The need to cost effectively decarbonise heat and the challenge this poses for electricity networks has led to a resurgence in innovation around low carbon gases, including hydrogen, and the conversion of our natural gas system into a low carbon gas system.
Alongside the heating sector, there is also an increased interest in the use of Hydrogen for other purposes, such as industry and transportation. The generation and use of hydrogen has clear impacts on the electricity system and whilst it provides many opportunities to the broader energy system such as cross vector storage, it may also pose a number of challenges.
NGESO need to understand how the development of hydrogen markets will interact with the electricity system, and how targeted hydrogen investment can more effectively support the electricity system.
Benefits
Not required
Learnings
Outcomes
An important outcome was identifying the significant uncertainty based on the future direction of hydrogen infrastructure and networks.
The project highlighted the importance of a pure, hydrogen gas network for this low carbon gas to be a meaningful asset to the electricity network. We assume blending would only ever be a ‘stepping stone’ solution to pure hydrogen as blending alone would not achieve the required level of decarbonisation. This is less of an issue for blue hydrogen which can largely be produced and used at the same site. For green hydrogen, providing a means of transport from where it is produced e.g. at/near wind farm sites to where it is either stored or the final end use e.g. CCGTs will be key to creating a dynamic hydrogen market. The gas network may significantly reduce in size compared to today and be focused in a particular region. For example, the North of England, is has the potential to be an attractive location for all stages of the value chain (production, storage and end use). Without some level of distribution, including the gas network acting as ‘off-taker of last resort’, the business case for many hydrogen developers will be more challenging.
The use of hydrogen for power generation will be limited to mid-merit and peaking. This is based on the end of unabated natural gas by 2035. Existing power generation infrastructure (CCGTs/OCGTs/Gas engines) could be upgraded to burn hydrogen in place of natural gas, thereby reducing CAPEX costs. Initially, hydrogen for power generation would be minimal, for example during extreme cold weather but as the industry expands hydrogen’s role could increase.
The project determined that long-term, inter-seasonal storage (salt caverns) cannot be considered separately from the distribution question; the two are fundamentally interlinked. Both transporting hydrogen from where it is produced and transporting it from the storage site to the end use. The likelihood of sites emerging that can generate, store and use hydrogen all in one place is slim and would significantly reduce the total size of the hydrogen market.
Based on our interviews with stakeholders and the workshop, the appetite for electrolysers to provide flexibility services through revenue stacking is currently low. One of the reasons relates to the uncertainty regarding distribution and storage options for electrolyser sites highlighted above. Our research shows that in the initial stages of the green hydrogen markets development, electrolyser plants will focus on producing as much hydrogen as possible to maximize profit. As the market matures and overall demand for electricity increases, there is potential for electrolyser plants to engage with ancillary and flex provision.
The importance of determining an accurate electricity price is crucial for any electrolyser business case as this is by far the biggest ongoing and overall cost. Any attempt to quantify the scale of the green hydrogen market in the future will require accurate electricity price forecasting.
The Delta team provided a range of possible Adders and Multipliers for electrolyser sites to be input into BID3.
A Summary Report of the project has also been published on the Smarter Networks Portal.
Lessons Learnt
The project highlighted the significant amount of uncertainty regarding the emerging hydrogen market and the complex interactions of the hydrogen generation with the future electricity market and pricing.
