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Science and Technology Committee

Corrected oral evidence: Long-duration energy storage

Tuesday 16 January 2024

10:00 am

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Members present: Baroness Brown of Cambridge (The Chair); Lord Borwick; Viscount Hanworth; Lord Holmes of Richmond; Lord Krebs; Baroness Neuberger; Baroness Neville-Jones; Lord Rees of Ludlow; Lord Sharkey; Viscount Stansgate; Lord Wei; Lord Winston.

Evidence Session No. 12              Heard in Public              Questions 108 - 125



I: Graham Stuart MP, Minister of State for Energy Security and Net Zero, Department for Energy Security and Net Zero; Emily Bourne, Director of Energy Systems and Networks, Department for Energy Security and Net Zero; Stefanie Murphy, Co-Director of Hydrogen and Industrial Carbon Capture, Department for Energy Security and Net Zero.



  1. This is a corrected transcript of evidence taken in public and webcast on







Examination of witnesses

Graham Stuart MP, Emily Bourne and Stefanie Murphy.

Q108     The Chair: I would like to give a very warm welcome to our witnesses to the Committee’s final evidence session for our inquiry into long-duration energy storage. Today, we are very pleased to be hearing from the right honourable Graham Stuart, the Minister for Energy Security and Net Zero. He is accompanied by Emily Bourne, director of energy systems and networks, and Stefanie Murphy, co-director of hydrogen and industrial carbon capture, also from the Department for Energy Security and Net Zero.

We are all looking forward to this final session. You will know that the session is being broadcast on, and a full transcript will be made available to you shortly after the meeting to make any minor corrections. If there is any information or data that you do not get a chance to tell us about or that you think would be useful to us for our inquiry, we would be very pleased to receive it after this session.

As you know, Graham, I chair the Adaptation Committee of the Climate Change Committee, so I would like to open with a resilience scenario, which makes this issue particularly pressing. We are going to imagine that it is 2035 and that, as we all want, the Government have succeeded in meeting their target of a fully decarbonised electricity system. We have more than 50 gigawatts of offshore wind, 70 gigawatts of solar and, of course, we are on track for net zero across the economy.

Then let us imagine that, in the next year, there is a one in 40-year event where we have extremely low wind speeds, which leaves a shortfall of something like 50 terawatt hours of generation across the renewables generation that year. In that sort of extreme situation—it is extreme, and one in 40 years might not sound very often, but actually it is quite often—what will happen to the energy system, and how will we keep the lights on?

Graham Stuart MP: Thank you for that question. You start straightaway with a nightmare scenario, but you are quite right to push us on it. Our aim is to create a resilient system, even as we move and continue with our world-leading decarbonisation. It is worth noting that the UK has now halved its emissions, ahead of any other major economy on earth, and is expected by the UN and others to decarbonise further and faster than any other major economy between now and 2030. So we are absolutely in the vanguard. That, of course, means that no one has ever done what we are doing before. That is why the committee is quite right to engage with Ministers in making sure that we are able to deliver the net zero goal and to do so in a way that protects families, bills and our energy resilience.

We have done a lot of modelling work looking at future scenarios, whether on a short-term or a longer-term basis. As you will be very much aware, there are enormous sensitivities. When you look at the requirements, so much depends on an interdependence with other factors and vectors. So it is hard for me to give too definitive an answer, because between short-term storage, with the typical lithium batteries that we are seeing more and more in the country now, and increased long-duration energy storage such as hydrogen or pumped hydro, there are an awful lot of imponderables. There are very large terawatt hour variations between the various modelling expectations.

Our aim is to ensure that we do as we have done up to today, which is to lead the world and maintain a resilient energy system. It was not many years ago that experts said that we would never be able to move to the level of renewables that we have today and still have a reliable and cost-effective system. We have defied that, and much will change between now and 2035.

That is my high-level answer, but we can always drill into Emily or Stefanie for more detailed focus.

The Chair: As you say, much will need to change, but we do not have much more than 10 years between now and 2035. One issue that we are going to be pressing you on as we go through the session is the pace of the change and whether we are ready for it. Who will take overall responsibility for ensuring that the nation is prepared for energy supply shocks like this? Will it be the Cabinet Office through the risk register, or will it be your department? How can we be confident that somebody knows that they are accountable for this?

Graham Stuart MP: Good question. It is government, ultimately, that is responsible. My department did not even exist a year ago, so we cannot be too prescriptive about which part of government it will be overall. I would expect my department or its successors to be in the lead on this, working as it will be with the Future System Operator, which itself will work with Ofgem as the regulator. There will be a kind of tiered approach of partners. We will also work with the devolved Administrations, because there are so many component parts of this in the planning system, up to pure energy, which in Great Britain is a reserved matter.

Q109     The Chair: One thing that we have been discussing a lot is the concept of a strategic reserve. We have had lots of information recently about the various models for energy storage, but, whether it is with batteries or hydrogen, they all seem to work on the basis that we are encouraging people to make money by moving energy in or out of those stores, which tends to be where people will make their money.

What about being ready for that one in 30 or 40-year event, such as a wind drought across northern Europe? Are the Government looking at a strategic reserve that we will definitely know will be there, because they will not just have sold it to somebody just as that period of wind drought hits us? Is DESNZ doing any work on that, and is it something that we can expect to see—capacity that the Government might even pay for, for those crisis conditions? If it is not doing that, why is it confident that it does not need to?

Graham Stuart MP: We are absolutely focused on preparing for any scenario, including the more extreme ones that you have already touched on. It is worth mentioning the national emergency plan for downstream gas and electricity, which describes our arrangements between DESNZ and the downstream gas and electricity industry, Ofgem, and the European Commission and other interested parties for the safe and effective management of downstream gas and electricity supply emergencies.

Before I turn to the point about the strategic reserve, it is worth touching on the Capacity Market, which is our main tool for ensuring security of electricity supply. It provides for all forms of capacity, including generation, shorter-duration storage and demand-side response, with the aim to provide the right incentives to be on the system to deliver when needed. Although it is technology-neutral, it is there so that existing and new-build electricity capacity, including in the form of generation interconnectors, demand-side response and other technologies, can compete to obtain agreements under which they commit to delivering capacity when needed, in return for guaranteed payments. In recent years, the Capacity Market has witnessed increased participation from storage, namely shorter-duration batteries.

On the strategic reserve, the review of electricity market arrangements, the REMA programme, is considering how we will maintain capacity adequacy in future as our electricity system develops and we become more dependent on intermittent renewables. To answer your question, that includes the option of a strategic reserve, which will be covered in the second consultation, which is imminent. Hydrogen storage, for instance, could provide strategic energy reserves, if needed. In recent analysis by the National Infrastructure Commission and the Royal Society, they looked at whether this can be supplied by hydrogen storage or another long-duration energy store.

If a decision was taken that strategic reserves were needed, we would consider which energy source or combination of energy sources may be best placed to provide this. As you have also touched on, under a merchant model we would anticipate companies selling their hydrogen, for instance, in fairly short cycles, shorter than would be required for a national strategic reserve.

Therefore, if hydrogen storage was to be used for those purposes, government intervention might be necessary to ensure that the hydrogen is stored for very long periods and used only in specific circumstances. No decision has yet been made on that, but, as you rightly say, we are examining it and should come forward to explain whether we will have it or, if not, why we do not think that we need it.

The Chair: But given that the ambition is to have the electricity system 95% decarbonised by 2030, which is brilliant, we will need to be thinking about this not just by 2035 but in a very small number of years. When do you think you will get to a decision?

Graham Stuart MP: We have used two models to build an understanding of the need for long-duration electricity storage: an internal multiyear model, and a more detailed single-year model that we commissioned from the consultancy AFRY. We use those assessment in conjunction with the wider external modelling, which I have already mentioned, from the Royal Society and the National Infrastructure Commission.

The modelling suggests that Great Britain will need more interday and interseasonal storage in the order of terawatt hours to tens of terawatt hours to avoid a reliance on unabated natural gas to balance the network, which is the primary way we balance the network today, as we transition to a renewables-driven net zero system.

As I have already touched on, the specific amount of long-duration storage required in future energy systems is very sensitive to assumptions about the wider system, the key factors influencing storage needs, the need for different types of storage technologies, the amount of generation from variable renewables as well as inflexible power sources such as nuclear, the amounts of other flexibility options available, the demand profile from transport, heat and industry, and electricity network capabilities and geographical considerations. Interconnectors are another one of the various elements that allow us to balance the system.

The Chair: We can go on modelling for ever, but at some point we have to make a decision, and the electricity system of 2030, if not 2035, will need these elements in it. At that point, I should pass to Viscount Stansgate, but we will continue to press you for ideas about when some of these decisions will be taken.

Graham Stuart MP: Just to give you a sense of the scale of the variations coming out of the modelling, for the scenarios modelled in 2035, electrical storage capacity use over a year with a duration of four or more hours range between 1 terawatt hour and 15 terawatt hours, with additional hydrogen storage requirements of between 2 terawatt hours and 35 terawatt hours. So they are very large imponderables at the moment.

Where lower levels of hydrogen storage were modelled, the required rate of electricity storage increased, as you might expect. It also compared the electricity system costs where only short-duration storage was available against scenarios where long-duration storage was used, and by using long-duration electricity storage there was up to £24 billion in system benefits between 2025 and 2050.

As you can see from the scale of variation, it is quite hard to put hard figures on that, but I agree with you on the need to move quickly, which we have to do right across this remarkable transformation of our energy system that we are undertaking.

The Chair: That is a very good point at which to pass to Viscount Stansgate, who will pick up on the scale and nature of storage needs.

Q110     Viscount Stansgate: Yes, thank you. Good morning, Minister. To some extent, you have just answered my supplementary question about the modelling work that is going on, so thank you for that.

We have heard that a range of storage technologies across different durations will be needed to match electricity supply and demand and to provide the services that the grid needs. Can you give us a firm idea of the levels of likely need for different types of storage by 2035 in terms of both power and energy capacity?

Given your remarks just a moment ago about the Royal Society and the National Infrastructure Commission, can you also explain why you as a department do not agree with the assessments that they have made about the need for long-duration storage?

Graham Stuart MP: Looking further ahead, and using the department’s dynamic dispatch model, the analysis of the 2050 electricity system—we are looking at 2035 and at 2050—indicates that, at that point, having up to 20 terawatt hours of green hydrogen provided for gas peaking plants would yield savings, so that is one of the things we are looking at.

I will turn to Emily to talk about the differences of opinion between the Royal Society and our own modellers.

Emily Bourne: We have a number of different models that we have used, both internally in commissioning consultants and externally in commissioning work from parties like the Royal Society and the NIC. We draw on all those different sources in looking at what the future needs might be. I would not say that we disagree with what they have put forward. It is just that they have used different assumptions and the models have different capabilities.

One of the two models that we have drawn on most heavily is a single-year model, which gives you a much better understanding of the system costs but does not look at multiyear scenarios. We know that hydrogen storage that can give you capability across multiple years will be very valuable to the system. So, separate to that, we also use a multiyear model, but that is not as detailed on the system costs. We basically get different things from different models, but we definitely look at what comes out of the Royal Society and other places in looking at storage need.

As the Minister said, how the energy system will evolve is so dependent on so many different factors that it is really hard to give a hard and fast, “This is the amount we’re going to need by when”. In the consultation that we put out last week on long-duration electricity storage, we said that at this stage we do not think we should be setting a specific ambition for that type of storage because of the level of uncertainty about how the system will evolve and the risk of setting a target that turns out be inappropriate, either too high or too low. We are asking a question on that as part of the consultation, so people have the option to say, “We do think that setting a specific target will be helpful, and it’s clear what that target should be”.

At the moment, there are so many uncertainties over what will be needed. We do know that we need quite a bit more of all the different types of storage, which is why we are proceeding with the support mechanisms that we have talked about.

Viscount Stansgate: So it would be fair to say, in the light of what you have said, that at the moment the department does not have an absolutely firm idea of the different types of storage that we will need for different time periods.

Emily Bourne: Exactly. We have some estimates—as the Minister said, terawatt hours to tens of terawatt hours will be needed, which is a huge amount—so our focus is on bringing forward those support mechanisms to get the new storage developed, rather than trying to pinpoint a number that might turn out to be too high or too low.

Q111     Lord Sharkey: I have a very quick question about uncertainties, which obviously exist. How do you see them resolving themselves? How do you see them reducing, so that we can get a workable model for action?

Graham Stuart MP: Good question. We may come to this in a moment anyway, but there are a limited number of technologies for long-duration electricity storage right now. As I say, we are consulting and looking at bringing forward business models so that we can maximise pumped hydro, which is the most mature and developed of these technologies. No one—it seems that other countries are in the same position—can see a route through to net zero without hydrogen playing a key role. Notwithstanding the fact that we have decades of experience of using hydrogen, no one, to date, has used hydrogen in the way that is required, and we are in the vanguard of those developing that.

So we are very much focused on taking this forward, with specific targets, in order to get the hydrogen economy going, recognising that those who produce it need, in some senses, given that there is no demand signal, to be protected from demand and storage issues, as do those who are using it and those who are storing it and transporting it. We are coming up with business models that break that down so that we can push that whole thing along and get that industry going.

We also recognise, and it is widely recognised, that in order to deliver net zero we need innovation. Technologies today are not sufficient, which is why we are spending £4.2 billion on net zero research and innovation, including our more than £1 billion net zero innovation portfolio flagship, which my department leads on, precisely in order to develop these technologies.

The business whose name I have forgotten—in my head I termed it “Sludge-o[1], which is a terrible name for a business—was looking at using something other than water, with something like two and a half times the density, so that you could create a pumped storage system in many more places and use less space, which we have supported. There is a whole series of technologies that we are also trying to work on. However, right now, optimising pumped hydro and developing hydrogen are the key elements, and I am sure that we will explore that further.

Q112     Lord Rees of Ludlow: It is clear that there is a distinction between the short and long term. One can imagine the short term being something that makes economic sense for investments, because it will average out over the year. What will be the funding for the kind of storage that will probably not be used for a decade or so, as a sort of insurance policy? Is the argument that, if it is hydrogen, it can be used in the short term as well as maintaining a store? I am not completely clear about this.

You mentioned just now that we need more innovation and so on, but that makes it even less likely that we will be anywhere near the target by 2035.

Graham Stuart MP: The Hydrogen Transport and Storage Networks Pathway, published in December last year, announced an ambition to support up to two storage projects at scale, along with the associated regional pipeline infrastructure, to be in construction or operation by 2030. We think that is deliverable. It will enable us to put the first foundations of regional hydrogen networks in place and to connect hydrogen supply with demand and storage, so pulling the key elements together, in a sense, for the first time. Setting that ambition is a major first step in the delivery of the transport and storage that we will need, and builds on the legislative powers created in the Energy Act 2023, which is the biggest piece of any legislation that has gone through Parliament since 2006 and the largest ever piece of energy legislation.

We consider that initial ambition to be realistic as well as technically and commercially deliverable by 2030. Geological hydrogen storage at scale is a novel technology and has long development lead times, as you say, Lord Rees, as well as limited suitable geology. By supporting two projects in the first allocation round, we can gain learning from it and, I hope, enable cost reductions for future projects. Meeting this ambition will provide only part of the hydrogen storage capacity likely to be needed by 2035, meaning that there is a very low risk that those assets will become stranded.

Further work is needed to determine how hydrogen transport and storage infrastructure requirements in the early 2030s may develop, as more evidence of hydrogen production and demand becomes available. We intend to conduct further analysis and relay that in future publications, including to set ambitions for future allocation rounds of the hydrogen transport and storage business models. Since the last committee meeting, we have also published the Hydrogen Transport and Storage Networks Pathway, as I mentioned, which sets an ambition for the first allocation round to support that by 2030. We are proceeding at pace to design the hydrogen storage business model.

Taking up your point, government is always quite slow, but we shall try to go as fast as we can. We intend to launch the first allocation round in quarter 3 of 2024, with a view not just to completing the business model by 2025 but to being in a position to award contracts for successful projects from Q4 2025 onwards.

So we have brought forward our business model, and you would then expect the next iteration to have gone forward. By bringing forward the first allocation round, we are moving more quickly than we had originally said. Subject to contract award date, successful projects will become operational between 2028 and 2032. We considered whether an interim business model was needed before an enduring one can be put in place, but we believe that it is possible to design only one business model by our 2025 target, since this is already a challenging timeline for us. Per our design principles, we will ensure that our enduring model is designed to be compatible with and adaptable to an evolving hydrogen economy and a developing market for hydrogen storage.

You cannot always do the read-over, but we can take some confidence from certain facts. My constituency is in rural east Yorkshire, and Hornsea 2 is named after a small town in my patch. When we put wind turbines into the North Sea, if our central task was to drive the cost curve down as well as delivering cleaner energy, it was not obvious that it would fulfil that cost requirement—but of course we went from £120 per megawatt hour plus in the first auction to £39.50 two auctions later. When we learn by doing, it makes things more insurable, brings down the cost of finance and can be transformative.

We are cracking on with it, although never as fast as we would like. However, when I ask officials to compare us to other countries that are also betting on hydrogen, we are absolutely in the vanguard, and our practical approach to delivery and de-risking for industry can lower the cost of finance. Of course, we all hope that we can get to a point where we can see major investment, perhaps with forms of government guarantee behind it to reassure investors. It could prove that, as with the interconnector business model, which was similarish, with cap and floor, we will never have to subside it. We allow the investment by providing that surety that perhaps only a sovereign state could.

Lord Rees of Ludlow: You mentioned that the price of offshore wind has gone down, but it has gone up again, because there were no takers for the last round.

Graham Stuart MP: Yes, it goes up and down. Partly, that is its success. We have led the way. We transformed the economics of offshore wind, not quite singlehandedly, but we can be pretty proud of ourselves. As a Trade Minister, I was all over the world selling British expertise. Our engineers are in demand all over the world and the supply chain is being squeezed, so prices will go up. Ireland is now doing it, I met with a Columbian Minister yesterday, and they have big plans there for up to 9 gigawatts of offshore wind. So I would hope and expect us to see it on a global basis, in the same way that scale has worked to bring prices down for us domestically.

Q113     Lord Winston: Thank you for coming, Minister. We are very grateful. You have probably realised that we are somewhat sceptical about the target for 2035. There is concern here that we probably need to be moving faster than we are. I think we all understand that you are very proud of the fact that, as you say, Britain is leading in the technology. We hear that a great deal in science, I have to say. However, the issue of how you get investment into this industry is really important, and I wonder whether you could deal with that a little.

Particularly as you are coming from the wonderful area of east Yorkshire and its environment, and your constituency is a beautiful one, what are you doing about public engagement on hydrogen? Having talked to a large number of people and going to schools across the country, I am very unconvinced that people have the slightest idea of what hydrogen actually means in its usage and, indeed, some of its dangers. Could you also explore that briefly?

Graham Stuart MP: Thank you. As you say, in my constituency, there is a possibility—it is not determined yet—that electricity from Dogger Bank D might come ashore, and we have the geology for gas storage. Rough is controlled from my constituency, and we have onshore gas storage as well. As you know, the energy density of hydrogen is a lot less than that of methane, so we will need very large geological stores to be created, with significant disruption in the development of those stores. I agree with you that we need to do more not just on this but on the grid. We are totally rewiring our economy. There are pylons, and there is the whole issue of where we can co-ordinate so that we minimise impacts from transmission and connection infrastructure.

Likewise with hydrogen. We are telling that story so that people are not shocked when they find that we will be building new industrial infrastructure. We will try to co-ordinate it, mitigate it, design it in the best way we can. We will provide community benefits to soften the blow. However, a fundamental change needs to happen, and it has to be conducted at speed, so it is incumbent on us to get out and tell that story as much as we can.

I am all ears as to how we can do it better. As well as doing the day job, we are trying to make sure that we get out, find ways and work with partners. It is one of the reasons why we created the Net Zero Council last year, which I co-chair with Shirine Khoury-Haq, the CEO of the Co-op. So there is that. We are working with business so that we can tell the story, and a meeting of the Net Zero Council is coming up in the next few days.

It is a big job. People can buy into the green transition, but they also have to recognise that there are realities and impacts on them and their environment. We need to do it in a way that allows us to move at the pace required and yet genuinely engages with people and listens to them. That is one of the big challenges.

Lord Winston: What about making green hydrogen close to the storage facility—in other words, close to the installation of electrolysers? Obviously, that would be ideal. Do you see this as being a public problem?

Graham Stuart MP: I deal with the storage. I am not the Minister responsible for hydrogen. I was specifically barred from that, because so strongly linked is my constituency. I just throw that in.

I have extremely rural communities in my area, and if electricity from Dogger Bank D comes in, then they set up a green hydrogen production plant and then develop hydrogen storage, that is a significant imposition and a real issue. On a very hot Saturday afternoon in a very rural, sparsely populated area, I had a packed hall of people who were understandably concerned about it. So, yes, I and others around the country will be living the reality.

Lord Winston: Would it be cheeky to ask you whether you have a very good relationship with the Minister responsible for hydrogen?

Graham Stuart MP: I do indeed. It is that combination, though, is it not? That is why we are also trying to look at the community benefits piece. But you are right. How do we tell that story better so that we combine not just the high-level “We should be proud of what we’ve done” but the change that it will require and the fact that it will have real-world impacts in every constituency in every part of the country?

There will be huge opportunities and upsides, and it will deliver environmental benefits—we can power Britain from Britain; that is why we called our plan Powering Up Britain—but one of the issues is making sure that we communicate it and carry people with us. Again, it is one of our successes, as a nation of left and right, that we have managed to maintain this consensus across the piece.

That is why the Prime Minister was right in his speech in September that, as well as looking to accelerate the grid we make sure that we carry people with us, that we do not have people feeling that their voices are not heard. It may be a crusade, but it is one that looks to listen to people and work with them. We have to find ways through, we have to tell the story, and then we have to work on the ground and make sure that the regulators, the planners and all the other components of the system have the capacity to deal genuinely with people but at pace.

Lord Wei: Thank you, Minister. Given the need to move with haste—you touched earlier on the issue of wind power expertise and so on—has your department thought about no-risk moves that could be made across the supply chain, anticipating that you will have pinch points with both innovation and suppliers? There is, for example, the need to understand how salt caverns can work at scale and to have piloting on that. Also, on a more mundane level, there is a global shortage of electrolysers. How will Britain secure these key resources across the supply chain and innovate fast enough, given the timescales of your wider policies, which will take a number of years?

Graham Stuart MP: That is a good question. By having good, clear legal obligations—the Climate Act has been a foundation of that—as well as having, I think, world-class regulatory systems that are recognised and often copied by others, and a decent level of certainty, we have put ourselves in a position where we have been and remain highly investible in. There has been, I think, £198 billion of clean energy investment since 2010, and we are expecting another £100 billion by the end of this decade. We keep fighting and working on that. We do not take it for granted, but we have done pretty well in doing that. That helps us, and it helps the supply chain, although it does not solve it entirely.

Nearly £1 billion was announced in the Autumn Statement for the green industries growth accelerator. That is very much about being able to support and accelerate investment in areas such as hydrogen. You are right that that is a challenge, but the more that we, working with others, can send certainty to the mark, the more we allow the investment, because you can get to the point where you have constraint on supply and yet companies do not feel confident about investing. That is what we try to militate against as much as possible, because in almost all this field there is a huge amount of expenditure up front and then a long pay-off, at which point the cost of finance is critical. So we have investability at the front of mind all the time, and we work very closely with DBT colleagues. Stefanie, do you want to add anything?

Stefanie Murphy: On salt caverns in particular for hydrogen storage, onshore salt caverns are one of the more mature hydrogen storage technologies. They are quite high up the TRLs. That is why, in the first instance, we expect our first allocation round for the hydrogen storage business model to be for salt caverns, so that we can get cracking with more mature technologies and start to get the stores built while continuing to work on moving other technologies further up the TRLs so that they can potentially play a role in future allocation rounds.

As the Minister has said, we would try to do that rather than try to run pilots or pick early no-regrets projects to support. It would have taken us just as long to come up with a temporary measure as it does to just put the business model in place, so we thought that the better thing to do was to run at pace to put the model in place, and we announced in December that we are looking for up to two storage facilities and associated transport technology to come forward. That allows us to get cracking on two at-scale projects while we do more analysis on exactly where the demand is and the best configuration of production collocated with demand or demand collocated with storage, and to work out what the next stage of the network needs to look like.

Graham Stuart MP: We are trying to come up with as flexible a business model as possible, because, ultimately, we do not know what the end costs will be. There is significant uncertainty. We are taking several steps to ensure that storage facilities provide value for money for the subsidy provider, such as having a business model allocation process to check that it is value for money in the first place, as well as having a mechanism in the business model to incentivise storage operators to raise as much revenue as they can—we do not want them to just sit there on the subsidy—thereby minimising the amount of subsidy revenues that they require and potentially creating a mechanism to allow the subsidy provider to share in the upside. It is a bit CfD-esque, if you like, and a mechanism that could result in the facility providing payments back to the subsidy provider, in line with the user revenues that they bring in.

We have separated the hydrogen production business model from the storage piece to try to make sure that they can all stand alone and we can move them all together rather than one being slowed down by lack of demand or whatever. The hydrogen production business model is critical to unlocking private investment and provides a subsidy to close the gap between the expected market price and the cost of production. That is similar to what we have done with offshore wind to provide confidence.

The Chair: We will come on to business models in a minute. To finish on this, how much storage will these first two hydrogen storage projects provide?

Stefanie Murphy: We have not set out a target for how much storage they will provide.

The Chair: So we know that we need terawatt hours. That is no-regrets. With this, we do not even know what sort of scale of storage this will provide.

Stefanie Murphy: We have said that we want it to be at scale, so we are looking for big projects.

The Chair: What is your perception of that scale?

Stefanie Murphy: I do not have a figure that I can give you. What we are trying to do is go out to the market and see what projects are out there and what can come forward at pace. In supporting salt caverns, we are looking to bring forward bigger projects.

The Chair: So would kilowatt hours of storage be at scale, or does it need to be megawatt hours? Will it be anything approaching the scale of terawatt hours, which we have been told will be needed?

Stefanie Murphy: As I have said, we have not set out an ambition in that way. We have set out our ambition in a number of storage projects. This is a nascent industry, and this is the first allocation round. We are very much looking to go out and see what storage projects come back, and that can help us to shape the future pathway. We will continue our analysis into this year.

Graham Stuart MP: It is a pattern that we have followed before, doing a sort of bilateral negotiated support to help the offshore wind industry to get to a certain point. We have done it with wave, and it took a while before we could bring it into the CfD. Likewise, while being ambitious as possible, we are trying to get the maximum value for money and not find ourselves trapped by our own rhetoric in our negotiations. Then we can move forward and, having developed the technology and de-risked it, we can move to a scale. Obviously, although we need to move to scale fairly quickly, we have again found the need to de-risk at lower scales, rather than locking in for a very long time on a very large project very high prices that rapidly come down. There is a kind of management programme to make sure that we deliver what we need but also do so at the lowest possible cost, not least because we have Treasury to consider on the one hand and bill payers on the other.

Q114     Lord Sharkey: I want to ask again about “no regrets”. The Climate Change Committee modellers all suggested that there should be a minimum no-regrets amount of long-term storage on the system. However, I understand that your consultation was minded to reject that. Could you help us to understand why you think it should be rejected?

Graham Stuart MP: I do not recognise us rejecting that. Clearly, given the need for hydrogen, we are confident that the projects that we will support will definitely be required. So we see those as no-regrets investments, but maybe I am misunderstanding your question.

Lord Sharkey: Maybe I did not understand the question. Anyway, I wanted to try to tease out from you what you characterise as no-regrets investments that you are making or are about to make.

Graham Stuart MP: I suppose it is not a term, necessarily. We are confident about getting this industry going. As I have said, as with all those other industries, it is much more expensive at the start than it becomes after a while. I would certainly hope so. Therefore, we have to get going, and that will come at a price, but we will try to manage it as sensibly as we can while putting ourselves on a pathway to deliver what we need, notwithstanding the huge variations in modelling as to what that might be.

Getting hydrogen production, transport and storage up and going at scale in this country is, I am convinced, a matter of no regret. Obviously, that means doing it at the lowest possible price and in as smart a manner as possible. The detail is probably where we will have some issues, but I am all in favour of making no-regret investments, and I regard investing in hydrogen as a no-regret investment.

Q115     Lord Sharkey: Can I ask a more general question about the policy framework and whether it will enable investment in long-duration energy storage, which is due to be introduced by 2024? There is a recently opened consultation into a cap and floor subsidy for storage, I understand. Can you set out in a little more detail the proposals that the Government are making and tell us when we will see the policy framework in operation?

Graham Stuart MP: Thank you. We have, as you say, recommended using a cap and floor scheme, as it provides revenue certainty for investors. It provides a floor payment should an asset’s gross margin, the difference between revenues and the cost of buying energy to charge the asset, drop below a predetermined threshold. That provides an insurance-type function for investors. The cap, on the other hand, will protect consumers from asset providers making an excessive return, with earnings above the cap returned to consumers.

We are aware that revenue certainty is a key barrier, which currently limits investment. The cap and floor regime provides investors with the confidence to put in high CapEx amounts needed to fund the development of the assets, even with the long construction time. It is a very expensive and capital-intensive exercise. There is a precedent in the current cap and floor scheme that supports interconnectors, as I have already touched on, which is administered by Ofgem, although the characteristics of long-duration electricity storage are different from interconnection.

The consultation seeks views on key design parameters, including what types of storage should be eligible, contract length, allocation process and mitigation of risks, as well as how the scheme should be delivered. The timelines are that the consultation will close on 5 March, and we will aim to provide a response by the middle of this year and complete the design of the scheme by the end of this year, opening to applications in 2025.

At this stage, it is difficult to estimate the scale of funding without stakeholder feedback from our consultation, as well as completion of the design of the scheme. The detailed design of the scheme will include more detail on the potential range of funding. It is worth noting that, for the interconnector cap and floor, as I have already said, subsidy payments were never made. That will not necessarily be the case in this instance, but there is always hope.

We are consulting on two application streams, one for mature technologies and one for more novel technologies. That will help to ensure that first-of-a-kind technology does not find itself squeezed out, while also bringing forward the more developed technology, like pumped hydro storage. That allows us to capitalise, we hope, on the benefits of innovative technology and to bring that on while also reinforcing and driving at scale reliable storage.

In the government response to the call for evidence, published in August 2022, we concluded that LDES technologies have an important role to play in achieving net zero. But, as I say, we are coming forward, because we recognise that there are high barriers to deployment. As in so many areas, no one has really done it before and we are in the lead, so we are looking to learn the lessons from our past successes but also to consult closely and listen to industry to make sure that we recognise the differences between one area and another.

Q116     Baroness Neuberger: Thank you. You have already said that government may need to intervene. However, given the design of the cap and floor system, how can a purely commercial approach to storage succeed in ensuring that we can always balance the grid, if owners and operators are incentivised to sell the energy they store as much as possible? We do not quite understand how that is going to work.

Graham Stuart MP: It is worth separating out these matters. My reference earlier to the Government having to intervene is about the strategic reserve.

Baroness Neuberger: Precisely.

Graham Stuart MP: That is the very long-duration storage, shall we say? We believe that the cap and floor will support the business model for those who store hydrogen, just as they do for gas. Sometimes we get people asking why we do not have the methane gas storage that they have on the continent, misunderstanding the whole nature of our gas system—the fact that we produce nearly half of it ourselves and have huge LNG capacity, as well as huge imports directly into my constituency from Norway. We do not want to jump to conclusions. Some people say, “It’s a disgrace that Britain doesn’t have the gas storage that Germany does”, when Germany does not have what we have. So that is why we do not have that.

We are working closely to work out whether we need a strategic store. We want to get hydrogen going in day-to-day normal business. As I have said, as part of REMA we will consult on whether we need a strategic reserve in addition to that, but everything will benefit from having got the hydrogen business models for production, transport and storage going.

Baroness Neuberger: I get that you are consulting on whether we need an additional reserve, but if you have the system of the cap and floor, are you not bound to need an additional reserve? Are people not going to be encouraged to sell as quickly as possible, so that there will be the risk that we run out—or am I misunderstanding?

Graham Stuart MP: We do not provide reserves on most of the things in the British economy. We have traders who trade and anticipate, and we look at whether there is a strategic risk that needs government intervention. Nearly always, the answer is no. Those committed to central planning cannot imagine how a market-based system of short-term people looking for profit could possibly provide a more sustainable system than the alternative, but all the facts in multiple markets suggest that they do.

The Chair: We might have a weather event that caused the prices to go up and the reserves to empty and then, three weeks later, we might have a Dunkelflaute over northern Europe and have no hydrogen. Do the Government envisage that as an acceptable solution?

Graham Stuart MP: You could equally take it on water or food or any other staple on which we depend and suggest that you could have catastrophic circumstances. We are looking at it precisely so that we understand those vulnerabilities. I do not have an ideological opposition to it, just to be clear. We are looking at it. The first thing is that, ideally, as much as possible, the hydrogen economy will be moved on to a market basis. We have announced that we are going to have a CBAM, a carbon boundary adjustment mechanism. We are looking to create an effective carbon price, and hydrogen will find its place in that, within a resilient system.

Lord Sharkey: Just to be clear on this, are you ruling out, or almost ruling out, the notion of a strategic reserve?

Graham Stuart MP: No, absolutely not. I was being asked how it could possibly work if you do not have one, and I was pointing out that there are lots of areas in which people think there has to be that sort of thing, and there does not. So we have not created a strategic reserve for gas, even though we are terribly dependent on it, because of the circumstances. We are looking at it under REMA, and we will do the analysis and consult. Clearly, if we need one, we would look to bring one forward.

Q117     Lord Krebs: I wanted to ask about the strategic spatial energy plan. As I understand it, the Government have recently accepted the recommendation to create a strategic spatial energy plan. I have three questions about that, assuming that my assumption is correct. First, what is your department and the Future System Operator doing at the moment, and when can we expect to see the plan? Secondly, will you consider making it a statutory plan when it is finalised? Thirdly, how will you get all the actors in the energy system to follow it and ensure that it does not just become a piece of paper?

Graham Stuart MP: Thank you. In the Autumn Statement, we announced that in early 2024 the Government will commission the ESO before the electricity system operator becomes the Future System Operator, combining both electricity and gas, to work with the Government to develop a strategic spatial energy plan, exactly as you say. The SSEP—another acronym to add to our list—will ultimately cover the whole energy system, land and sea, across Great Britain, to support the Government in tandem with the energy markets to determine the optimal location of energy infrastructure needed to transition to homegrown energy.

Producing that comprehensive multi-vector plan will of course take time, and this Government are keen to get on with ensuring that we have the right infrastructure to power Britain from Britain. We have therefore been working closely with the ESO, Ofgem and industry to develop options for an SSEP that will define the optimal location, generation and infrastructure required to meet forecast demand and our 2050 targets. It will enable the creation of a transmission network blueprint in the centralised strategic network plan, which will be produced by the FSO in 2025-26.

We want to take a co-ordinated approach that forms a pathway from which more plans like the CSNP and central energy plans would flow. The ESO/FSO will work with the Government to develop the SSEP using policy inputs and priorities provided by us, including technology-specific targets, with oversight from the regulator. Of course, Ofgem will regulate the FSO. We are engaging with the ESO, Ofgem, the Scottish and Welsh Governments and other UK government departments to understand the sophisticated input data needed to inform such policy and targets, as well as expected future demand, the pipeline of expected projects and geographies.

Given the complexities, we have not committed to a date by which we will produce this. I think that would be unwise. On whether we need to make it statutory—

Emily Bourne: I think, Minister, that is not a discussion that we have had, as yet. We can definitely write to the committee, if there is more detail on that. On the timing, the next step is to commission the Electricity System Operator, which we are planning to do this spring. We are working on that commission at the moment, with all the many different parties with an interest in this, including the devolved Administrations and other government departments, as well as external stakeholders. The aim is for the first strategic spatial energy plan to be produced in time to inform the centralised strategic network plan; I apologise for all the jargon. That is the full plan for designing the energy system, which the Future System Operator will lead on, in 2025-26. So the SSEP will need to be complete ahead of that. Other than that, we have not yet set out precise timelines. That will come in spring with the commission.

Graham Stuart MP: I think it would be fair to say that it has been warmly welcomed by industry and others. As to whether we make it statutory or otherwise—you also raised the issue of enforcement—the first thing is to get on with working out where we think it most rationally should be and to consult with industry to determine that. As we go through that process, advised by what will doubtless have become the FSO by then, Ofgem and others, we can look at whether we need to make it statutory or to bring in any specific enforcement or alignment with national policy statements and the like. We will look at that in due course.

Q118     Lord Krebs: I think you have answered the third question: you get everybody to follow the plan. Just to be clear, you were saying that you would look at that as you went along and, if necessary, you would make it statutory or introduce other enforcement measures to make sure that it was actually implemented, rather than just becoming a desk study.

Graham Stuart MP: As I say, I have not yet turned to examining that, but on first principles that sounds right. Obviously, we want it to do its job, and if we do not think it can do its job simply through joint publication, consultation and the like, we would need to look at what else was required in order to do so. The planning system and others looking at it and taking cognisance of it might be enough, but that is the sort of thing that we need to consider in more detail. I do not want to commit myself to anything more than that.

Emily Bourne: We have said that it would be subject to a strategic environmental assessment and a habitats regulation assessment. The new national policy statements currently laid before Parliament include a reference to the spatial plan.

Q119     Baroness Neville-Jones: Minister, you described what was involved, in response to Lord Krebs’s question about the spatial plan. There are a lot of moving parts. Which part of the system will take overall responsibility for developing the plan? Whether it is a statutory body or not is quite important. If it is, it has a great deal of authority. It has much less authority in the absence of that, and the Government would play a much bigger role, it seems to me. How do you see that?

Graham Stuart MP: My department and I will commission the ESO, which will become the FSO, to work on this plan. So it will take the lead.

Baroness Neville-Jones: But who do you intend to put in the saddle for the maintenance of the policy? If it is a living document, there will be constant movement, change and development.

Graham Stuart MP: The Future System Operator, as enacted by the Energy Act last year, is looking to provide that strategic planning function for energy right across Great Britain. So it will develop this. It will do the analysis. Obviously, the FSO is yet to be formed and it will need to scale up. We are looking to constitute it. But the FSO, as enacted by the Energy Act, will be in the lead, albeit following our commission, and will be working closely with us as well as the regulator.

Baroness Neville-Jones: Answerable to—?

Graham Stuart MP: Answerable to us. We are commissioning it, so it will be answerable to government and my department—and to me, so long as I hold this job, or my successors.

Baroness Neville-Jones: If it is answerable to you, does that mean in practice that it will put forward ideas, and in the end it will be the Government who give their consent to various proposals? I am trying to get at the degree of autonomous authority that this important body will have.

Graham Stuart MP: We are commissioning it to produce the plan, but it will do so at our behest.

Emily Bourne: As part of the commission that we are developing at the moment, we are looking at the governance of how that is overseen. So, ultimately, that will be a matter for government to set out.

To your exact questions about how that relationship will work, how much we are devolving to it, and where we need to have sign-off, that is all part of the consideration at the moment. Clearly, the commission will need quite a number of inputs from us on the assumptions that should go into the plan. So, again, there is the question of our role in inputting into and overseeing the actual production of the plan.

Baroness Neville-Jones: Am I right in concluding that, as things stand at the moment, you do not have a view on the degree of autonomy and authority that the FSO will have in relation to—

Graham Stuart MP: I do not have whatever the exact wording will be on that, but the idea that a strategic spatial energy plan covering a multivector plan for land and sea across the whole of Great Britain can be visited upon us by a non-elected body without our okay—just to speak crudely—seems to me to be for the birds. The democratically elected Government will need to approve this, that is for sure.

The aim is that we feel that the FSO has the expertise under our commission, and following the remit we give it, to produce it. That will obviously have enormous weight, and it will have consulted and all the rest of it. It is not as though we will just dictate what it says. That is now how it is. You have been involved in many reports yourself. If you come up with a report which, however independent it is, the Government of the day have no interest in implementing, that is not a lot of use. So I imagine that there will be a proper, grown-up, mature approach to make sure that we are on the same page, while respecting the FSO’s expertise and the results of the consultation and inputs it gets to help to inform its view. I do not have it in front of me, but it must be the case that we will approve it.

Baroness Neville-Jones: So watch this space as regards the level of decision-making.

Graham Stuart MP: Yes.

Baroness Neville-Jones: Thank you.

Q120     Baroness Neuberger: Channelling my inner Baroness Northover, storage developers have regularly cited issues in the planning system, and indeed in the grid connection regime, as barriers that are preventing their projects from getting off the ground. We have certainly heard that. Will specific reforms be considered to fix that, and is that very much on your agenda at the moment?

Graham Stuart MP: It is. The grid is possibly the biggest single challenge facing the department. When you go to the heart of that, it is about permissioning, about regulation, about speeding it up. That is why Nick Winser was asked to do his transmission report, looking to cut it down from 14 years. You cannot go back to the timelines in 2035 and say, “It’s 14 years to build transmission infrastructure”. We have to reduce that.

Hydrogen is another important component, and we need to do that more quickly than we have before. In November 2023, the department published updated national policy statements to underpin the planning policy system for nationally significant energy projects, and the overarching energy policy statement called EN-1 makes it clear that all low-carbon energy infrastructure is to be considered a critical national priority. That includes hydrogen and other low-carbon storage technologies. These NPSs are currently before Parliament for approval, and we expect them to be designated and in force within the next month. So that is a significant step forward.

The Government published their action plan in February last year to reform the nationally significant infrastructure project—NSIP—planning system, which is committed to bringing forward operational reforms to support faster consenting of new low-carbon infrastructure, including energy storage. The action plan has committed to bringing forward operational reforms to support faster consenting, strengthening pre-application advice, introducing a fast-track consenting framework for projects that meet the quality criteria, improving system-wide capacity and capability, including through greater community and local authority engagement, developing skills and training, and extending proportionate cost recovery by the Planning Inspectorate and key statutory consultees.

The Government published a consultation in July last year that built on the measures set out in the action plan and set out the key regulatory and guidance changes that we are looking to take forward. Subject to the consultation responses, the Government will bring forward secondary legislation needed to implement the full extent of the reform programme this spring.

Alongside the Autumn Statement, the Government set out additional reforms such as the commitment to review updates to national policy statements to make them more flexible and more frequent, a commitment to review the Government’s approach to community benefits, which you have seen, and to ensure that we are being strategic in identifying key sectors where community benefits can support delivery of infrastructure, as well as the creation of a star chamber at the heart of government to drive infrastructure delivery.

This is an absolute priority for government, and we need all the component parts to work together, which is why an awful lot of our work is working with DLUHC and other colleagues. We have a complex regulatory and permissioning system, and we need them to work with net zero and the timelines front of mind to make sure that they have the resources and the capability to train people, while also having a flexible system that can provide community benefits, once we have tried to mitigate, design away, co-ordinate and do everything else to remove negative impacts and, where there still are some, that we are as generous as we sensibly can be, bearing in mind the taxpayer and the bill payer, in looking after people who have to live with the result of this fundamental rewiring of our economy.

The Chair: I think Nick Winser is aiming to reduce the time it takes to get permission for grid infrastructure from 14 years to seven. If the first hydrogen storage projects take seven years to get started because they have to go through the same process, how quickly will we learn from them in time to get the next ones going and to have the terawatt hours of storage in place by 2035?

Graham Stuart MP: As I say, across the piece, the national policy statements covered, as I set out, all low-carbon infrastructure, of which hydrogen is part. So, in a sense, the Winser review, the work that has come out of it, and the Autumn Statement include elements that help to accelerate the system for hydrogen as well as grid. They are together.

Emily Bourne: The Nick Winser reforms are to reduce the entire development period for major new transmission upgrades—including the strategic planning, taking it through the consenting process, procurement and build timelines—from 14 years down to seven.

Graham Stuart MP: It is not just the permissioning.

Emily Bourne: Exactly. It is the full scale of it.

The Chair: If it is anything like this for these first hydrogen projects, we are not going to learn very much from them before we have to be doing the thing at very large scale.

Stefanie Murphy: The first kinds of projects that we expect might come forward through the hydrogen storage business model allocation round are projects that have existed as concepts for a while. They are most likely already going through the consenting process, so it is not that they will start when we allocate the funding. They are already a fair way through, which means that they can move much more quickly, which allows us some time to learn before we have the next allocation round and take those lessons on board and into our policy.

Q121     Lord Borwick: Has your department done any research into the public acceptability of processed hydrogen storage sites, for example in salt caverns? Do you hope that we will develop almost an affection for new power systems seen near nuclear power station works now? They seem to be perfectly happy to have another nuclear installation. Will we get that in the hydrogen field, or will we get growing objection to the transmission system?

Graham Stuart MP: As you say, nuclear popularity is in areas where they have already had it, so in a sense they have had the major infrastructure in position, which doubtless is a less popular time, and have lived with thousands of high-paid jobs, which very much affects the public attitude to the facility. We expect hydrogen storage at scale to be located in areas with high potential demand from the industrial and power sectors. To go back to the earlier question about public sector building, we need to tell the story about that: that it will really help the area.

We think that thousands of jobs will be created by the hydrogen economy, and in the use industries, of course, it will support many more. But hydrogen facilities are unlikely to provide the concentrated, high numbers of jobs in production and storage that you would get with a nuclear power plant. You are right to highlight the fact that we need to work hard to show the benefits to the communities that host this infrastructure. That is one reason why we have put in a lot of work on community benefits: to make sure that we can provide fair compensation for those who host this necessary infrastructure.

Lord Borwick: But is your feeling that we are well behind or well in front of the process, with the speed that we need to go at to achieve our ambition? My feeling is that people do not understand it at all.

Graham Stuart MP: To go back to Lord Winston’s question, I do not think I would claim that we were ahead of the curve in explaining and sharing this with everyone. Typically for a project, it is not government that goes out and does this. It is the developer that has the duty to engage and work on communicating with people, and some do that better than others, as I know from long constituency experience.

Funnily enough, I had two very similar projects in this area. On one of them we managed to take 300 highly anxious people in a hall and make them apoplectically furious. With another, we managed to go to an area with a gas storage site, where most of the people were off the gas grid. It was so well attended to by the developer, which worked so hard and showed such genuine commitment to minimising any negatives, that the parish council asked the county council to support the project on the basis of the national interest, even though most of the people affected were their own residents.

That shows you the character of my constituents in east Yorkshire, it has to be said. But it also shows how important the quality of engagement and how you treat people are. Ticking the box is one thing, but doing it in a way that makes people feel really listened to and genuinely heard makes an enormous difference. We need to get ahead of that, and there is a long way to go.

Q122     Lord Rees of Ludlow: I want to ask about the organisational structure. We have your department, Ofgem, and the proposed Future System Operator, as well as the energy companies. How do you think they will work together? In particular, the FSO has to co-ordinate and balance supply and demand on a very complicated grid and do a very difficult task. Concerns have been expressed to us about that. How do you think that will work out in relation to the strategic spatial energy plan? Will that co-ordination work well with your department? That is at the planning stage, but perhaps I could add a rider. If there really is an emergency, who will decide when we will draw on the emergency supplies of energy?

Graham Stuart MP: At a high level, government sets the policy direction, Ofgem is the independent regulator and makes decisions on business and investment plans, and the FSO will be the whole system planner—the operator of the electricity system and expert adviser to government and Ofgem, as key decision-makers. The Secretary of State will be the sole shareholder of the FSO and thus retain ultimate responsibility for it, although we are setting it up to be operationally independent of government.

We have consulted on the strategy and policy statement, which both Ofgem and FSO have a statutory duty to have regard to. So we have set that out. It was important for us to set out that strategic framework. That sets out our energy policy priorities for both organisations. We are also developing a framework agreement that will set out the relationship between government as shareholder and the FSO, which we plan to publish shortly after designation. Then you will be able to get more specific answers to some of your governance questions.

It should work well. I think we have sufficient clarity, the Energy Act had the right provisions, and the department will continue to have to work across government, which is always challenging. That is why it comes down to interdepartmental working, as well as personal relationships between Ministers. That can make a difference in trying to make sure that we work together in a co-ordinated fashion.

Lord Rees of Ludlow: And be joined up in an emergency.

Graham Stuart MP: On the emergency question, different emergencies have different rules and different people with specific responsibility. However, we have pretty robust systems for dealing with emergencies, and good clarity as to who is operationally in charge. That is the most important thing. Obviously, when there is a major event, there is a great deal of interaction with government and Ministers, as required. But we have clarity as to who is operationally in charge. We have a good record, but we are always waiting to be tested the next time.

Q123     Viscount Hanworth: A moment ago, we heard mention of the industrial demand for hydrogen. Has there been a detailed assessment of a likely demand for hydrogen by industrial users? If there were a large daily demand for the industrial use of hydrogen, presumably you could mandate accompanying reserves sufficient to meet the rare but devastating shortages of renewable power. What sort of encouragement will be offered to glass makers, brick manufacturers, steelmakers and so on to use hydrogen as their primary fuel? Is any of that in train?

Graham Stuart MP: Insofar as we are providing the production business model, the biggest thing is to start getting the production going. You do not get the demand side until you get that. They are not going to build equipment and build a dependency on a fuel source that does not exist. That is why we are trying to pull all those pieces together. We are incentivising 11 projects in December for hydrogen production. They are going ahead, so there will be hydrogen available on the market and we plan to develop it thereafter. I do not know whether that answers your question.

Viscount Hanworth: Are you tackling the putative users? Are you telling brick manufacturers that here is a source that will be available to them to replace natural gas?

Graham Stuart MP: Of course, under the ETS scheme, industrial users are incentivised to find alternatives. We seek to build and support a hydrogen system that will match that industrial requirement for decarbonisation a way that is cost effective. That is why we think government intervention is required at first. Obviously over time it would be lovely if the price of hydrogen produced in the market came in and was met by the carbon price, so that they just buy it in the normal way and government can back out. So we are subsidising production and providing sufficient guarantees and future surety so that industry can start to make those investments and commitments.

Q124     Lord Holmes of Richmond: I thank the Minister and his team for their time with us today. I shall be very much to the point. There is a long lead-in for infrastructure build, significant time required for decisions and urgent action required if LDS is going to be ready for 2035. What are your priorities and goals for the next 12 months?

Graham Stuart MP: We are working at pace, as I have said, to develop the cap and floor scheme, and are aiming to complete the design by the end of 2024 and have it open to application in 2025. That is what we are doing. We are going to get this thing going, get all the component parts going, and then have provision in the market which, coupled with the ETS and carbon price, will drive the adoption of hydrogen for hard-to-abate sectors that have no alternative.

Q125     The Chair: What one thing most worries you about the speed at which we can deliver? If you could wish to speed up one thing by waving a magic wand, what would it be?

Graham Stuart MP: I do not have one thing because you have to have all the component parts. So that is it: we have to have the production going before we have the demand, and we have to have the transport and storage. We have to get this thing going and make these projects happen and be delivered. We have learned from other areas that, once you do that, the insurance costs come down, along with the cost of capital, because you have proved that you can do it technically, and you lower costs doing it. So we want to push it all forward and make sure that we get those allocations going.

We are going to have hydrogen production, and we then need to match it with demand and make sure that we have the storage and transport to go with it. Given our vast resources for renewable energy, and the fact that constraint payments have grown to £2 billion by 2022, we are obviously hoping that as much of that electricity that effectively goes to waste can be converted into hydrogen. But this is all nascent stuff. The faster we move, the more likely we are to move to flexible production that can capture every spare electron and convert it into a store that provides both a reserve for our energy security and lower cost decarbonisation potential for our industry.

There is an opportunity for us to harness what we have and to come into the 2030s leading the world on net zero with a low-cost, clean energy system, making ourselves the dominant economic force in Europe on the back of that while also having a clean conscience, having continued to lead the world on decarbonisation. That is the thing—to have it all. It is a very Boris Johnsonian “cake and eat it”. It is possible to get it right by working at pace to do exactly that. My department is at the heart of it, and my officials are completely brilliant; they are personally dedicated, and we can be tremendously proud of what we have done.

The Chair: Thank you very much. I am sure we share those aspirations with you. We have worked you very hard, and we know that you have to get off now and work even harder in the Commons Chamber. I thank our witnesses very much. I think you mentioned that you might be able to send us some further information. We would very much appreciate having that.





[1] The company name is RheEnergise, they are developing ‘High-Density Hydro’. Their high density fluid is 2.5x the density of water.