The UK has ambitious targets for both hydrogen and carbon capture, utilisation and storage (CCUS). Success would have a profound impact on the countryâ€™s energy infrastructure â€“ including the grids.

Both government and industry have invested a huge amount of time and money in developing projects. But there have not yet been material commitments to invest.

Electrolysis-derived hydrogen and hydrogen produced from steam-methane reforming plus CCUS are the two main low carbon contenders. These are known as green and blue hydrogen, respectively.

The economics of making green and blue hydrogen depend heavily on the price of wholesale energy inputs, as well as the capital cost of the necessary plant. Blue hydrogen is more expensive than natural gas. Furthermore, the current price of UK CO2 allowances â€“ around Â£38 per tonne for December 2024 â€“ is nowhere near large enough to make up the difference.

Green hydrogen in the UK is still roughly twice as expensive to make as blue hydrogen. Driving this are the cost of electricity and the still small scale of current electrolysis plants â€“ hence high capital costs.

The state of play

ICIS has assessed UK blue hydrogen costs of around Â£3 per kg in 2023, and Â£6 for green. This is equivalent to Â£90 per MWh and Â£180 per MWh, respectively. For comparison, wholesale natural gas was trading at around Â£50 per MWh at the time.

In 2022, the UK set a target for low carbon hydrogen production capacity of up to 10 GW in 2030. The aim is to have at least half of this from green hydrogen.

The governmentâ€™s CCUS targets are no less ambitious. It aims for 20-30 million tonnes per year of capture by 2030, rising to 50mn tpy by 2035.

For the foreseeable future, investment in UK hydrogen and CCUS will not happen at scale without government support.

The Department for Energy Security and Net Zero (DESNZ) has been developing business models and support packages to underpin the first large wave of industry investment.

In the longer term, it is hoped that plant costs will fall as will wholesale electricity prices. At the same time, government projects that CO2 permit costs will increase under the UK Emissions Trading Scheme (ETS), substantially reducing the unit cost of government support.

Cluster up

Hydrogen and CCS will be essential tools to tackle those sectors that are hard to abate and unsuitable for electrification. As a result, the main focus for CCUS and blue hydrogen has been in industrial clusters.

Government has approved two Track 1 cluster projects, HyNet North West and Teesside. These aim to reach final investment decision (FID) this year, with September suggested as a likely target date. There are also two Track 2 projects, Acorn in northeast Scotland and Viking in Humberside. Both of these are due to start up by 2030.

The total unit cost of capturing, transporting and storing CO2 emissions is likely to vary by sector. Some industrial processes, such as making ammonia, lend themselves more readily to CCUS than others.

CO2 transportation and storage (T&S) costs are a relatively small proportion of the total capture cost in most sectors. However, the grid and storage infrastructure is clearly vital to the success of carbon capture at scale.

Track 1

HyNet includes a 1,350 MW hydrogen plant at Essarâ€™s Stanlow refinery. The project includes a regional network of both hydrogen and CO2 pipelines. Eni is operating the proposed offshore CO2 storage in the Liverpool Bay.

The nature of the cluster plan involves a number of actors attempting to find common ground and align strategic plans. As such, developments are continuing to evolve.

In April, for example, enfinium announced it would develop a CCS project at its Parc Adfer waste-to-energy project on Deeside. This will capture 235,000 tonnes of CO2 per year, to be transported for storage via the HyNet pipelines.

Acorn will also involve both hydrogen and CO2 capture, although with a somewhat different grid configuration. Its plans run from St Fergus, north of Aberdeen, down to Grangemouth. It also includes the proposed conversion of a redundant gas transmission pipeline, known as Feeder 10, to transport captured CO2 northwards on its way to being stored in the Goldeneye field and other nearby offshore storage locations.

As shown in the schematic, the project also envisages a blue hydrogen plant at St Fergus. Unlike HyNet, this would not require a significant onshore hydrogen pipeline network. The operator may blend some of the hydrogen output into the existing gas transmission network.

Acorn aims to capture around 5mn tpy of CO2 by 2030. Ultimately, it may scale up to 20-30mn tpy, although some of this may be imported.

The stated capacity of the projectâ€™s proposed offshore storage sites is 240 million tonnes of CO2. As such, it can receive emissions into storage for many years.

The four cluster projects approved to date involve offshore CO2 transportation by pipeline. Looking further ahead other clusters may be developed without adjacent CO2 storage sites. For instance, south Wales would require shipping capacity to export CO2.

Over time, UK CO2 storage operators may be able to attract captured volumes from other European countries, which lack their own storage capacity. This could be a substantial opportunity for the UK with its extensive, favourable offshore geology, consisting of both depleted hydrocarbon fields and saline aquifers.

NESO need

The Energy Networks Association presented its vision for a future hydrogen pipeline network in 2023. This built on the cluster projects and an expanding number of green hydrogen plants.

Such a project is ambitious â€“ if not wholly unlikely â€“ on that timescale. However, the ENAâ€™s projection does illustrate the major long-term impact that hydrogen development could have on the UKâ€™s energy infrastructure.

Unabated natural gas can play little or no role in the UKâ€™s Net Zero 2050 energy mix, other than as a bulk feedstock for blue hydrogen plants with CCUS. This is an equally profound change, given that natural gas currently heats around 85% of UK homes.

Given this change, it is essential an overarching body can assess the interplay between the different needs on infrastructure. Rolling out hydrogen and CCUS networks will necessarily have an impact on other grid plans.

Governmentâ€™s approval of a new National Energy System Operator (NESO) appears to acknowledge this. The body replaces the Electricity System Operator (ESO).

The NESO is intended to take a â€œwhole systemâ€ view of developing energy networks with the aim of reaching net zero. As such, it will have strategic ownership of plans covering gas, electricity and hydrogen as well as heat networks. Over time, it would be logical for this role to cover CO2 pipelines as well.

Hydrogen going green

Green hydrogen projects are smaller scale than blue hydrogen, with their parallel need for CCUS. As such, these electrolyser-driven projects have made more progress.

There are several reasons for this. Green hydrogen projects are currently much smaller, less complex and benefit from a specific government support mechanism, the Hydrogen Allocation Rounds (HARs).

In December 2023, the government announced 11 green hydrogen projects, with a total capacity of 125 MW, had secured funding in the first such round, HAR1.

Two of these 11 projects are located in Scotland. The first projects are expected to be operational in 2025. Applications for HAR2 recently closed and further HARs are to follow. In total, HAR1 delivers just 2.5% of the 5 GW target for installed green hydrogen capacity in 2030.

Unless linked directly to a local source of renewable electricity, these green hydrogen projects clearly need an electricity grid connection and supply arrangements.

However, by themselves they are unlikely to have a profound impact on energy grids. Nevertheless, projects such as Cromarty Hydrogen, in the north of Scotland, envisage developing a network of local hydrogen pipelines that would deliver the product to nearby offtakers.

Other projects aim to capture the value of energy that would otherwise be curtailed, such as Stateraâ€™s Kintore.

The outlook

Blue hydrogen projects are more challenging and more likely to have a material immediate impact on the UKâ€™s decarbonisation plans. To achieve the desired progress, the government must seek to support the Track 1 clusters to reach FID this year â€“ despite the noise and fury of politics, as the country heads towards an election.

Securing progress on the Track 1 projects would go a long way to providing the assurances required and help Track 2 progress.

A valuable next step could be to move to a more regular, competitive funding round for industrial clusters. The government is firming up its HAR offerings and allocation rounds â€“ it could implement a similar approach for CCUS cluster developments.

The worst-case scenario would be a further delay for Track 1. Leaving these ambitious plans in limbo would scotch plans to move ahead with Track 2, effectively forcing the country to miss its 2030 goals. 2030 is just a year, but it has become increasingly significant as a test of delivery. Having failed to complete two previous investment initiatives, UK has a troubled track record in carbon capture projects and this should be the year to turn that around.

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