HYDROGEN IS STARK’S SECRET SAUCE - EU DEALS, DEBATES AND DISAPPROVAL - FT CARRIES UK HYDROGEN WARNINGS

Presented by bp

HY NEWS attended the Aurora Hydrogen Conference 2022 event this week which included wide ranging discussion and interesting analysis. Chris Stark, Chief Executive of the CCC, kicked off the event in Q&A with Aurora MD Dan Monzani, formerly of BEIS. In a thoughtful discussion Stark said it was “difficult to conceive of net zero without hydrogen”, although he stopped short of saying it would be impossible. He recognised the uncertainty in its future role, but was clear that it is important to push on with scale up, and not get hampered by debate on colours, domestic production vs imports and the like. Though poo pooing the idea that hydrogen was the silver bullet as?‘someone’ recently described it, he did focus on energy security saying that hydrogen was the “secret sauce that allows you to have an energy system based on clean cheap renewables”; a cheaper energy system overall which is better value for consumers in the long run.

While the CCC chief was urging the UK to get on with it, panel discussions highlighted the fact that pace is picking up elsewhere in the world with more policies and projects in development - more on this below. In response to audience questioning about the UK approach, Paro Konar BEIS Director of Hydrogen and Industrial Carbon Capture, was bullish in stating that the forthcoming hydrogen production business model would be a “springboard rather than a millstone” for UK hydrogen, and said that the department was turning urgently to the Energy Security Bill, citing the need to pass emergency cost of living legislation as reason for delays.

Why this matters?

When energy Twitter and LinkedIn are full of spats about whether hydrogen is good/bad for heat or buses/trains/trucks or a big waste of time or an evil plot by fossil fuel companies, it is important to hear the CEO of the CCC step back and put hydrogen in the context of a future, fully functioning, low carbon, whole energy system. He said that while the Climate Change Act is important, it should not be the only reason to take action. He pointed out that the energy security lens is particularly important for hydrogen, as well as potential for industrial growth. As HY NEWS often says, it is a strength of hydrogen that it can play many tunes - decarbonisation, jobs, security, levelling up etc. However, there is a risk that the ability to scale up (extremely) quickly this decade and reap economic benefit is weakened by delay, or perhaps even more importantly the perception of delay and reduced political support. Clarity from Ministers on the future of the Energy Security Bill - including timings - can’t come soon enough.

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Deals:?Reportedly, European Commission President Ursula von der Leyen, arrived at COP27 looking to “spend, spend, spend”. HY NEWS was pleased to see that one of the EU leader’s first acts was to sign a series bilateral agreements between the EU and Egypt, Kazakhstan and Namibia on hydrogen. The EU has agreed to finance the necessary infrastructure through the €300bn Global Gateway Programme which will “deliver sustainable and high-quality projects, taking into account the needs of partner countries and ensuring lasting benefits for local communities” In other terms, it is designed to promote clean energy transition around the world, and crucially is seen as a way to counter China’s growing dominance over global supply chains.

Debates:?Although these deals demonstrate the European Commission’s enthusiasm to move fast on hydrogen, Germany and France have become divided (as with other countries) on what “renewable” and “low-carbon” hydrogen really means. The French, who produce 70% of their electricity through nuclear power, argue that hydrogen produced using nuclear energy should be classified as renewable under the EU’s renewable energy directive. The Germans, who are nuclear sceptics,?do not agree and suggest that if this is to be considered renewable, then blue hydrogen with CCUS as well as hydrogen imported from abroad should be included, even if these imports aren’t produced entirely from renewable sources. These disagreements are delaying the EU’s Green New Deal, and creating uncertainty for industry, while momentum in the US continues to build…

Disapproval:?The scale and attractiveness of the climate provisions included in the $1.5tn US Inflation Reduction Act, signed into law this August, appears to have ruffled a few feathers in Brussels. HY NEWS has covered the IRA in a previous edition, but as a reminder it includes several provisions for hydrogen, most notably a generous tax credit policy, likely to result in the production of the cheapest hydrogen in the world. This evidently has the EU worried, as capital and investment may seethe US as a better location (see ‘FT carries UK hydrogen warnings below’). In a letter to the US Internal Revenue Service, EU officials have claimed these measures would have “negative effects for the EU in terms of investment decisions in the hydrogen industry" and called for the removal of all “discriminatory content” impacting on their industries.

Why this matters?

The ‘3 Ds’ are evidence of the value and strategic importance that the EU is placing on hydrogen - both in terms of a near term way to boost energy security, and a long term industry through which to create jobs for the future. They are clearly being eagle eyed on state aid, something the UK government will also have to grapple with. This highlights (yet again) that building a global hydrogen economy from scratch is far from simple. In fact,?the practical realities of different nations having different priorities,different domestic ambitions and wanting to capture benefits for their own economies risk tying it up in knots before it even takes off.?

The FT has recently carried two notable stories on the state of the UK hydrogen industry. HY NEWS has found both a depressing read. On 31 October, they published an interview with Liam Condon, the chief executive of Johnson Matthey ,titled ‘UK has fallen behind in hydrogen power race’. A key quote from Condon is:

“The UK was a frontrunner [in supporting hydrogen power]... but we’ve now got to keep competitive with US policies, which have clearly moved ahead. Otherwise, investment will simply drift off to the US.”?

The second article, titled ‘UK’s green hydrogen ambitions fail to deliver’ doubles-down on the message. The two key quotes from industry leaders are:

• Graham Cooley, Chief Executive, ITM Power: “All of our European competitors are being funded to the tune of tens or in some cases hundreds of millions” and “around the world, there is very strong engagement to incentivise local manufacturing with funding — and that does not exist in the UK.”?
• Chris Jackson, Chief Executive, Protium:?“There is a prevailing attitude . . .?why would [we] pay to do it ourselves when we can let others subsidise it and we can buy it cheaper later” and “That comes from a mindset that is a very free market, libertarian . . . and is not a particularly industrial strategy-grounded mindset.”

Why this matters??

A consistent thread in this HY NEWS, and other recent editions, has been the intensification and acceleration of Governments across the world to ‘grab’ investment in hydrogen projects and technologies. It is significant that UK industry concerns are now being picked up and reported by the FT. We can only hope that these are being included in the press clippings placed in ministerial red boxes.??