COV0049

Written evidence submitted by Cadent Gas

Dear Sir/Madam

Greening the post-Covid Recovery call for evidence

Please find attached written evidence submitted by Cadent Gas Limited to the Environmental Audit Committee call for evidence on the above enquiry.

Cadent Gas Limited

Cadent is the largest UK gas distribution businesses and manages four of the eight networks. Our combined network delivers gas to 11 million homes and businesses in the North West of England, the West Midlands, the East of England (including the East Midlands and East Anglia) and North London. In total, our pipes stretch over 80,000 miles. 

Cadent would be delighted to have the opportunity to expand on the points made in this submission through oral evidence to the Select Committee’s inquiry.

Yours faithfully

Jonathan Collins

External Affairs manager

Executive Summary

• The UK Government has set a target to reach net zero emissions by 2050, and analysis suggests that hydrogen will be essential for the UK to achieve this target and to do so in the most efficient and cost-effective way.

• The UK has made significant progress to demonstrate the feasibility of delivering a competitive hydrogen market and has a significant advantage in existing infrastructure. This makes the UK well placed to become a global leader in hydrogen.

• Cadent continues a proactive role as one of Britain’s five gas network companies, working closely with the ENA under the Gas Goes Green programme. We have committed to supporting the creation of the world’s first zero-carbon gas grid in the UK, by ensuring that the gas grid is ready to replace natural gas with hydrogen and biomethane, based on an independently authored and peer reviewed pathway.

• Analysis of the costs of both blue and green hydrogen demonstrate that it is not cost competitive today but will decrease over time, as the market matures. Targeted government support is required to unlock the widespread application of hydrogen. 

• Public trust is important to create and pilot projects such as Hy4Heat and HyDeploy are valuable and necessary to demonstrate feasibility and build public trust, and these pilots should be continued and expanded.

• Our recommendation is that Government should take a strategic approach to the development of a hydrogen economy like that taken in the development over the offshore wind industry over the last ten years. Cadent would welcome a statement of policy intent from the UK Government on hydrogen and believes this would be widely welcomed by industry and be positive for driving investment.

1.    Effectiveness of Government investment in developing the hydrogen economy

1.1.    The Government has made several recent investments in hydrogen projects. The structure of the Hydrogen Supply Competition has enabled rapid progress because the programmes were wholly grant funded. This is important in the early stages of innovation and is critical in an environment with policy uncertainty. The fund has been adequate to support both Pre-FEED and FEED (Front End Engineering Design) studies across all aspects of hydrogen production technology. Whilst the programme is yet to complete, the outputs will result in investible infrastructure projects by 2021/22.  By this stage a clear policy framework is required to obtain private sector funding. The precedent of the renewable wind sector shows how policy certainty from Government can deliver strong commitments from the private sector. A long-term commitment to hydrogen supported by evolving and effective policy would be expected to deliver the same benefits for a hydrogen economy.

1.2.    The Hydrogen Transport Programme (HTP), launched in August 2017, supported by the Government’s Office for Low Emission vehicles (OLEV), has allocated £23m of grant funding to develop the UK’s hydrogen vehicle market. During the second phase, £14m was allocated to 5 projects including 5 hydrogen refuelling stations, 73 Fuel Cell Electric Vehicles (FCEVs), and 33 fuel cell buses. Whilst the programme is ambitious, all funding has not been spent or allocated due to project delays, in the main associated with obtaining planning consent for refuelling infrastructure and/or the delivery of hydrogen vehicles from Original Equipment Manufacturers (OEMs). The programme has delivered the first round of UK deployment and proved the operational viability of hydrogen as a transport fuel. It has also exposed challenges which need to be addressed in any expansion phase e.g. role of hydrogen in decarbonising key sectors like rail and heavy goods vehicles (HGVs).

1.3.    The UK Hydrogen Mobility Programme (UKH2 Mobility), a 100% industry initiative, reports that as of May 2020, there are 14 publicly accessible hydrogen refuelling stations, servicing c.280 vehicles. UKH2 Mobility (and industry) are encouraging a significant increase in the level of ambition over the next 5 years, promoting a vision of >6,000 H2 vehicles by 2025, available to all transport modes with ownership costs that are competitive with equivalent zero-emission alternatives, and a public network of 80 hydrogen refuelling stations. This is broadly consistent with the Hydrogen Taskforce’s report[1] which includes a policy recommendation to establish 100 hydrogen refuelling stations by 2025 to support the roll-out of hydrogen transport in the UK.

1.4.    The Hy4Heat programme has made significant inroads into exploring compatibility of hydrogen in homes and businesses, both establishing the critical safety evidence for any transition and the development of both domestic, industrial and commercial hydrogen appliances. In comparison to other low carbon technology developments within the BEIS Energy Innovation Programme such as small modular nuclear reactors, for which there is £180m[2] allocated, the investment of £25m in Hy4Heat has been relatively small for a sector that represents a third of the UK’s emissions. Whilst the programme has been effective the government has lacked the ambition to plan for large scale customer trials and the natural progression to roll-out as would be expected.  The necessary technical and engineering understanding has now been delivered and the regulatory and public support which enable the findings to be exploited at scale needs to quickly catch up. Investment at a scale comparable with other low carbon technologies is now needed along with a much more closely integrated approach with Ofgem. Immediate clarity is required regarding which infrastructure, such as new pipelines should be funded by gas consumers and therefore regulated by Ofgem and which should be funded by other means.

2.         Amount of hydrogen needed to achieve net zero across different sectors.

2.1.    Hydrogen can play an important role in decarbonising heavy transport, industry and buildings (all classified as ‘hard to abate’ sectors) and establishing greater energy system flexibility:

• Heavy transport: Hydrogen is expected to be the primary low-carbon fuels for large vehicles such as HGVs, buses, trains and tankers.
• Industry: Hydrogen is a more technically and economically feasible low-carbon source of high-temperature heat for industrial processes.
• Buildings: Hydrogen is one of the leading options for decarbonising heat in buildings, alongside heat pumps and district heating networks – with all three likely to play a part.
• Flexibility: Hydrogen can provide energy system flexibility in the form of storage (including inter-seasonal storage), peak generation dispatchable power and sector coupling.

2.2.    The UK currently uses c.900TWh of natural gas[3] annually across several different sectors, including power generation, transport, heating buildings and homes and industrial use. There is an expected reduction in gas consumption over time as homes and businesses become more energy efficient and other heating options increase. Increased renewable energy supply will also lower gas demand for electricity generation as electricity production is currently a significant block of the gas demand.

2.3.    The Energy Network Association’s work on Pathways to Net Zero[4] shows a reduction to c. 440TWh by 2050 in their ‘balanced scenario’. Due to the volume required, it is expected that both blue and green hydrogen is required. The majority of UK hydrogen production is likely to be initially be ‘blue’, produced from methane in tandem with carbon capture, use and storage (CCUS). Over time, ‘green’ hydrogen production from electrolysis powered by renewables will ramp up, as its costs reduce on the back of technology and process innovation and scale-up.

Balanced scenario pathway to net zero, ENA 2019.

3.    Costs of Hydrogen Production

3.1.    The ENA’s recent ‘Pathways to Net Zero’ report concluded that a balanced combination of low-carbon gases (including blue and green hydrogen) and electricity would cost £13 billion per year less to deliver than full electrification. This is seen as a relatively conservative estimate due to the complexity of the energy system. The key drivers of the relative economics include:

• the fact that a comprehensive gas distribution network already exists, serving 83% of UK householders (a theme shared with other countries prioritising hydrogen), and is already largely hydrogen-ready;
• the high cost to reinforce the electricity distribution network to meet peak heating demand in a full electrification scenario.
• the high cost of retrofitting buildings with entirely new heating systems in a full electrification scenario (especially given the low renewal rate and relative energy inefficiency of building stock in the UK); and
• the need for a flexible system to meet seasonal energy demand at times of low renewable power output but high demand for energy and heat.

3.2.    It should be noted also that even in high electrification scenarios, there remains a high demand for gas for flexible, reliable, dispatchable power generation to secure the increasingly intermittent power grid.

3.3.    Decarbonising the gas network and establishing a hydrogen economy is expected to bring broader economic benefits including job creation and export potential. The Global Hydrogen Council estimates the hydrogen economy will be worth $2.5 trillion by 2050, with 30 million new jobs[5]. In the near-term, preparing for a hydrogen economy can also play a valuable role in stimulating a green recovery from Covid 19. Specifically, there are opportunities to accelerate the gas mains replacement programme; and to accelerate the development of the UK’s first hydrogen hubs from industrial clusters such as HyNet in the North West.

3.4.    Recently completed work by the ENA, under the Gas Goes Green initiative (which covers a view across all Gas Distribution companies, including Cadent), estimates the relative costs of blue and green hydrogen over time as production is scaled[6]. The analysis shows that blue hydrogen would initially be the cheapest form of hydrogen production at £43/MWh. This is still 79% more expensive than the National Balancing Point (NBP) price for natural gas plus the carbon price. Green hydrogen from renewables rapidly becomes cheaper falling to parity with natural gas by c.2030 at £44/MWh as carbon prices increase and the cost of green hydrogen falls due to falling capex prices and lower electricity wholesale prices. The cost reduction trajectory for green hydrogen is expected to be like that experienced by solar and onshore renewables over the past decade.

Cost of hydrogen production: ENA: Gas Goes Green, Hydrogen: Cost to customer, May 2020

(NBP = National Balancing Point)

3.5.    This perspective is confirmed by the Hydrogen Council report by McKinsey, Path to Hydrogen Competitiveness – A Cost Perspective7. The diagram below shows the breakeven production costs for hydrogen across key segments and shows that hydrogen becomes competitive across a range of applications at between $2-3/kg (equivalent to £40 to 58/MWh). This is particularly applicable for industry, heat and commercial transport applications.

Cost of hydrogen production across segments: Hydrogen Council, Jan 2020

(includes all logistics, distribution, refuelling infrastructure etc)

3.6.    Our own work (Hy-Motion, 2019[7]) demonstrates for a new, dedicated 100% hydrogen pipeline (part of the HyNet regional cluster consortium), that competitive hydrogen pump prices are attainable and can deliver hydrogen at a significantly lower cost than alternative supply options.

Comparative costs of hydrogen production and distribution. Cadent, HyMotion 2019.

4.    Hydrogen for Industry

4.1.    The scaled use of hydrogen at industrial clusters is likely to be one of the first and major users of hydrogen[8].  For many applications there are limited alternative choices to deliver low carbon solutions, particularly for high heat industrial requirements such as steel production and chemical processing. Various reports show a need to deliver industrial fuel switching to hydrogen of between 100-135TWh/yr by 205011,12,13.

4.2.    For example, HyNet industrial cluster (name for North West Industrial cluster consortium) is engaged with over 30 industrial users with an interest in using hydrogen to reduce carbon intensity of their processes. Several existing facilities across the UK produce hydrogen or hydrogen-rich fuels as a by-product and use this fuel onsite, examples are the Inovyn chlor-alkali process, Sabic’s processing plant, and refineries and steelworks. In terms of timescales to deployment, the Hy4Heat programme indicates that many applications will be commercially ready for deployment during the early 2020s, with boilers, indirect users, heaters, kilns and many furnaces all able to be deployed between 2023-2025. The third phase of the BEIS Fuel Switching programme[9] sets out to provide the necessary demonstration across a range of applications by March 2021 to expedite deployment.

4.3.    In addition to the Government competitions that have made the industrial pre-FEED and FEED work possible, there needs to be confirmation of the business models and regulation that will underpin the schemes. This includes hydrogen production, CCUS, storage, and distribution. Without certainty of the regulatory model that will support these assets (e.g. RAB based models, production incentives etc), attracting private sector investment will be difficult.

5.    Hydrogen for Domestic Heat

5.1.    Over 23.5m homes (83%) are connected to the gas network. Gas boilers are currently low cost and well suited to the fabric of the UK’s Housing stock[10].  They deliver high heat rapidly and efficiently for the periods of time that users require it.  It is projected that 80% of the 2050 homes have already been built[11] with their inherent fabric of construction. Plus, the existing gas network provides high levels of resilience, capacity and flexibility (meeting 20-year peak 6-minute demand as well as summer lows).

5.2.    Heating for buildings can be decarbonised in several ways, including hydrogen, electrification/heat pumps and district heating networks. All three technologies will likely play a role, although there is currently no clear consensus on the optimum mix. Hydrogen has two key advantages over the other options that will make it particularly attractive to some homeowners. First, existing gas central heating systems can be very easily converted to hydrogen. Given the fact that 23.5m homes are currently heated by gas boilers and homeowners are notoriously resistant to change, the relative ease and low up-front cost of converting to hydrogen is a fundamentally important point. A future mandated switch from natural gas to hydrogen for gas users as part of future regulation will be important so customers can not delay the switching of the network to a carbon neutral solution.

5.3.    By contrast, converting to electric heat pumps could be much costlier (an air source heat pump costs £9-11k to install, versus c.£2k for a new boiler) and is more disruptive. Electrifying heat would also require a massive and disruptive expansion of the electricity infrastructure as the gas network currently supplies four times more energy at peak in the coldest winters[12] than the electricity network. This issue of peak demand is then further compounded as the performance of air source heat pumps declines in cold, peak demand conditions, often requiring the use of further electric resistive heating. Hydrogen boilers can generate significantly higher temperatures than heat pumps, which makes them better suited to heating poorly insulated buildings (which are also often hard and costly to retrofit to higher energy efficiency standards). 70% of homes in the UK are still below EPC – C, equivalent to 19 million homes[13].

6.    Blending hydrogen as a first step

6.1.    Blending hydrogen into the gas network provides an immediate means to reduce the carbon intensity of gas without requiring the users to make changes. The HyDeploy[14] project is demonstrating that levels of 20% by volume (7% by energy) can be achieved in the gas distribution network without requiring changes to appliances. If expanded across the UK, this equates to 29TWh of hydrogen. The National Grid Transmission is also commencing work on assessing the feasibility of blending into the transmission network[15].

6.2.    The HyNet industrial cluster plans to deliver blends of hydrogen and natural gas to around 2 million households as well as commercial and industrial users from the early phases of the project with potential for further expansion to other nodes on the gas distribution network.

6.3.    Blending will only be a temporary-step towards decarbonisation because the end-point is a shift to 100% hydrogen. However, enabling blending would give confidence to producers that there was demand and enable early bulk hydrogen production, developing hydrogen infrastructure, and building associated supply chains.  To support blending, a regulatory regime would need to be established that supports blending also allows retailers to sell this additional ‘green gas’.

7.    Conversion to 100% hydrogen

7.1.    Due to the merits of using a gas-based vector for consumer heating, including the opportunity provided by its mature gas network, consideration is being given to the conversion of the gas network to full hydrogen. This was initiated by the original H21 programme, the H21 North England project and is developing further through the H21 NIC programme and BEIS’s HyHeat project. This programme is establishing the developments required for gas users to use 100% hydrogen. Boiler manufacturers such as Worcester Bosch are actively developing ‘hydrogen-ready’ appliances. The H21 North of England programme predicts an increase of hydrogen demand through 100% conversion to 194TWh by 2050[16].

8.    Hydrogen for transport

8.1.    For heavy transport applications, it is recognised that alternative solutions are necessary to achieve the volumetric/gravimetric energy storage capacity and fill rates that the market requires. The CCC’s Net Zero report identifies that hydrogen is particularly important for the HGV sector, as well as for shipping2.  Department for Transport data[17] indicates that HGV’s currently consume around 80TWh per annum. There are also opportunities in the train sector. Alstom has already deployed its Coradia iLint hydrogen hybrid trains in Germany and is currently working with Eversholt Rail to deploy its Breeze trains in the UK.  The HyMotion project[18] indicates initial deployment of hydrogen Fuel Cell HGVs and shipping in the early 2020s, rising to widespread roll out in the UK from the late 2020s onwards.

9.    Dispatchable Power

9.1.    Dispatchable power provides generation during periods of low wind/solar output and assists in maintaining frequency stability whilst having the ability to reduce output to avoid curtailment of renewables at times of high wind or insolation.  Whilst electricity storage has a part to play, it is unlikely to provide the most cost-effective volumes required at a network level for the foreseeable future.

9.2.    The CCC requirement for 148TWh of dispatchable generation from gas would equate to around 300TWh of hydrogen. In terms of technology readiness, hydrogen fuelled gas turbines are currently available commercially. Both the Teesside Low Carbon and Caledonia Clean Energy projects in the CCC Commercialisation programme were predicated on hydrogen fuelled CCGTs, for which OEM solutions were provided on commercial terms with financeable performance guarantees. The Nuon Magnum project in Holland is currently part of a programme to convert one of the units to hydrogen production by 2023[19]. The work by Jacobs and Cardiff University supporting Element Energy in the Hy4Heat programme14 focused on industrial scale CHP facilities also supports the feasibility of hydrogen operation at smaller scales including micro CHP/Smaller scale distributed hydrogen generation could also benefit by helping optimised electricity distribution network operation as well as system wide security and energy balancing.

10.     Aspects of hydrogen safety

10.1. The risks perceived or otherwise, to public safety from a hydrogen energy system have been one of the central questions surrounding the feasibility of hydrogen in domestic homes. The gas networks took a step significant forward in 2019 having established the safety evidence and approval from the HSE for the first UK hydrogen blending demonstration at Keele University (HyDeploy). Establishing the safety case for 100% hydrogen has followed a similar systematic process and, whilst hydrogen is different from natural gas, there are many similarities in terms of safety. Indeed, the IET’s (Institute of Engineering Technology) ‘Transitioning to Hydrogen’ report[20] saw no reason why the gas networks could not be safely transitioned to hydrogen.

10.2. Safety risks are broadly categorised into those that are network related but within the public environment, and those that are beyond the meter and in customers' homes. Gas distribution companies have worked closely with the HSE and BEIS in delivering the H21 programme which will establish the safety aspects of transportation of 100% hydrogen through the existing network. In parallel it is also developing any new operational procedures required for operating hydrogen networks and adaptions to emergency procedures. The BEIS Hy4Heat programme, discussed earlier in this response has focused on safety in the home and has delivered the necessary technical and engineering understanding. It is the regulatory and public support which enable these findings to be exploited at scale that needs to quickly catch up.

11.     Hydrogen technology development

11.1. As hydrogen is a manufactured energy source, we will need to consider how it adds value to the new energy system. One benefit of hydrogen when compared to renewable electricity is that it can be stored (as gas, or liquid or ammonia) for periods of time, adding resilience to the system. Thus, enabling the energy to be stored and transported large distances. Today there is little regard to the value of storage of energy in its role in a future energy system and we think this point merits further work. A largely intermittent renewable energy system will still have times when demand is high but renewable output is low. Battery and demand response will achieve proportions of short term demand reductions, but there are likely to be times when alternative sources such as hydrogen are needed.

12.     What is needed to stimulate the Hydrogen Economy?

12.1. Building further momentum now requires a step-up in policy and regulatory support along the whole hydrogen value chain, from upstream (to support hydrogen production and drive cost reduction) through the midstream (to create a hydrogen-ready distribution networks) to the downstream (to stimulate end-user demand for hydrogen).

12.2. At the highest level, and in line with other countries (e.g. Germany, Netherlands, Japan) where hydrogen development is further progressed, support for a hydrogen economy starts with the UK Government commitment to the need for significant levels of hydrogen in the energy system. This could take an initial form of a target for hydrogen production in the short to medium term, and does not necessarily need to be linked to specific end use. The policy levers could then follow.

12.3. The following table summarises the areas where policy and/or regulatory support is most needed. They should sit within a coherent hydrogen strategy, which should itself sit within the UK’s overall Net Zero strategy.

Table 1. Summary of key policy and regulatory options to develop a hydrogen economy

12.4. Some of the options presented above are essentially ready to be implemented, such as updating the Gas Grid Code and safety regulations and mandating hydrogen-ready boilers. Other options are currently at an earlier stage of development and require considerable further work, such as assessing the relative merits of RAB and CfD models for incentivising hydrogen production; and establishing the exact design of a Low Carbon Obligation.

13.     Awareness of hydrogen

13.1. There is overall a low awareness for hydrogen and its role in a net zero economy and the Government have largely been engaging via industry groups and specialists on the topics. However, it is positive to see that there are several progressive local councils who are setting their own net zero agenda and exploring how hydrogen can meet their goals. In establishing the safety aspects of hydrogen, more collective communication is needed to drive demand for hydrogen.

14.     Learning from other countries’ hydrogen strategies

14.1. Australia, Netherlands, Germany, and China amongst others have all published hydrogen strategies with supportive government policy. The Netherlands and Germany have adopted strategies to commit to large scale levels of hydrogen in the next decade. They have announced budgets for initial direct funding via investments/grants and are considering other measures e.g. tax breaks to encourage hydrogen. Mobility and industry are seen as the vanguard, with an increasingly strong consensus that hydrogen at scale is a necessity. UK could still take the lead in the next 5 years with well-placed funding and enabling policy, and high levels of renewables gives us an advantage for green hydrogen. If we don’t our renewables could end up being exported into the European market place.

14.2. Netherlands: Has made a commitment to substantial levels of hydrogen production in the next decade, seeing the nation as a European hydrogen hub, and seeking to focus on green hydrogen to accelerate anticipated cost reductions and establish a hydrogen economy. The strategy accepts the role of blue hydrogen, and further work on blending and repurposing the gas grid. They have an initial focus on hydrogen for mobility and industrial conversion and are looking at potential in other areas including re-purposing the gas network.

14.3. Germany: National Strategy approved – 10GW of hydrogen production by 2035 with €7bn Euro support for production investment. Germany wants to encourage green hydrogen but accepts that they will need imports and blue hydrogen in the transition. They are keen to promote international markets and intend to use their EU Presidency to promote hydrogen. They show commitment to using existing gas infrastructure as well as new hydrogen networks and are establishing a National Hydrogen Council to guide implementation of the strategy which is to be delivered by committee of state secretaries. Detailed support mechanisms are yet to be determined.

14.4. France: Hydrogen can support France’s energy independence and create jobs. Hydrogen Deployment Plan – 10% of hydrogen to be green and target for 5,000 hydrogen cars.

14.5. Portugal: Has a National Hydrogen Strategy focussed on green hydrogen and recognises capability of existing gas network. Their objective is to reduce imports of natural gas by €300-600 million and create a European hub of ‘green energy’ with 1 GW green hydrogen plant close to one of the country’s major ports. €7bn investment is required for the overall strategy; with 85% from private investment.

14.6. The UK should consider exploring and implementing similar policy initiatives to create a supportive ecosystem for hydrogen, building on the HyNet and HyDeploy pilot initiatives in the North West, and leverage hydrogen and green technology as a tool of economic recovery post-COVID-19.

August 2020

11