Why you should be thinking about hydrogen

Reducing greenhouse gas emissions to net zero in the UK economy by 2050 is going to fundamentally change every business and the life of every person in this country.

Meeting the legally-binding 2050 target will encompass dramatic behavioural changes such as curbing travel, reducing carbon emissions in food production, industrial processes, energy and transport. Achieving net zero will require a significant amount of investment – the Climate Change Committee (CCC) puts the figure below one per cent of GDP annually until 2050. I estimate the investment required up to 2050 to be around £1 trillion.

Hydrogen is crucial to meeting the UK’s 2050 net zero target.

But what are the implications for businesses making capital decisions today, and developing strategies that position them to thrive in a decarbonising economy? How can investors gain a better understanding of where demand for hydrogen will be most robust?

Our Investing in Hydrogen report explores the increased role hydrogen will play in supporting decarbonisation of the UK and, using a bespoke cost model, considers the costs of hydrogen under different pathways to net zero.

Hydrogen’s role in decarbonising the UK

Several pathways exist to meet the net zero target, and hydrogen plays a prominent role in each: from heat for buildings and industrial use, replacing fossil fuels in transport and industrial processes to energy storage for the power sector.

However, while hydrogen plays a big role in all scenarios where the UK meets its net zero target, demand increase is expected to range between 179 TWh and 618 TWh by 2050. This enormous spread compares to the 27 terawatt hour (TWh) of hydrogen demand in the UK today, all from fossil fuels used as an industrial feedstock.

How much will it cost?

Production technologies alone will need to attract between £3.5 billion and £11.4 billion of investment by 2035. Our cost model analyses the impact of each segment of the hydrogen value chain – production, conversion, storage and transport – on the final levelised cost of hydrogen.

Understanding the cost of hydrogen and the build-up of those costs within the whole hydrogen value chain will be an increasingly key metric for assessing the economics and commercial viability of a project or for understanding its cost competitiveness compared with other energy sources or projects located elsewhere.

The UK government’s Ten Point Plan for a Green Industrial Revolution and the subsequent Powering our Net Zero Future energy white paper, confirm its commitment to driving the growth of low carbon hydrogen and outlines infrastructure investments in hydrogen, electric vehicles, public transport, offshore wind, and carbon capture and storage.

What are the implications for businesses, investors and policymakers?

Businesses need to think about the implications of hydrogen for them as part of the broader impact of transitioning to net zero. Given the variability in the role hydrogen will play, how does that change your outlook?

Policy changes, for example, might require home boilers to burn hydrogen supplied through the existing gas grid. Alternatively, domestic heating may become electrified, with gas boilers replaced by ground source or air source heat pumps. For a domestic heat boiler manufacturer, the first scenario presents a huge opportunity, the second a huge challenge to its existing business model.

Although it’s a 29-year journey to 2050, time is of the essence. The majority of financial decisions need to be made in this decade to support the UK’s immense net zero ambitions.