System constraints are holding back the UK’s wind fleet and costing the country a billion pounds every year – a sum only set to rise further, potentially as high as £3.5bn, before solutions arrive next decade.
Instead, Policy Exchange is calling on policymakers to encourage the adoption of electrolysers in heavily curtailed areas to leverage this wasted energy and turbocharge the emerging hydrogen economy as a result. Working with LCP Delta, it found that in 2022, the volume of wasted wind generation was enough to produce more than 118,000 tonnes of green hydrogen each day. This would rise to 455,000 by 2029.
If electrolysers were adopted in heavily curtailed areas, potential benefits include as much as two-thirds of the UK’s annual grey hydrogen consumption (700,000 tonnes) being displaced, the whole of the UK’s annual steel manufacturing (7mn tonnes) being decarbonised, more than 90% of the UK’s national Sustainable Aviation Fuel (SAF) target for 2030 being met, and two-thirds of the 2030 electrolyser production capacity target being delivered.
It went on to make a series of recommendations for government, Ofgem and the Electricity System Operator to make this happen, including collaborating with the industry to develop Constraint Management Plans that have incentives for partnering with electroylsers and amending the Contracts for Difference (CfD) regime to provide a stronger incentive to reduce the receipt of constraint payments and, instead, encourage generators to redirect their generation for productive purposes.
It is also going to take flexibility in system chargers being allowed, discouraging curtailment; for constraint management savings to be shared with electroylsers; and for offtake contracts for grid managing electrolysers to be provided. Policy Exchange has suggested this could be a financial incentive in similar form to the Green Gas Support Scheme, encouraging and reducing capital costs for investments in electrolysers in constrained zones.
Further recommendations include replicated an initiative from the US with a “Hydrogen Matchmaker” which could support the emergence of hydrogen hubs, and for hydrogen blending to be approved with a strategic focus on production. Blending should be allowed as an interim measure, serving as a reserve offtaker and strategic enabler for green hydrogen that is electrolysed in constrained grid locations where commercial off-takers are not present. This will provide greater investment certainty. As a condition, hydrogen producers need to demonstrate active efforts to partner with commercial off-takers which is then delivered to industrial clusters or injected to long-duration storage applications.
