The nature of emerging hydrogen markets, as well as thinking strategically as to how hydrogen fits into a net zero energy system, must be considered to get the maximum benefit from developing a hydrogen value chain, according to Regen.
On 21 January, Regen published an insight paper, investigating the hydrogen value chain while exploring how it can best be supported through targeted policy interventions. It stressed hydrogen is not the same as natural gas or electricity generation and any value chain would be complex, consisting of multiple distribution channels, markets and competitors. This means policy makers must “tread very carefully” when exploring policy interventions aimed at building the market.
While policy makers could focus on investment in production and the development of consumer markets, assets and investment required to distribute and store hydrogen cannot be overlooked. In contrast to natural gas, a hydrogen-based supply chain would require a much greater amount of storage and distribution capacity. This is owed to it introducing a production process into the supply chain and having a far lower volumetric energy density to natural gas – 3.3kWh per cubic metre versus 11kWh per cubic metre. This means it will have to be compressed to a much higher pressure and delivered at a higher flow rate if it is to deliver the same energy content.
Costs will also remain fairly high compared to natural gas, even with a significant reduction. Key drivers include feedstock costs, production costs and carbon capture, usage and storage for blue hydrogen. If hydrogen were to be pushed as a replacement for natural gas for heating, it would rank as a big strategic decision, requiring long-term policy interventions, the paper warned. This could include applying a very high carbon tax while providing a long-term fuel subsidy.
Considering the various technological and market challenges that need to be overcome, it set out a series of success criteria for building a hydrogen value chain, with recommendations included that it is very low carbon, scales up quickly to drive down costs and open new markets, and supports ongoing innovation while creating opportunities for new disruptive solutions to replace older technology.
Other recommended criteria to drive development include that it should be market value and consumer led; should be competitive, avoiding the creation of new monopolies or incumbent-dominated markets; should be strategic, supporting the UK’s long-term energy strategy; should create economic value, including long-term employment, skills and export opportunities; and that interventions should be clear, manageable and sustainable when it comes to levy budget control, consumer or taxpayer value and the political support that follows.