Getting the new hydrogen strategy right should mean that 2030 will be the decade “we stop paying for volatility and start paying for value” – LCP Delta
LCP Delta is calling for the UK’s new hydrogen strategy to integrate the hydrogen ecosystem into the wider energy system, as the market becomes increasingly clear about the role of hydrogen and where the investable opportunities now lie.
LCP Delta cautiously welcomes what appears to be a policy pivot away from the top-down target of 6GW of clean hydrogen production by 2030 and towards a demand-led, bottom-up approach, but urges the government to remove the policy barriers that hinder the growth of the hydrogen ecosystem.
LCP Delta’s modelling shows that investable offshore wind will rely on tens of gigawatts of electrolysis on the system in 2050. This hydrogen is likely to be essential for the clean thermal generation needed to balance the power system. It will also be critical for multiple sectors across industry and transport, where it is becoming increasingly clear that electrification is not always the best or only option. For UK Plc to remain internationally competitive, it is crucial to recognise that we require both hydrogen and electrification.
The experts believe certain steps should be taken to enable hydrogen to play a key role in the energy transition:
- Europe is moving from local projects to regional clusters and, in the 2030s, to traded hydrogen. In the UK, we should ensure strategically important storage and transportation infrastructure planning and business models catch up rapidly to where things are when it comes to production. The lesson from the continental market is simple: pipes, storage, and PPAs are what make molecules bankable.
- The implied support level in the first Hydrogen Allocation Round is high compared with the EU’s first auctions. However, the learning rate must be visible and rapid in the second and third rounds to protect consumers. For example, LCP Delta’s modelling on indexing the production business model to electricity prices drives a significant lowering of the electricity costs for electrolysis. It’s crucial that learnings are taken from the early rounds and improvements made to the business model design quickly to bring down the cost of support, all going on retail energy bills.
- Strategically, hydrogen should be a crucial component of the energy system and the broader economy, for a cost-effective and joined-up transition of the energy system. The UK needs a hydrogen strategy that encourages investors to build on early progress and scale the sector, learning from both early successes and problems, built on a real-world understanding of energy needs across different sectors. For example, the narrative that everything should be electrified often doesn’t make practical sense in an agricultural, construction, or many heavy industries setting.
Brendan Murphy, Head of Hydrogen at LCP Delta, commented, “The path to a more integrated, resilient, and stable energy system, with fewer energy price shocks, is narrow but navigable by taking the right steps. Removing policy barriers to the uptake of hydrogen in a range of sectors where the UK wants to lead, by building networks & storage, and driving down support costs allocation-round by allocation-round, is the way forward. Europe’s data tells us the market is maturing — later than hoped, but on firmer footing. The UK is at major risk of being left behind the rest of the world if we don’t take the big and brave decisions on hydrogen today – we are on the cusp of buying the energy system today that we’ll have into the 2030s and 40s. If policymakers lean into those lessons now, the 2030s can be the decade we stop paying for volatility and start paying for value.”
