terms of governments, there are some very positive governments. The New Zealand government for instance is very positive about hydrogen, Australian government similarly. In terms of the UK government, we are working closely with them to explore what potential challenges there might be in moving more to the hydrogen vector and understanding what the solutions may be for those, we are finding many solutions and we are working away through those, but I think government needs to have that confidence that there are no significant hurdles in the way, so that they can really get behind hydrogen and help it to decarbonise.
The other point I just wanted to make as well in terms of jobs. As we try and move away from hydrocarbons, the skill sets that are found in hydrocarbon industries, are not a million miles different from what a hydrogen economy will require. There is a component there of equitable transition if you move to a low carbon environment.
Janine, I am going to let you have the final say, beside from what the panel has already flagged, are there any other elements worth highlighting from your personal experience to accelerate this pathway to hydrogen economy.
The panel have done a great job of summarising the key things that need to happen. For me, this is just a great opportunity here. Hydrogen presents the most compelling solution for transporting huge quantities of energy and storing huge quantities of energy that is required for us to live our lives if we want to live in a decarbonised energy world and society. If governments around the world are really serious about climate change, then they need to get really serious about investing and creating the environment for investments in their economies, recognising as has been said a couple of times, the opportunity there as well isn’t just about decarbonisation, there is a big opportunity for jobs.
We can’t keep waiting for the solution to happen and the faster that we act, the quicker this will happen, and it’s just clear to me that this is a really important technology, it’s not the silver bullet, it’s not the only solution, but it is a really important part of the energy markets in the future.
Janine thank you and that brings our discussion to an end.
Firstly, I would like to thank all our panellists, Janine, Sam, Alan, and Edward for contributing to what was a fascinating discussion, thank you so much for that. As the future of hydrogen and its contribution to the UK energy system, maybe the jury is still out. It is evident that there are lots of benefits in terms of moving to a hydrogen economy, but clearly there are still some critical success factors that need to be put in place to allow that to succeed.
I hope you enjoyed this podcast. For more information and analysis on this and other energy-related topics, please visit our power and utilities web page at www.pwc.co.uk. If you would like further details on what Energy UK or PwC are doing in this area, please do get in touch and thank you for listening to this podcast.