Latest energy policy announcements show that the UK Government has gone Insane

By David Turver at his ‘Eigen Values’ substack blog

Introduction

Back in the summer, there were signs that the consensus around Net Zero policy was starting to crack. The Prime Minister, Rishi Sunak then made his speech that watered down some Net Zero commitments and promised “a more pragmatic, proportionate, and realistic approach that eases the burdens on families.” However, in the run up to Christmas, the Department for Energy Security and Net Zero (DESNZ) made several announcements about various aspects of energy policy that can only add to consumer costs. These included various announcements about their hydrogen policy, a statement on carbon capture usage and storage (CCUS) and an update on the business models for greenhouse gas removal (GGR) and power from bioenergy with carbon capture and storage (BECCS).

This article explains that unfortunately, the announcements mark the end of any serious fightback against the Net Zero insanity and demonstrate that the Government has no idea about economics, thermodynamics or energy and has gone completely insane.

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Hydrogen Delivery Roadmap

On December 14^th, the Government used the distraction of the COP28 meeting to announce updates to its hydrogen policy. There was a new hydrogen production delivery roadmap, an announcement of the results of a consultation on blending hydrogen into the gas distribution network and a strategic policy decision on the same topic.

The delivery roadmap calls for “up to” 10GW of hydrogen production capacity to be delivered by 2030, subject to “affordability and value for money”. This capacity would comprise 6GW of “green hydrogen” produced from electrolysis powered by renewables and 4GW of CCUS enabled hydrogen. The latter is also known as “blue hydrogen” produced using steam methane reformation (SMR) with the CO₂ emissions being captured and stored.

They expect this capacity to produce 60TWh/year of low carbon hydrogen assuming the 4GW of CCUS capacity operates at 95% load factor and the electrolytic capacity operates at 50% capacity. This means that 33TWh, or more than half of total production will come from SMR with CCUS and about 26TWh from electrolysis. However, as Figure 1 shows, their 2030 hydrogen demand estimate is for just 18TWh at the low end, ranging to a top-end estimate of around 40TWh.

They recognise this mismatch between supply and demand and suggest that Transport and Storage infrastructure might be in place by then, so some of the excess could be stored. Although why would we want to store lots of hydrogen if supply is exceeding demand by such a vast amount? In case the storage is not enough, the Government sees “strategic and economic value in supporting blending” into the natural gas distribution network. But they have not formally taken the decision to blend hydrogen into our gas. They also raise the possibility of exporting hydrogen.

Their Hydrogen Production Delivery Roadmap is light on detail as shown in Figure 2 below.

The total capacity to be awarded in the different Hydrogen Allocation Rounds (HAR) is only 4GW, the latest of which delivers after 2030. Their own roadmap does not even get halfway to meeting their ambition. It is a total farce.

Blending Hydrogen into the Gas Network

The Government also made a half-hearted announcement about blending hydrogen into the gas network. It says it “sees potential strategic and economic value in supporting the blending of up to 20% hydrogen (by volume) into the GB gas distribution networks in certain scenarios and circumstances that align with the strategic role of blending.” The main strategic role is to act as “offtaker of last resort,” apparently to soak up the excess supply of hydrogen. The second role is to act as a “strategic enabler” which is a pretty woolly concept. However, no final decision will be taken on blending until 2025-26 at the earliest to give time for safety assessments to complete and for legislative changes to be made.

Impact of the Hydrogen Announcements

These announcements will have a significant impact on several areas including electricity demand, the size of our energy bills and the overall efficiency of the energy system.

Hydrogen Production Increases Electricity Demand

According to the Royal Society Large Scale Storage report, using IRENA data, the efficiency of electrolysis today is in the range 40-67%. Using the mid-point of 53.5% efficiency, means that to produce 26.3TWh of hydrogen from electrolysis will require about 49TWh of electricity. Total electricity generation in 2022 was 325TWh, so to meet the Government’s green hydrogen ambitions would require 15% of today’s generation capacity. Looking at it another way, to meet their hydrogen ambition would require more than the 45TWh of electricity generated by offshore wind in 2022 (see Energy Trends (Table 6.1)). Total renewable generation in 2022, (including 22.8TWh coming from burning trees as biomass) was 135TWh. Their green hydrogen ambition would use up 36% of 2022’s total renewable generation. This means we would have to burn more gas to keep the lights on, the heat pumps running and the EVs charged.

Thankfully, as we saw above, there is no chance that they will achieve their 10GW ambition. But if they achieve the 4GW total capacity shown in the roadmap, with 2.4GW of this from electrolysis, then that would still require nearly 20TWh of electricity from renewables which still means we would have to burn more gas to keep the lights on. This would be a bonanza for gas suppliers, but mostly those from overseas as the ban on domestic fracking continues. So much for energy security and the COP28 commitment to transition away from fossil fuels.

Hydrogen Production Increases Energy Bills

In an apparent contradiction to their own value for money test and the Prime Minister’s commitment to ease the Net Zero burden on families, 11 green hydrogen projects were approved at a weighted average strike price of £241/MWh (in today’s money). This is more than double the £112/MWh (in 2020 money) that the Government estimated to produce hydrogen using dedicated offshore wind in its 2021 Hydrogen Production Cost Report for 2025 delivery.

To put this in context, UK Natural Gas was trading around 83p/therm at the time of writing, which is about double the long term average and four times the price of gas at the Henry Hub in the US. 83p/therm is equivalent to ~£33/MWh, therefore the proposed cost of electrolytic hydrogen is >7 times higher than our already inflated gas price. It is difficult to see how this meets the “affordability and value for money” test. Given, the anticipated supply is higher than even the most optimistic estimate of demand, the consumer will lose because it is likely that excess hydrogen will be blended into the offtaker of last resort (the gas gas network) and be paid for by gas consumers. Of course, the hydrogen producers will be delighted to receive such high guaranteed prices.

Hydrogen Production from Natural Gas is Inefficient

What about the efficiency of producing hydrogen using SMR and CCUS? The typical efficiency of steam methane reformation is in the range 65-75%. Capturing the CO₂ emitted during the process will reduce efficiency, probably to the 50-60% range or even lower. So, in essence, around half of the energy in the natural gas used in the production of hydrogen will be lost in the process.

In short, this is a crime against thermodynamics. It makes no sense at all to take methane, use it to produce hydrogen and then blend that hydrogen back into the gas network. It adds cost, reduces efficiency and will increase consumer bills. In essence, more natural gas will be used to deliver the same energy from the gas network with blended hydrogen and of course higher demand for gas means higher prices.

Greenhouse Gas Removal and BECCS for Power

DESNZ also made an announcement about the design of the business models to support Greenhouse Gas Removal (GGR) and Power Bioenergy with Carbon Capture and Storage (Power BECCS). The introduction says the document “aims to provide visibility on the core design elements of the business model, particularly for project developers that may wish to apply for revenue support” for the next stages of the Carbon Capture, Usage and Storage (CCUS) process. They claim their CCUS vision will “unlock investment and drive economic growth, adding £5bn to the economy by 2050.”

They are establishing “a world leading vision to deploy at least 5MtCO₂/year of engineered removals by 2030, potentially scaling to 23MtCO₂ by 2035 and 75-81MtCO₂ by 2050.” To put this in context, gas-fired electricity produces around 400kgCO₂/MWh, so capturing 5MtCO₂ would offset around 12.5TWh of electricity generation, or about 10% of the gas-fired electricity produced in 2022. The 2035 target would offset ~46% of generation and the 2050 target would cover ~160% of 2022’s gas-fired electricity. However, we are supposed to have phased out most of our gas plants by then and the rest of the economy is supposed to have been decarbonised, so it is not clear why we would need such a large carbon capture capacity.

The important thing to remember about CCUS is that it reduces the efficiency of gas-fired power plants by 14-20%. The implication of this is that a plant with CCUS will require 14-20% more gas to produce the same amount of electrical output. In effect, CCUS is an energy tax on gas-fired generation, so of course these plants will require a subsidy. The Government has set out some broad principles governing the strike price of the subsidies available but has not yet set the level. Some of the cost of CCUS will be mitigated by a reduction in the carbon costs applied to unabated gas-fired generation, but it is virtually certain that our energy bills will increase to support this technology.

The Government also said it “remains committed to bringing forward power BECCS as a key GGR technology.” Bioenergy is where trees are chopped down in North America, pulped into pellets, dried (which takes a lot of energy), shipped across the Atlantic (more energy) and then burned at plants like Drax to produce electricity. Currently, this is classed as carbon neutral even though it will take decades for the trees to regrow and burning wood produces more CO₂ per MWh generated than burning coal. Adding CCS to this means that the emissions from burning the trees are captured and allows the operator to claim that BECCS is a negative emissions technology or a net carbon sink.

The trouble is, that, according to the Royal Society of Chemistry, the whole endeavour is also probably a net energy sink, in that less useful energy is produced from the power plant than it takes to run the overall system (see Figure 3 below).

Using wood pellets from Louisiana results in and EROI of <1. In short, BECCS is a thermodynamic war crime. Of course, this technology will require subsidy. In fact, it will qualify for two subsidies. The first is a Contract for Difference for electricity (CfDe) and the second is a Contract for Difference for carbon (CfDc). It is no surprise that such a thermodynamic disaster will require lavish subsidies.

Conclusions

To summarise these announcements, first, the hydrogen roadmap will fail to achieve even half of their vision for 10GW of hydrogen production capacity by 2030. Their vision entails producing 50% more hydrogen than even their most optimistic demand forecast, so they want to fall back on injecting surplus hydrogen into the gas network at vast expense. But this plan has not yet passed the required safety tests and will require legislative change to deliver.

The idea of producing more than half of the hydrogen using methane, losing half of the embedded energy in the process and then injecting much if it back into the gas grid is a crime against thermodynamics and beyond insane. To avoid any doubt about their insanity, they also propose to produce the remaining hydrogen at a cost that is more than seven times the current cost of gas. Of course, this is all subject to the fig-leaf of a value for money test. If value for money was even a secondary consideration this crackpot idea would have been abandoned long ago.

In addition, they are working on big plans for CCUS that will act as a further tax on our energy and demented plans for a BECCS energy sink that will require even more subsidy.

Taken together, these plans will increase the demand for gas and actually decrease the amount of useful energy we get from it. But because they have committed to “transition away” from fossil fuels, there are no plans to increase domestic supplies of gas from fracking. No, we will have to import it at great cost from the world’s despots.

The children at the DESNZ are insane. Of course, these plans will be a gold mine for gas suppliers, for gas network operators, electrolyser makers, hydrogen producers and of course the tree-burners at Drax.

For the rest of us, it means much higher energy costs. It will be the end for heavy industry and a disaster for consumers. So much for a more pragmatic, proportionate, and realistic approach that eases the burdens on families. We are desperately in need of some stranger’s hand in an increasingly desperate land.