EIC welcomes the publication of the UK government’s Hydrogen Strategy. Hydrogen will be a key factor in enabling the decarbonisation of harder to address sectors like transport and heat and there is a dot-com-bubble-style excitement around the long-term technology and wealth opportunities that hydrogen may bring, as well as, of course, the environmental benefits.
The UK’s Hydrogen Strategy plans to apply lessons learnt from offshore wind, employing the successful CfD model once again to stimulate a vital new green economy, but we urge that the UK supply chain is also brought along at the same pace and scale as CfD. UK content must also be maximised for these critical, early net-zero domestic projects, enabling the seeding, rooting and growth of a competitive and future-ready UK-based hydrogen supply chain.
The UK has approached the roll out of hydrogen development projects across the UK in a steady and planned way, with various phases of money, levelling up and technology placement being supported to try to position the UK as a leader and first mover in this exciting new sector. The UK sees hydrogen as important to address its own emission challenges in time to meet its 2050 net zero legislation, but it also provides another stream of work for the hungry supply chain and energy community. The valuable work in this area will hopefully rally engagement and investment in the hydrogen dream, both for future domestic and international demand.
But there are challenges. The government in removing (nearly all) oil & gas funding and support for UK exporters, which has put pressure on an already struggling energy supply chain to be globally competitive and profitable. Business leaders all agree that we need to achieve 2050 net zero goals, here and globally, but they also say that they need more time to transition their current oil & gas order books, skills and facilities to non-emitting markets, asking for 5-10 years, not 5-10 months. This rapid removal of oil & gas support has hurt them, and if left unchecked this will continue to for years to come.
The concern around the short-to-medium term health of the UK energy supply chain is compounded by a 5+ year historical trend of export-shyness across all UK regions and all energy sectors. Business leaders find the development of new export markets as the hardest growth strategy, and have done each year since at least 2017, as confirmed by EIC Survive & Thrive research. The UK government itself confirms that less than 10% of UK businesses are exporters (all sectors). At this rate, how is the UK to reach its own target of exports accounting for 35% of GDP, being currently at 30%?
The EIC believes that intervention is needed – firstly, to help businesses to stay rooted and healthy in the UK, and secondly, to address their export-shyness barriers to internationalisation.
The EIC believes that hydrogen provides unique and timely answers to these challenges.
Firstly, blue hydrogen provides two opportunities – if the current UK blue projects, partnered with CCUS, as conceived by the government, are ALL given the green light now, all fully funded, all with UK content requirements, then this will provide the fastest and most significant opportunity to offer pace and scale of work for the supply chain ‘to get stuck into’. This will offset, partially at least, the export-shyness and export-funding restrictions that beset UK businesses, buying time to shape longer-term export growth policies, and will arm businesses with valuable revenues and new skills that will set them up well for the future.
Of course, blue is good for the oil industry too, keeping oil investments flowing in the UK, supporting thousands of businesses and domestic energy security, and placating those that argue that we should not ‘cut our nose off to spite our face’, by ending oil production prematurely in the UK, to then immediately import the same amount of oil, arguably at higher costs and emissions.
The CCUS technology that comes as the friend of blue is the real prize here though. CCUS is a globally exciting technology, not so much to enable blue production, but to deal with harder to decarbonise transport and industry emissions, providing a rare chance for UK to build globally competitive capability that will lead to the sort of export-led GDP growth the government needs.
Blue itself though does not provide a significant export opportunity. It is to be treated as a short-term and domestic fuel only. Why? Because as soon as the world demand for blue grows, then NOCs around the world will switch on their own supply of blue, at vastly greater scale and MUCH lower cost. The UK will not be a competitive exporter of blue, but it can be a competitive exporter of CO2 storage, the other great opportunity that is opened-up by CCUS.
So, blue with CCUS is a vital investment stream that the government should go ALL-IN for NOW. It helps with just transition & energy transition for the supply chain, it is a lifeline for the UK oil industry, it creates world-beating export technologies in CCUS and CO2 storage, and secures energy security.
But what of green hydrogen? Green provides two different opportunities – Of all the recent hydrogen project announcement in the world, the vast majority are for green, not blue, more than 90% in quantity and value terms. Why is this? Because investor and consumer demand for hydrogen is linked to their desire to have non-oil produced hydrogen, green fuels, as soon as possible. This can be seen as contradicting with consumer resistance to over-pay for green power and fuels, but even still, the trend is clear. As soon as green hydrogen can be produced at pace and scale, and competitively, then it will overtake blue as the fuel of choice.
The UK has great infrastructure and natural resources for both blue and green hydrogen – how lucky are we?! We have technology providers in the UK for electrolysers and, so far, there are no other regions of the world, and no other major industrial groups of entrepreneurs (Elon Musk has not yet focused on green hydrogen, although he loves CCUS), that can scale up in green, as they can so easily in blue.
So, we have the chance, if we go ALL-IN NOW, to take the leading position with green technology development. This will enable us to develop a competitive UK-centred supply chain for UK projects, needing UK content oversight, to then become the Denmark Offshore Wind of green hydrogen technology. This would be the next great export and GDP growth opportunity for the UK.
Green scale up would be slower than for blue hydrogen, as the infrastructure, competitiveness and technology starting points are much lower, so let’s think about blue and green in partnership - the UK can scale in blue and CCUS first, and then transition (again) to green hydrogen 5-10 years later. But this means green investment has to be ALL-IN and NOW too.
In summary therefore, in the publication of the UK Hydrogen Strategy, the UK has positioned itself to be globally significant in both blue and green hydrogen and EIC members will appreciate this, but this positioning is not enough. The investment should go ALL-IN, not in the future but NOW, and with enough scale and stickiness. Only then do we get a head-start on the rest of the world.
This feels like a key moment for policy makers, and the COP26 stage is the perfect place to stake our claim on the net-zero-bubble.
Stuart Broadley - Chief Executive of the EIC