Learnings

Outcomes

The Electrolyser Horizons project identified the below key outcomes:

1.   Demand and Location Impact: The techno-economic feasibility of green hydrogen production is primarily influenced by demand magnitude, with geographical location playing a secondary role. Larger demand leads to more favourable economic outcomes, particularly in locations with lower electricity prices. However, at very large scales, economies of scale become less pronounced, as costly components like electrolyser stacks and PV panels are "numbered up" rather than scaled. 

2.   Technology Selection: Solid Oxide Electrolysis Cells (SOEC) are identified as the preferred technology in most scenarios due to their higher efficiency despite having significantly higher capital costs. This is due to the fact that the UK has high electricity prices and on-site renewables may not meet dynamic seasonal grid hydrogen demands in a more cost-effective way. However, in low grid electricity price scenarios, Alkaline Electrolysers (AE) become more cost-effective due to lower capital intensity and their ability to better integrate with on-site renewables through more dynamic operation. 

3.   Electricity Price Sensitivity: Fluctuations in electricity prices significantly affect the economic viability of green hydrogen projects. In higher electricity price scenarios (2021), SOEC is optimal. In lower price scenarios (2022-2023), AE offers greater cost-effectiveness, particularly when paired with significant on-site renewable energy investments. 

4.   Subsidies and Financial Incentives: The inclusion of financial incentives such as the implementation of a similar hydrogen programme as the Green Gas Support Scheme (GGSS) for biomethane can significantly improve the economic feasibility of green hydrogen production. Subsidies can reduce payback periods from 35 years to under 19 years and help lower the levelised cost of hydrogen (LCOH) to more favourable values (between £4.53 - £6.22/kg). Carbon offset mechanisms can further reduce costs. 

5.   Current Economic Viability: Despite these subsidies, green hydrogen production remains economically unviable in the long term without substantial policy support. The high capital costs of electrolysis technologies and fluctuating electricity prices contribute to this challenge. 

6.   Inclusion of social revenue streams significantly improves project viability: When additional social benefits such as job creation, Gross Value Added (GVA), and carbon emissions savings are considered alongside curtailment, the Net Present Value (NPV) of electrolyser schemes turns positive by year 10—highlighting the transformative impact of accounting for broader societal gains.

7.   Policy gaps may hinder private investment incentives: The absence of legal mechanisms to monetise social benefits—such as avoided carbon emissions—limits their inclusion in private sector financial models. Addressing this, for instance through reforms to the UK Emissions Trading Scheme, could support more accurate valuation and encourage investment in green hydrogen technologies.

8.   Importance of Policy Support: Government intervention, through incentives and regulatory support, is crucial to make green hydrogen production economically viable. Policy mechanisms must address the high electricity prices and provide financial support to mitigate risks for private investment. 

Lessons Learnt

Project Timelines

The project was initially planned for completion within nine months. However, slight delays occurred due to various factors, including accessibility of reliable data, discussions around key factors required in both the techno-economic and sustainability evaluations, and the review of iterations and initial outputs. These delays led to the informal inclusion of stage gates between analyses to ensure the correct data, parameters, and assumptions were used, preventing any errors from being carried over into subsequent workstreams.                                                                                                                                                                                                                                                                                                                                                                                                     

Involvement of NESO

Involving NESO in the project brought significant benefits, as they played a crucial role in advising on current market perspectives and opportunities for hydrogen demand across diverse sectors in the UK from a planner's perspective. NESO's participation in the monthly progress meetings allowed for continuous feedback and adjustments, which were implemented ahead of project completion. This collaborative approach ensured that the evaluation was thorough and of high quality, ultimately enhancing the credibility and impact of the project's findings.

Recommendations for exploiting the learnings further

While this project has provided a significant reference point on the feasibility and viability of electrolytic hydrogen production in Great Britain, it is essential to further explore the specific economic rationale for hydrogen production at particular locations. This exploration should take into account the latest considerations, including technological advancements, market dynamics, and policy changes. Additionally, the unique characteristics of each site, such as local infrastructure, resource availability, and regional demand, should be thoroughly assessed to ensure a comprehensive understanding of the potential benefits and challenges.