HYD0090

Ørsted’s submission

Ørsted welcomes the opportunity to respond to this inquiry.

About Ørsted

1. The Ørsted vision is a world that runs entirely on green energy. Ørsted develops, constructs and operates offshore and onshore wind farms, solar farms, energy storage facilities, and bioenergy plants, and provides energy products to its customers. Ørsted is the largest offshore wind farm developer, generator and owner in the UK, and the world. Ørsted UK has over 1,000 direct employees and focuses on the development, construction, and operation of offshore wind farms and waste-to-energy solutions and has invested over £10bn on the construction of new offshore wind farms in the UK over the last decade.  By 2022 wind farms operated by Ørsted will provide over 6% of the UK’s electricity.

Ørsted’s renewable hydrogen projects:

2. Gigastack:

In the UK, Ørsted is partnering with ITM Power, Element Energy, Philipps66 on the Gigastack project.  The project is designing a hydrogen production system connected to an offshore wind farm with the Philips66 refinery as the industrial end user.  The project is currently conducting a full Front-End Engineering Design (FEED) study for a 100MW electrolysis system.  The project is also installing and trialling ITM’s next generation electrolyser stack and the manufacturing process for the electrolysers at its Sheffield facility.  The project aims to demonstrate the concept and also to identify technical, regulatory and commercial challenges to developing large-scale hydrogen production systems.

3. Copenhagen renewable hydrogen coalition:

Ørsted is one of six partners committed to the creation of renewable hydrogen and sustainable transport fuel hub in Copenhagen. Partners include shipping and logistics companies (including Moller-Maersk), an airline (SAS), and Copenhagen Airport.  The project will create sustainable fuels by combining the renewable hydrogen with captured CO2.  The project aims to be operating electrolysers with a capacity of 250MW by 2027 and 1.3GW by 2030. [1]

Executive Summary:

4. A successful hydrogen economy will be essential to the UK’s journey to net zero. Analysis from the Committee on Climate Change has shown that the decarbonisation of industry, transport and heating can only be achieved through the utilisation of hydrogen, and that this will require both renewable hydrogen and that derived from gas+CCUS. In order to start on a lowest-cost pathway to decarbonisation, the UK will require the early deployment of hydrogen in the early 2020s, and the establishment of a hydrogen economy that will grow in the coming decades.  

5. The production of low-carbon, low-cost renewable hydrogen will be a key part of this pathway to the decarbonisation of industry, transport and heat.  Hydrogen from electrolysis will become cost-competitive with hydrogen from gas+CCUS around 2030 as electrolysers become larger in scale, cheaper and more efficient. 

6. The question is whether the UK wants to be a lead-adopter in this technology or rely on other countries taking the lead. Germany has recently announced a strategy to achieve 5GW of hydrogen production by 2030 and 10GW by 2040, with most of this powered by offshore wind.  It has announced that EUR7billion will be made available to create a demand-driven market for hydrogen production.  The Netherlands has similarly announced a commitment to create a hydrogen economy with and has created a number of programmes to support and encourage further R&D and innovation and to create a regulatory framework to stimulate a hydrogen market. 

7. The UK is in an excellent position to create its own hydrogen strategy.   It has Europe’s largest offshore wind capacity, a strong industrial base, universities that are world leading in science and engineering, and a large number of companies already focused on the production and use of renewable hydrogen.

8. This strategy will need to stimulate both demand and supply for renewable hydrogen.  Low-carbon hydrogen will initially be more expensive to produce than that produced from existing sources which have high carbon emissions, and a regulatory framework will be needed to stimulate a supply of renewable hydrogen. The principles of this framework can be based on the success story of offshore wind and other renewables:  support for lower capacities of early deployment coupled with an element of competition in order to help the technology down the cost-curve. At the same time the Government will need to stimulate growing demand for low-carbon hydrogen by supporting the development and deployment of technologies that use it: in industry, in transport and in heating. 

9. Although other countries have already announced hydrogen strategies, the knowledge learnt from the projects already supported by the Government coupled with the UK’s strong capabilities means that the creation of a hydrogen strategy in the coming months will still enable the UK to take advantage of this economic opportunity.

Richard Crossick

Public Affairs Manager

Ørsted UK

18 June 2020

Responses to questions

How effective has the Government’s investment in hydrogen projects such as the Low Carbon Hydrogen Supply competition, the UK Hydrogen Mobility Programme and Hy4Heat been in moving the sector towards becoming an integral part of a low-cost, low-carbon economy and boosting the productivity and competitiveness of the UK energy sector?

What level of output can the sector deliver in the UK, and what Government support would be needed to achieve this? How does the potential for hydrogen differ by end-use?

How realistic is industry’s claim of widespread applicability of hydrogen technology in transport, heating and other sectors? Is hydrogen a cost-effective, feasible solution towards a low-carbon economy?

What are the different implications of hydrogen produced from fossil fuels versus from renewables in terms of cost, scale, and emissions, and in terms of meeting the UK’s net zero targets?

10. The BEIS Hydrogen Supply Competition has been very successful in enabling proof of concept for renewable hydrogen projects.  However, in order to take the next steps to create a renewable hydrogen economy, the Government must now create a regulatory framework to enable early deployment of the technology in parallel with steps to create demand for renewable hydrogen.  This will require creating a framework to support the generation of renewable hydrogen.  In parallel, the Government will also need to create demand for the renewable hydrogen in order to create an offtake for the hydrogen produced. 

Early projects have been essential to understand the technical, regulatory and commercial challenges to deployment:

11. The Gigastack project is an excellent example of what the Low Carbon Hydrogen Supply Competition has achieved. The project is now undertaking full FEED studies for a 100MW electrolyser stack, utilising electricity from an offshore wind farm with the hydrogen being used by a local refinery.  The full FEED study is identifying the technical, regulatory and commercial challenges of this and future projects and is an important step in the creation of a renewable hydrogen economy. 

Stimulating supply and demand in parallel; solving the chicken and egg problem: 

12. A regulatory framework to support early deployment:  Hydrogen produced with high carbon emissions is currently cheaper than renewable hydrogen or that produced from gas+CCUS.  Therefore, there needs to be a support mechanism for renewable hydrogen to bring it into commercial scale from which value can be delivered to consumers and the economy.

13. Without a form of support, there would be no incentive for existing hydrogen consumers to switch to cleaner forms of hydrogen, and there would be no incentive for new demand uptake in parts of the economy which are difficult to electrify and where hydrogen would be the only viable solution.

14. Experience from offshore wind and the electricity sector has shown that various support mechanisms can be applied at different points of transformation. Support should evolve to meet the changing needs of introducing new technology, supporting demand creation to incentivise transition, and introduction of competition to drive costs down. At all stages, careful calibration of the design parameters of support schemes can be used to support government, economic, and societal objectives. Whilst there is an immediate need to commercialise technology and to ensure demand for renewable hydrogen, competitive elements will also need to come into play to incentivise delivery at scale and the resulting investments that enables cost reduction.

15. Stimulating demand for renewable hydrogen:  In parallel, the UK and devolved governments must stimulate demand for green hydrogen.  From the perspective of a producer of green hydrogen, it is vital that there is a clear strategy to ensure that there is a demand for the hydrogen being produced in order to avoid the risk of a stranded investment.  Whilst intent is important, clear regulations and policies will be required to stimulate investment.  It is clear that a large number of forward-looking companies that use hydrogen in manufacture and processing, and also transport companies, are openly engaged in how they can switch to renewable hydrogen.

What are the different implications of hydrogen produced from fossil fuels versus from renewables in terms of cost, scale, and emissions, and in terms of meeting the UK’s net zero targets?

Renewable hydrogen has a number of advantages:

16. Renewable hydrogen has considerably lower carbon emissions than producing hydrogen from gas+CCUS. Additionally, renewable hydrogen benefits the energy system by dovetailing with electricity generation from renewable energy and providing grid integration functions, reducing the overall cost of the electricity system. It can be made at a utility scale from low-cost offshore wind, a technology that is currently cheaper than predicted wholesale costs for electricity, and which is able to deliver renewable energy to industrial hubs up and down the coast of the UK.

The cost of renewable hydrogen:

17. External analysis provided to Ørsted indicates that renewable hydrogen will be compatible in cost with gas+CCUS by around 2030.  The cost of electricity from renewable energy has fallen substantially with recent auctions for offshore wind agreeing contracts with a price of £39.65/MWh.[2]  Further reduction in cost of renewable hydrogen will come from the substantial reduction in cost of electrolysers, in a similar way to the rapid reduction in cost of wind, solar and batteries was due to the industrialisation of the technologies.  A combination of in the design of the technology, economies of scale and improved manufacturing processes, and of a growing supply chain, all contributed to the reduction in cost (i.e. offshore wind reduced in price by over 70% between 2014 and 2019).

To what extent has the UK established, or can establish, any early adopter advantage in the use of hydrogen in research, applied science or industrial processes? which countries are at a similar or more advance stage than the UK in exploring applications for hydrogen in helping deliver net-zero targets?

What can the UK hydrogen sector learn from other countries’ hydrogen strategies?

Economic opportunities for the UK from renewable hydrogen:

18. Hydrogen from electrolysis will become cost-competitive with hydrogen from gas+CCUS around 2030 as electrolysers become larger in scale, cheaper and more efficient.  The question is whether the UK wants to be a lead-adopter in this technology or rely on other countries taking the lead.  As an example of the opportunity, ITM Power is in the process of starting an electrolyser manufacturing facility in Sheffield that will ultimately be capable of manufacturing electrolysers with a capacity of 10GW per year.[3] 

19. The economic opportunities for the UK of renewable hydrogen include:
• The potential to lead in electrolyser design and manufacturer:  i.e. ITM Power in Sheffield is currently constructing the world’s largest electrolyser facility. Electrolyser design and manufacture and the associating supply chain has the potential to create jobs, increase exports, and attract both direct investment and act as an anchor to further investment in other industries. Alongside the potential economic benefit of manufacturing facilities, there is an equal opportunity in the design of electrolysers and associated hydrogen technologies.
• The UK is home to world-leading universities and research institutions, with strong capability in both foundational science and engineering in electrolysers, fuel-cells and chemical processing who will be able to support and benefit from a growing hydrogen economy.
•                               Attracting investment in industry:  all industries and businesses, and particularly energy-intensive industries and businesses, will need to adapt to a lower-carbon world. The most forward-looking businesses are doing that now.  The combination of a regulatory framework and signals of commitment to decarbonisation will attract forward-looking and innovative businesses to continue to consider the UK as a good long-term option as a location where they can innovate and adapt.
•                               Offshore wind resource: the UK has the world’s largest capacity of utility-scale offshore wind with a target for 40GW by 2030 and potentially over 100GW by 2050. 
•                               The potential decarbonisation of marine and aviation fuels: the UK has strong port and airport infrastructure with a great potential to be one of the leaders in the decarbonisation of marine and aviation fuels.  Early-stage DfT interest in marine fuels is very positive and should be supported.

Regional impact, using the Humber as an example:  

20. The Humber is the largest carbon emitting region in the UK at 12.4MtCO2 per annum, or 13.9 tonnes per Humber resident – over twice the national average. The recent Humber Clean Growth White Paper thus outlines a serious ambition to develop a low carbon industrial cluster by 2030 and ambitions to be the first net-zero cluster by 2040.  The strong interest from local economic agencies, and from regional business and industrial groups, demonstrates the level of commitment from

21. The Gigastack project supports the Humber’s low carbon ambition as well as the recent BEIS/UKRI Industrial Strategy Decarbonisation Challenge Phase One funding which has been awarded for developing a roadmap and two deployment projects.  With a deployment project now at undergoing full FEED studies (Gigastack) and a roadmap being developed for the decarbonisation of the region, it is now essential that the Government creates the regulatory framework to encourage further investment in renewable hydrogen.

What can the UK hydrogen sector learn from other countries’ hydrogen strategies.

Hydrogen strategies in other countries:

22. Germany has recently announced a strategy to achieve 5GW of hydrogen production by 2030 and 10GW by 2040, with most of this powered by offshore wind[4].  It has announced that EUR7billion will be made available to create a demand-driven market for hydrogen production.  The Netherlands has similarly announced a commitment to create a hydrogen economy and has created a number of programmes to support and encourage further R&D and innovation and to create a regulatory framework to stimulate a hydrogen market[5]. 

What the UK can learn:

23. In both the Netherlands and Germany, there is a strong vision for the role of hydrogen in the decarbonisation of industry, transport and heat and the requirement for the strong role of Government to deliver this strategy. Both strategies recognise the need to support and encourage renewable hydrogen production in order to support the technology down the cost-curve to make it cost-competitive.  In both countries, there is a recognition that cost reduction requires both early-deployment to ‘learn-by-doing’, to build scale and to create a supply chain, accompanied by support for R&D and innovation. There is a recognition that support for early deployment will require the development of a regulatory framework that is sufficiently funded.  In both countries, there is a focus on the role of utility-scale offshore wind farms as a low-cost source of industrial-scale renewable energy.  Both countries also recognise the need for the parallel development of technologies that utilise low-carbon hydrogen.

24. The UK has already achieved the rapid decarbonisation of the power grid through policies that have enabled offshore wind and other renewables to rapidly reduce in cost.  The UK Government is also already supporting early-stage projects and the creation or roadmaps for the creation of low-carbon hubs including those based around hydrogen.  It is therefore well-placed to learn the lessons from strategies being adopted by other countries and adapt them to the strengths of the UK.  The creation of a hydrogen strategy in the coming months will still enable the UK to take advantage of the economic opportunity in this next stage in the energy transition.

Ends.

June 2020

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