Hydrogen a long-term solution to UK power price volatility


The challenge of power price volatility in the UK will not go away, ING has warned, with easy solutions unlikely in the short-term.

On 29 September, it published an article, drawing on how the UK power price spike has exposed the challenges posed by the transition to net zero electricity. This presents an economic and political challenge for the coming years, especially when it comes to maintaining current high levels of public support for net zero. Long-term mitigations include hydrogen, grid investment and tweaks to power pricing, however these, especially hydrogen, will rely on technological gains as much as capital investment.

The two vulnerabilities in the UK’s energy system highlighted by the recent power price spike include its reliance on natural gas and increasing reliance on variable renewables. A recent shortage in natural gas has coincided with a poor few months for UK wind.

It is also unlikely to be the last time power prices spike due to unseasonal weather or volatility in gas supply. Over the short-term, a fall in gas prices will be dependent on winter temperatures, while there is the recurring risk of cost of living spikes, though it did stress the longer-term impact of not taking action would be far greater than the near-term costs to be faced by the energy transition.

The UK has made significant progress decommissioning coal power, though this has left it with fewer ways to substitute for poor wind and solar generation. ING’s global energy transition scenarios, published last year, found gas demand globally is unlikely to peak until the next decade as countries seek a backup for variable renewables. ING highlighted its own estimates, which found a 50% short-term increase in UK wind generation would lower British electricity prices by 6.6% and vice versa.

This makes finding effective ways to store renewable energy crucial, especially in Britain where capacity for storing natural gas has shrunk significantly over the past few years. This is where hydrogen can play a role, with the Hydrogen Strategy recently published and industry waiting on details for how contracts-for-difference auctions could be used to unlock the £4bn private investment government is targeting.

Quick hydrogen deployment would not see all of it generated from renewables, with blue hydrogen likely needed and set to increase the UK’s dependency on gas in the short-term. It would also call for further technological advances in storing emissions, though the UK is at a more advanced stage when it comes to making preparations for the first carbon capture and storage (CCS) clusters. Over the longer-term, it would then be able to smooth the UK’s volatility in renewables production and act as a key component in the net zero journey.