Episode 4 – How Hydrogen Strategy will drive towards net Zero sustainability target
Episode 4 – How Hydrogen Strategy will drive towards net Zero sustainability target
Transcript:
Hydrogen Strategy
Hydrogen homes look ordinary, but this small change can make a big difference. For example, a hydrogen cooker gives orange flames rather than blue flames and only emits water vapor into the atmosphere.
Hello friends, my name is Charlie and you are listing to Civils Bites. Podcast. In this podcast, we’ll see how a small shift can profoundly change the environment. This change is known as the Hydrogen strategy. It is the major step towards decarbonization. Let us see how we can protect nature with the new Hydrogen strategy without any delay.
The Government needs to support the Hydrogen Strategy.
Greenhouse gas emissions (GHG) come from transportation, buildings, and industry. The transportation sector consumes approximately 38 percent of fuel energy. Gasoline and diesel dominate transportation fuels use, representing nearly 85 percent of total transportation fuel, adding to the emissions.
As gasoline prices rise across the country and as carbon pricing takes effect, further increasing the cost of fossil fuels, there is an immediate need to create credible alternatives. Low-carbon hydrogen can help the province make that transition.
Hydrogen provides a means to drastically reduce the carbon emissions currently being emitted across the globe. Hydrogen is produced in several different ways. Depending on the sources and processes by which hydrogen is derived can be represented by colours. These colours include Brown, Grey, Blue, and Green. The majority of hydrogen is produced from fossil fuels.
Brown hydrogen is derived from coal by the gasification process. It constitutes about 16% of the total hydrogen production. Grey Hydrogen constitutes all hydrogen production in the world. It is extracted from natural gas by steam methane reforming. These two methods produce a large amount of carbon emission. Blue hydrogen is also made from fossils by carbon capture and storage technology.
The process of electrolysis can also produce hydrogen. An electrolyzer splits water into hydrogen and oxygen. If the electricity comes from renewable energy such as wind and solar, then this hydrogen is known as green.
Although green hydrogen is regarded as the future fuel, using blue or grey hydrogen can create an initial market for hydrogen and reduce greenhouse gas emissions.
It is a need for the Government to do more, and the Hydrogen Strategy documented policy and funding measures must be put in place to achieve the potential benefits outlined in the strategy.
Since the release of the Hydrogen strategy, there has been some progress, such as the recent 2030 Emissions Reduction Plan that introduced several significant measures. However, the 2022 budget did not allocate any specific funding to hydrogen, which is required to support the hydrogen industry to move forward and remain competitive in international markets.
The hydrogen strategy assumed a low price for electricity, the adoption of aggressive and sometimes non-existent policies, and an ambitious uptake of new technology.
Chemical engineers lead efforts to unblock UK hydrogen use.
Chemical engineers are investigating how the UK could increase its hydrogen and alternative liquid fuels as part of its commitment to net-zero by 2050.
Tim Mays from the University of Bath will lead a research consortium that aims to map and solve the research challenges blocking the wider uptake of low-carbon fuels in the UK, particularly hydrogen and alternative fuels. Mays is a Professor of Chemical Engineering and Director of the Institute for Sustainable Energy and the Environment at Bath.
Kedar Pandya, Director for Cross-Council Programmes at Engineering and Physical Science Research Council (EPSRC), said a growing consensus that these fuels will play a key role in decarbonizing the UK’s economy, as demonstrated by the UK’s publication of its Hydrogen Strategy.
Mays said: “A thriving, low carbon hydrogen sector is essential for the Government’s plans to build back better, with a cleaner, greener energy system. Large amounts of low-carbon hydrogen and alternative liquid fuels such as ammonia will be needed, which must be stored and transported to points of use. Much research is required, and we will work collaboratively across multiple disciplines to help meet these challenges.”
The team will focus on the potential of fuels to decarbonize transport; electricity generation; domestic and industrial heating; and high CO2-emitting industries such as cement, fertilizers, glass, and steel. According to the University of Sheffield, a consortium partner, these areas account for up to 90% of UK greenhouse gas emissions, demonstrating the project’s “enormous” potential impact.
EPSRC
EPSRC is providing the hydrogen projects with £615,000 over the six-month research period, which began on 1 April.
Pandya said: “Over the next six months, the hydrogen research coordinators will work across the UK to build an understanding and galvanize expertise in research and systems integration.
“The focused, multi-stakeholder plan they create will support the consideration of hydrogen as a key component of the UK’s energy mix and inform EPSRC’s future plans for integrated, ambitious research. Innovation program working across the hydrogen value chain and its major use sectors in partnership with business.”
The UK urged to take a systematic approach to help decarbonize dispersed manufacturers.
With dispersed industrial sites producing around half of UK industry emissions, an energy systems think tank has urged the Government to take a whole systems approach and consider what role its selected industrial clusters can play in decarbonizing the wider economy.
The UK’s Energy Systems Catapult has published a report called Towards Industrial Decarbonisation: The Strategic Role of Industrial Clusters. It notes the UK Government’s positive steps in setting a long-term policy to drive the investment needed to reduce industrial emissions. It also says Government has made the right choice in providing direct funding for industrial clusters, which produce just over half of UK industrial emissions, and welcomes the Government’s support and funding for CCS and hydrogen scale up at the HyNet and East Coast clusters. The clusters were earmarked for the financing as part of its Net Zero Strategy, published last year.
What is less clear is how industrial clusters, which produce around 37.6m t/y of CO2, can decarbonize so-called dispersed industrial sites outside of industrial clusters. Together, these dispersed sites create 33.6m t/y of CO2 and could combine to form ‘mini clusters,’ enabling broader decarbonization across the economy.
To maximize the benefit from industrial clusters, the Catapult recommends that Government establish regular reviews of whole systems modeling scenarios for CCUS and hydrogen supply and demand. This will help inform wider decision-making on investments in CCS and hydrogen infrastructure. The Government will also need to consider how it helps industries in dispersed sites access expertise, services, and low carbon infrastructure developed within clusters.
It also recommends implementing the local area energy planning (LAEP) methodology that the Catapult was commissioned to help develop in 2020 by the UK’s energy regulator Ofgem. The Catapult says the suggested systems approach used by the planning methodology will help maximize the benefits from investment in energy supply, waste heat use, and hydrogen production and distribution. It adds that trialling LAEP with industrial clusters will help establish approaches for dispersed sites and help ensure planning decisions are optimized for a given region, including reinforcing energy networks when electrification of industrial energy demand is planned. The types of heating chosen for a wider local area if hydrogen production is planned or waste heat is available, and considering the pipelines and other infrastructure required.
For the UK to decarbonize its wider industrial base beyond its clusters and remain internationally competitive, the report says it is essential that there are policies requiring the measurement of embodied carbon in manufactured goods. It says clusters could work more closely with original equipment manufacturers (OEMs) to develop and test standards for monitoring, reporting, and verifying emissions. They could then work to reduce emissions, gain a competitive advantage for low carbon products, and help the UK lead the development of standards and shape global ones.
What the UK’s Energy Security Strategy got right – and where politics hampered policy
Much leaked and long-anticipated, the UK government’s “British energy security strategy” faced an expectant audience when it was delivered on 6 April. The task was a difficult one. Balancing energy security, meaningful progress on climate action, and long-held, deeply felt political concerns meant walking a thin line between fiercely competing priorities and agendas. This came against a backdrop where the cost-of-living crisis is the number one item in MPs’ inboxes.
We think the strategy has gone a long way to meeting the challenge – but there are certain areas where the Government could have done more. Most of those are in areas where politics has trumped economics.
Here, we give our thoughts on the paper, explaining the implications for the UK and why renewable energy infrastructure investors will be pivotal in the strategy’s long-term success. Changes to UK gas production will have little to no long-term impact.
Most gas in the UK is used for space heating or industrial processes, with relatively little used for making electricity. However, its price-setting role still spills over into electricity markets, affecting the price customers pay for their electricity and their ability to stay warm. The need for a robust, far-sighted energy security strategy has been made clearer than ever by Russia’s invasion of Ukraine, which further destabilized prices.
We have seen gas prices rise to eight times what they were a year ago, with the Government largely having to watch on as the now regulated cost of an average household energy bill has risen by £500 a year, with more to come in the autumn.
Energy security cuts two ways:
Firstly, price. Today in the UK, there is no shortage of gas. Despite this, gas remains unaffordable for many people and, indeed, for many industries. We live the consequences of a long-held UK policy that energy security was more about gas availability than price. That has proven to be a miscalculation. Very high prices have severe impacts on society and industry.
The second is availability. Securing enough gas is a constraint on an independent foreign policy. The UK has not been affected by this greatly since Russia invaded Ukraine because we have diverse gas sources.
It was no surprise to see the Government announce a review, by the British Geological Survey (BGS), of the current position the BGS has on the safety of fracking. Neither was it a revelation to see measures announced to encourage North Sea oil and gas production.
Furthermore, given that most forecasters expect the current price spike to wane within the next 24 months, it seems likely that long-term domestically produced gas volumes (the North Sea or onshore fracking) will remain little changed.
Energy efficiency measures a surprising omission, given cost-efficiency
A coherent set of energy efficiency measures is most obviously absent from the energy security discussion. It is unarguable that using less gas to heat houses and offices would make energy security sense and make energy bills more affordable for those who have benefitted from the efficiency measures.
High-level energy efficiency standards for new and existing buildings have needed improvement. Brexit and then the pandemic has hampered progress in this complex area in recent years, as they have diverted the focus of politicians and civil servants.
The absence of policies to address energy efficiency has been at the center of the response from the Opposition to the Government’s strategy. Leaks in newspapers suggest that the Treasury was unwilling to sign off a package that it felt was not well thought through. Policies in this area may likely emerge more fully with the development of further thinking on “leveling up,” as it would provide jobs, warmth, and financial respite for those suffering from the effects of high gas prices.
Onshore wind plans have little changed; offshore lacks ambition.
The Government’s stance up to this point means we were not surprised that changes to onshore wind plans were not forthcoming. In the past, arguments against onshore development were usually based on the government subsidy for new projects. This issue is no longer relevant, as new onshore does not need assistance. Today the difficulty is in getting planning permission in England and, in some areas, a grid connection. This is a significant problem with the strategy. Onshore wind is one of our lowest-cost energy resources and could significantly impact the near term.
Much of the political fear relates to the building of turbines near habited areas. However, the physics of wind power (energy from a wind turbine is proportional to the cube of the wind speed and the square of the blade length, meaning a small change in either makes a big difference) means that what gets built onshore would only ever be large turbines in lowly populated windy areas, for instance, Scotland.
There are doubters in parts of the Conservative Party that public support for onshore wind is there, despite polls suggesting it remains very high. But Energy Secretary Kwasi Kwarteng has secured some latitude to find a way to satisfy these doubters.
For offshore wind, the commitment to 50GW is not a big advance on the previously signaled 40GW detailed in the 10-point plan published in late 2020. Meeting the target will require supply chain development, but there is still plenty of space in the seas around the UK, and the cost continues to plummet.
Nuclear ambition is the big play – but most supply remains a long way off.
The nuclear ambition has cross-party support and is, again, not surprising. The key issue is that even if the challenging 24GW target is met, it is a 2050 target. The Government already has a target to decarbonize 95% of the electricity sector by 2030. This is long before even the first reactors at the Sizewell C project in Suffolk come online.
In other words, most of the job of electricity decarbonization will be done by renewables, given the much shorter timescales to deployment. Most commentators see electricity use doubling between 2030 and 2050 as clean electricity to decarbonize the rest of the economy kicks in.
Costs of nuclear remain proven, and much will depend on the risk-sharing model the Treasury adopts later this year between customers, taxpayers and investors. The sums to build even one, let alone five new power stations, are huge and will make for financing challenges.
Solar, heat pumps, hydrogen
Solar’s role in the strategy received fewer headlines, perhaps unfairly. While solar will do little to help with the gas price problem, it is the most rapidly deployable technology. Although no target has been set, there is an “expectation” that it will quintuple by 2030 from 15 GW today. We expect it to play a large and useful part in the mix with battery storage.
The role of heat pumps (as opposed to hydrogen) for domestic and commercial heating has again been reinforced and that is to be welcomed.
Last but not least is the role that hydrogen plays in the strategy, with an explicit 10GW of hydrogen production targeted by 2030. Hydrogen is widely seen as the “Swiss army knife” of the net-zero story, but it is unlikely to arrive at scale until late in the energy transition story. Bodies such as the UK Climate Change Committee forecast that it will be used in industrial processes, aviation and shipping from the mid-to-late 2030s. These are hard-to-abate emissions that will prove expensive.
Long before that, electric vehicles will have achieved dominance and electrified heating of buildings is forecast to be widespread. Accordingly, the primary use case for hydrogen in the near term is likely to be largely niche applications, where it can be manufactured cheaply at the point of use.
As energy generation becomes more dependent on wind and solar resources, hydrogen’s energy storage capability will likely become a vital cog in our energy system. The hydrogen strategy is the renewable generation, and hydrogen can be produced at times of energy surplus (the summer) and then stored as a seasonal buffer until needed.
It all needs to be financed, meaning a wide range of opportunities.
Among all of this confluence of energy security and climate action will be the need for finance.
An upcoming process that has received little public attention so far is a renewed commitment to the Review of Energy Market Arrangements with options for reform set out in the summer. This will be the most important piece of energy thinking since the 1980s, reflecting the sea-change in the type of generation we will have.
In fossil-powered generation, the cost is mostly the ongoing cost of the fuel. The fuel is often produced in politically challenging countries and is subject to price spikes. Clean generation – nuclear or renewables – and insulation all require up-front capital expenditure, followed by essentially free fuel in the case of wind and sun or low cost in nuclear.
The cost of electricity from renewables has fallen dramatically in recent years. There is an evident, increasingly urgent need for climate action. Latterly, the war in Ukraine has further embedded the need for a revised energy security strategy. The Government has skilfully managed to align the country’s politics and its party to enable a big leap forward. The plan should, in the long-term, lower bills, provide cleaner air and lower carbon with an overarching political narrative of energy security.
The infrastructure needed to be delivered to secure these objectives will need to be financed largely by the private sector. This should provide plentiful opportunities to invest in the household, local and national infrastructure on a huge scale.
The good news is that the politics of low-cost energy now align with a secure income, long-duration, inflation-linked investments that so many investors are searching for.
The formation of Schroders Greencoat further demonstrates Schroders’ broader commitment to contribute to net-zero and decarbonization while providing access to this vital transition for clients.
With Homes and businesses adapting to the hydrogen supply, one thing we can clearly say is that change is coming. But we need to put more effort into supporting the growing hydrogen community.
That was the episode for today. I hope it has given you a broader perspective on our environmental crisis and made you realize the importance of switching to a hydrogen strategy. I would ask for your leave. Don’t forget to hit the like button if you enjoyed the podcast.
Episode 4 – How Hydrogen Strategy will drive towards net Zero sustainability target
Transcript:
Hydrogen Strategy
Hydrogen homes look ordinary, but this small change can make a big difference. For example, a hydrogen cooker gives orange flames rather than blue flames and only emits water vapor into the atmosphere.
Hello friends, my name is Charlie and you are listing to Civils Bites. Podcast. In this podcast, we’ll see how a small shift can profoundly change the environment. This change is known as the Hydrogen strategy. It is the major step towards decarbonization. Let us see how we can protect nature with the new Hydrogen strategy without any delay.
The Government needs to support the Hydrogen Strategy.
Greenhouse gas emissions (GHG) come from transportation, buildings, and industry. The transportation sector consumes approximately 38 percent of fuel energy. Gasoline and diesel dominate transportation fuels use, representing nearly 85 percent of total transportation fuel, adding to the emissions.
As gasoline prices rise across the country and as carbon pricing takes effect, further increasing the cost of fossil fuels, there is an immediate need to create credible alternatives. Low-carbon hydrogen can help the province make that transition.
Hydrogen provides a means to drastically reduce the carbon emissions currently being emitted across the globe. Hydrogen is produced in several different ways. Depending on the sources and processes by which hydrogen is derived can be represented by colours. These colours include Brown, Grey, Blue, and Green. The majority of hydrogen is produced from fossil fuels.
Brown hydrogen is derived from coal by the gasification process. It constitutes about 16% of the total hydrogen production. Grey Hydrogen constitutes all hydrogen production in the world. It is extracted from natural gas by steam methane reforming. These two methods produce a large amount of carbon emission. Blue hydrogen is also made from fossils by carbon capture and storage technology.
The process of electrolysis can also produce hydrogen. An electrolyzer splits water into hydrogen and oxygen. If the electricity comes from renewable energy such as wind and solar, then this hydrogen is known as green.
Although green hydrogen is regarded as the future fuel, using blue or grey hydrogen can create an initial market for hydrogen and reduce greenhouse gas emissions.
Policy and funding
It is a need for the Government to do more, and the Hydrogen Strategy documented policy and funding measures must be put in place to achieve the potential benefits outlined in the strategy.
Since the release of the Hydrogen strategy, there has been some progress, such as the recent 2030 Emissions Reduction Plan that introduced several significant measures. However, the 2022 budget did not allocate any specific funding to hydrogen, which is required to support the hydrogen industry to move forward and remain competitive in international markets.
The hydrogen strategy assumed a low price for electricity, the adoption of aggressive and sometimes non-existent policies, and an ambitious uptake of new technology.
Chemical engineers lead efforts to unblock UK hydrogen use.
Chemical engineers are investigating how the UK could increase its hydrogen and alternative liquid fuels as part of its commitment to net-zero by 2050.
Tim Mays from the University of Bath will lead a research consortium that aims to map and solve the research challenges blocking the wider uptake of low-carbon fuels in the UK, particularly hydrogen and alternative fuels. Mays is a Professor of Chemical Engineering and Director of the Institute for Sustainable Energy and the Environment at Bath.
Kedar Pandya, Director for Cross-Council Programmes at Engineering and Physical Science Research Council (EPSRC), said a growing consensus that these fuels will play a key role in decarbonizing the UK’s economy, as demonstrated by the UK’s publication of its Hydrogen Strategy.
Mays said: “A thriving, low carbon hydrogen sector is essential for the Government’s plans to build back better, with a cleaner, greener energy system. Large amounts of low-carbon hydrogen and alternative liquid fuels such as ammonia will be needed, which must be stored and transported to points of use. Much research is required, and we will work collaboratively across multiple disciplines to help meet these challenges.”
The team will focus on the potential of fuels to decarbonize transport; electricity generation; domestic and industrial heating; and high CO2-emitting industries such as cement, fertilizers, glass, and steel. According to the University of Sheffield, a consortium partner, these areas account for up to 90% of UK greenhouse gas emissions, demonstrating the project’s “enormous” potential impact.
EPSRC
EPSRC is providing the hydrogen projects with £615,000 over the six-month research period, which began on 1 April.
Pandya said: “Over the next six months, the hydrogen research coordinators will work across the UK to build an understanding and galvanize expertise in research and systems integration.
“The focused, multi-stakeholder plan they create will support the consideration of hydrogen as a key component of the UK’s energy mix and inform EPSRC’s future plans for integrated, ambitious research. Innovation program working across the hydrogen value chain and its major use sectors in partnership with business.”
The UK urged to take a systematic approach to help decarbonize dispersed manufacturers.
With dispersed industrial sites producing around half of UK industry emissions, an energy systems think tank has urged the Government to take a whole systems approach and consider what role its selected industrial clusters can play in decarbonizing the wider economy.
The UK’s Energy Systems Catapult has published a report called Towards Industrial Decarbonisation: The Strategic Role of Industrial Clusters. It notes the UK Government’s positive steps in setting a long-term policy to drive the investment needed to reduce industrial emissions. It also says Government has made the right choice in providing direct funding for industrial clusters, which produce just over half of UK industrial emissions, and welcomes the Government’s support and funding for CCS and hydrogen scale up at the HyNet and East Coast clusters. The clusters were earmarked for the financing as part of its Net Zero Strategy, published last year.
What is less clear is how industrial clusters, which produce around 37.6m t/y of CO2, can decarbonize so-called dispersed industrial sites outside of industrial clusters. Together, these dispersed sites create 33.6m t/y of CO2 and could combine to form ‘mini clusters,’ enabling broader decarbonization across the economy.
To maximize the benefit from industrial clusters, the Catapult recommends that Government establish regular reviews of whole systems modeling scenarios for CCUS and hydrogen supply and demand. This will help inform wider decision-making on investments in CCS and hydrogen infrastructure. The Government will also need to consider how it helps industries in dispersed sites access expertise, services, and low carbon infrastructure developed within clusters.
It also recommends implementing the local area energy planning (LAEP) methodology that the Catapult was commissioned to help develop in 2020 by the UK’s energy regulator Ofgem. The Catapult says the suggested systems approach used by the planning methodology will help maximize the benefits from investment in energy supply, waste heat use, and hydrogen production and distribution. It adds that trialling LAEP with industrial clusters will help establish approaches for dispersed sites and help ensure planning decisions are optimized for a given region, including reinforcing energy networks when electrification of industrial energy demand is planned. The types of heating chosen for a wider local area if hydrogen production is planned or waste heat is available, and considering the pipelines and other infrastructure required.
For the UK to decarbonize its wider industrial base beyond its clusters and remain internationally competitive, the report says it is essential that there are policies requiring the measurement of embodied carbon in manufactured goods. It says clusters could work more closely with original equipment manufacturers (OEMs) to develop and test standards for monitoring, reporting, and verifying emissions. They could then work to reduce emissions, gain a competitive advantage for low carbon products, and help the UK lead the development of standards and shape global ones.
What the UK’s Energy Security Strategy got right – and where politics hampered policy
Much leaked and long-anticipated, the UK government’s “British energy security strategy” faced an expectant audience when it was delivered on 6 April. The task was a difficult one. Balancing energy security, meaningful progress on climate action, and long-held, deeply felt political concerns meant walking a thin line between fiercely competing priorities and agendas. This came against a backdrop where the cost-of-living crisis is the number one item in MPs’ inboxes.
We think the strategy has gone a long way to meeting the challenge – but there are certain areas where the Government could have done more. Most of those are in areas where politics has trumped economics.
Here, we give our thoughts on the paper, explaining the implications for the UK and why renewable energy infrastructure investors will be pivotal in the strategy’s long-term success. Changes to UK gas production will have little to no long-term impact.
Most gas in the UK is used for space heating or industrial processes, with relatively little used for making electricity. However, its price-setting role still spills over into electricity markets, affecting the price customers pay for their electricity and their ability to stay warm. The need for a robust, far-sighted energy security strategy has been made clearer than ever by Russia’s invasion of Ukraine, which further destabilized prices.
We have seen gas prices rise to eight times what they were a year ago, with the Government largely having to watch on as the now regulated cost of an average household energy bill has risen by £500 a year, with more to come in the autumn.
Energy security cuts two ways:
Firstly, price. Today in the UK, there is no shortage of gas. Despite this, gas remains unaffordable for many people and, indeed, for many industries. We live the consequences of a long-held UK policy that energy security was more about gas availability than price. That has proven to be a miscalculation. Very high prices have severe impacts on society and industry.
The second is availability. Securing enough gas is a constraint on an independent foreign policy. The UK has not been affected by this greatly since Russia invaded Ukraine because we have diverse gas sources.
It was no surprise to see the Government announce a review, by the British Geological Survey (BGS), of the current position the BGS has on the safety of fracking. Neither was it a revelation to see measures announced to encourage North Sea oil and gas production.
Furthermore, given that most forecasters expect the current price spike to wane within the next 24 months, it seems likely that long-term domestically produced gas volumes (the North Sea or onshore fracking) will remain little changed.
Energy efficiency measures a surprising omission, given cost-efficiency
A coherent set of energy efficiency measures is most obviously absent from the energy security discussion. It is unarguable that using less gas to heat houses and offices would make energy security sense and make energy bills more affordable for those who have benefitted from the efficiency measures.
High-level energy efficiency standards for new and existing buildings have needed improvement. Brexit and then the pandemic has hampered progress in this complex area in recent years, as they have diverted the focus of politicians and civil servants.
The absence of policies to address energy efficiency has been at the center of the response from the Opposition to the Government’s strategy. Leaks in newspapers suggest that the Treasury was unwilling to sign off a package that it felt was not well thought through. Policies in this area may likely emerge more fully with the development of further thinking on “leveling up,” as it would provide jobs, warmth, and financial respite for those suffering from the effects of high gas prices.
Onshore wind plans have little changed; offshore lacks ambition.
The Government’s stance up to this point means we were not surprised that changes to onshore wind plans were not forthcoming. In the past, arguments against onshore development were usually based on the government subsidy for new projects. This issue is no longer relevant, as new onshore does not need assistance. Today the difficulty is in getting planning permission in England and, in some areas, a grid connection. This is a significant problem with the strategy. Onshore wind is one of our lowest-cost energy resources and could significantly impact the near term.
Much of the political fear relates to the building of turbines near habited areas. However, the physics of wind power (energy from a wind turbine is proportional to the cube of the wind speed and the square of the blade length, meaning a small change in either makes a big difference) means that what gets built onshore would only ever be large turbines in lowly populated windy areas, for instance, Scotland.
There are doubters in parts of the Conservative Party that public support for onshore wind is there, despite polls suggesting it remains very high. But Energy Secretary Kwasi Kwarteng has secured some latitude to find a way to satisfy these doubters.
For offshore wind, the commitment to 50GW is not a big advance on the previously signaled 40GW detailed in the 10-point plan published in late 2020. Meeting the target will require supply chain development, but there is still plenty of space in the seas around the UK, and the cost continues to plummet.
Nuclear ambition is the big play – but most supply remains a long way off.
The nuclear ambition has cross-party support and is, again, not surprising. The key issue is that even if the challenging 24GW target is met, it is a 2050 target. The Government already has a target to decarbonize 95% of the electricity sector by 2030. This is long before even the first reactors at the Sizewell C project in Suffolk come online.
In other words, most of the job of electricity decarbonization will be done by renewables, given the much shorter timescales to deployment. Most commentators see electricity use doubling between 2030 and 2050 as clean electricity to decarbonize the rest of the economy kicks in.
Costs of nuclear remain proven, and much will depend on the risk-sharing model the Treasury adopts later this year between customers, taxpayers and investors. The sums to build even one, let alone five new power stations, are huge and will make for financing challenges.
Solar, heat pumps, hydrogen
Solar’s role in the strategy received fewer headlines, perhaps unfairly. While solar will do little to help with the gas price problem, it is the most rapidly deployable technology. Although no target has been set, there is an “expectation” that it will quintuple by 2030 from 15 GW today. We expect it to play a large and useful part in the mix with battery storage.
The role of heat pumps (as opposed to hydrogen) for domestic and commercial heating has again been reinforced and that is to be welcomed.
Last but not least is the role that hydrogen plays in the strategy, with an explicit 10GW of hydrogen production targeted by 2030. Hydrogen is widely seen as the “Swiss army knife” of the net-zero story, but it is unlikely to arrive at scale until late in the energy transition story. Bodies such as the UK Climate Change Committee forecast that it will be used in industrial processes, aviation and shipping from the mid-to-late 2030s. These are hard-to-abate emissions that will prove expensive.
Long before that, electric vehicles will have achieved dominance and electrified heating of buildings is forecast to be widespread. Accordingly, the primary use case for hydrogen in the near term is likely to be largely niche applications, where it can be manufactured cheaply at the point of use.
As energy generation becomes more dependent on wind and solar resources, hydrogen’s energy storage capability will likely become a vital cog in our energy system. The hydrogen strategy is the renewable generation, and hydrogen can be produced at times of energy surplus (the summer) and then stored as a seasonal buffer until needed.
It all needs to be financed, meaning a wide range of opportunities.
Among all of this confluence of energy security and climate action will be the need for finance.
Energy Market Arrangements
An upcoming process that has received little public attention so far is a renewed commitment to the Review of Energy Market Arrangements with options for reform set out in the summer. This will be the most important piece of energy thinking since the 1980s, reflecting the sea-change in the type of generation we will have.
In fossil-powered generation, the cost is mostly the ongoing cost of the fuel. The fuel is often produced in politically challenging countries and is subject to price spikes. Clean generation – nuclear or renewables – and insulation all require up-front capital expenditure, followed by essentially free fuel in the case of wind and sun or low cost in nuclear.
The cost of electricity from renewables has fallen dramatically in recent years. There is an evident, increasingly urgent need for climate action. Latterly, the war in Ukraine has further embedded the need for a revised energy security strategy. The Government has skilfully managed to align the country’s politics and its party to enable a big leap forward. The plan should, in the long-term, lower bills, provide cleaner air and lower carbon with an overarching political narrative of energy security.
The infrastructure needed to be delivered to secure these objectives will need to be financed largely by the private sector. This should provide plentiful opportunities to invest in the household, local and national infrastructure on a huge scale.
The good news is that the politics of low-cost energy now align with a secure income, long-duration, inflation-linked investments that so many investors are searching for.
The formation of Schroders Greencoat further demonstrates Schroders’ broader commitment to contribute to net-zero and decarbonization while providing access to this vital transition for clients.
With Homes and businesses adapting to the hydrogen supply, one thing we can clearly say is that change is coming. But we need to put more effort into supporting the growing hydrogen community.
That was the episode for today. I hope it has given you a broader perspective on our environmental crisis and made you realize the importance of switching to a hydrogen strategy. I would ask for your leave. Don’t forget to hit the like button if you enjoyed the podcast.
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