Green hydrogen to increase natural gas costs – Does Watt have tile?

Alternative feature values ​​from David Turver

David Turver

Compared with international competitors such as the United States and Canada, we have already covered earlier articles how the electricity prices are the highest and gasoline prices are very high in developed countries.

The issue of high energy prices has become mainstream, even if the Energy Security and Zero Net Options Commission launched a high energy cost investigation in Parliament. [Note that I have submitted written evidence to the inquiry, but cannot publish it until they have, so watch this space]. Readers will be frustrated to understand that the government is now consulting on its latest crafty breathing to further increase our energy bills by charging our precious green hydrogen program with the use of the Gasoline Shipper Owner’s Obligation (GSO).

Of course, hydrogen is a colorless and odorless gas, but different colors are assigned to hydrogen according to the production method. We covered the hydrogen rainbow in our earlier articles. Green hydrogen is produced by electrolysis powered by renewable energy sources such as wind and solar energy. Blue hydrogen is produced from natural gas, and the resulting carbon dioxide emissions are captured and stored.

The last conservative government launched the hydrogen transport roadmap in December 2023. This requires a hydrogen production capacity of 10GW by 2030, consisting of 6GW of 6GW of green hydrogen and 4GW of blue hydrogen.

The first batch of this capacity was also announced in December 2023, with 11 projects announced at £175/MWH (price in 2012) or £244/MWH in the 2024 currency. By comparison, today's high prices are ~99p/therm or £34/MW. Green hydrogen is about seven times the current price of natural gas in the UK and about 23 times the price of natural gas in the US. The government cheered the announcement that the projects will receive more than £20 billion in revenue support from the Hydrogen Production Business Model (HPBM). The 125MW contract awarded in HAR1 is just the tip of the iceberg, as HAR2’s goal is to support seven times, while the iceberg’s goal is 875MW.

In 2023, then-Energy Secretary Grant Shapps appeared to rule out the payment of this very expensive hydrogen through the energy bill. But now, the new government is linked to Ed Miliband's charge of Desnz, consulting services on their appointed gas shipment obligations (GSOs) to fund HPBM.

The government estimates that the cost of the GSO-funded HAR1 project will increase to £2.60-4.50 to domestic gas bills from 2028 to 2037. Industrial gas users can expect their gas bills to grow by 2%.

If we also expand it to cover HAR2 ambitions, then this could increase our petrol bill by 20.80 to £36, compared to 16% for industrial users. If their anger is enough to deliver the entire 6GW of green hydrogen, domestic consumers may cost £124.8-216 per year, while industrial users have nearly double the cost of gas.

Of course, a complex system will be built to manage this new fee with the ensuing administrator, which will also increase the cost and complexity.

During the consultation, the government raised the prospect of exempting GSO allegations but was clearly reluctant to grant waivers to certain users because in this way, fees must be allocated to fewer users, further boosting those people’s bills. They seem to be the only exemption for the only gas that is keen on producing blue hydrogen. They fear that pushing the raw material costs of blue hydrogen will make it uncompetitive.

This means that the cost of electricity generated by electricity will also rise, pushing up our electricity bills as well as our gasoline bills. Interestingly, they did not discuss the possibility of using carbon capture and storage (CCUS) to exempt electricity, so even this form of electricity would be higher.

The introductory inquiry was engraved with an extinction rebellion activist, probably because one of Miliband's competitors was once a coordinator of his legal strategy team. They lyrically illustrate the non-existent climate and natural crises, and the enormous opportunity to transition to low-carbon energy systems. They even claimed to address the cost of living crisis, although the consultations acknowledge that these recommendations will increase our energy costs.

We may be able to take a look at the latest information from the Climate Change Commission to get closer to the truth. As shown in Figure 1, they want to reduce the ratio of electricity to natural gas prices. They can do this by raising the gas price, and of course, that's what the proposal does.

However, there are many reasons not to do so, especially the collapse of many green hydrogen projects in the world. For example, Norway’s Aurora Green Hydrogen Project was terminated in 2022 due to lack of demand. McPhy's green hydrogen project in Central Europe was abandoned seven days after announcing its withdrawal last fall. Earlier this month, BP withdrew from the Hygreen project as part of its strategic repositioning. When fully operational, Hygreen should provide a 500MW factory on Teesside. Interestingly, BP's 1.2GW H2Teesside blue hydrogen project seems to be continuing.

Additionally, the CCC excludes hydrogen for home heating and surface transportation in its latest carbon budget. According to the NESO Clean Power 2030 plan, they also believe that hydrogen has a small role in power generation. When there are cheaper alternatives, the industry will not voluntarily use hydrogen. It seems that the government hopes that this extremely expensive hydrogen can achieve its existence.

We already have the highest electricity prices in developed countries, with gasoline prices in the UK and Europe many times higher than those in the US and Canada. We simply can’t afford more stimulus projects to increase energy costs. In fact, we should go in the opposite direction and declare an energy emergency to reduce energy costs.

The green hydrogen market is collapsing because no one wants to use this expensive fuel when natural gas is a much cheaper source of heat or electricity. However, our government is still sticking to its ideological Soviet-style five-year goal of products without markets and hopes we pay for it.

We can’t afford this fantasy flight and now we need courses to change energy policy. The focus should be on cheap and abundant energy to save the rest of our industry, avoid total destruction, and reduce the households struggling with energy bills.

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