Janet Wood asks how we will look back on the  hydrogen future

In the short term, a switch to electric heating is expensive and disruptive. It may mean new heating systems are needed throughout the property. In contrast, a switch to hydrogen switch will see a relatively simple change within the property, to hydrogen-ready appliances, followed by short-term disruption – one to three days at current estimates -  when the local network is changed over to hydrogen supply. That makes hydrogen an attractive option to address the challenge of decarbonising heat. That’s good news, as hydrogen is an important option for other hard to decarbonise sectors like heavy transport and industry, and economies of scale will be beneficial.

But we have learned that it is the long term and the ‘whole life’ that matters. So it is useful to leapfrog into the future and imagine we are looking back, ten or twenty years after decisions over hydrogen or electrification have been made.

How would the electricity and hydrogen households compare, if we were looking back a decade after conversion?

HYDROGEN DOWNSIDES

The hydrogen household appears to face several distinct disadvantages.

Losing the electricity opportunity:time of use pricing and flexibility services mean electricity consumers will be able to benefit from managing their electricity use and providing grid services. For those able to do this, the more electricity they have in play the better. Consumers using gas for heating and cooking will have less opportunity to manage their transport, power and heat choices at least cost.

Paying the cost of carbon: it is becoming more likely that the cost of carbon will be levied on gas, instead of electricity use. From our vantage point looking back, that burden should be lifted, assuming hydrogen is supplied from zero-carbon electrolysis or using CCS, and by then hydrogen may be a cheap option for users. Bur in the interim, the carbon cost of gas will vary and be borne by customers. And in that time the shifting balance of costs will mean that some customers switch to electricity, reducing the pool of gas users.

Network costs: the costs of managing and maintaining the gas network will be borne by fewer users. It may have grown smaller accordingly – but it seems likely that the shrinkage will be ad hoc, rather than a planned retreat to result in the most cost-efficient reduced network.

Fear of network defection:Customers, who will almost without exception have an electricity connection, and may also have an electric vehicle, will be able to make a switch away from the gas option with relative ease. Although a switch to electric-only may require extensive internal change of heating systems it will not require kilometres of new pipe (as is required now when off-gas customers want to use gas). Gas grid defection is a decision that can be taken for a single property – unlike joining the gas grid.

A fragmented hydrogen market:we are used to a single gas price charged on a continuous network across the country. We may have a continuous hydrogen network – National Grid Gas has investigated using hydrogen in the National Transmission System. But it is equally likely to be implemented as district or regional networks based around specific large hydrogen users and sources, supplied from different sources (which may ultimately connect). This is a fragmented hydrogen market and one where costs will vary from one network to the next. Some areas may be a mix of biomethane and hydrogen.

Major users will have a say in whether the hydrogen is produced from offshore wind, steam reforming of gas or other sources (such as imports). Are domestic consumers to be price takers in this situation, or will prices be standardised?

Ageing appliances:it may be that a hydrogen network retains its value to transport and heating business and consumers. But the above suggest a drift of customers towards electricity. That is important in a consumer-led industry. Hydrogen appliances are under development now, but if the pool of potential customers is shrinking and – importantly – financially disadvantaged, they are unlikely to be a tempting market for new technologies in future.

 

THE NEW OFF-GAS?

Overall, does this suggest that hydrogen customers could find themselves in a position that bears comparison with today’s off-gas customers, who rely on LPG or oil  deliveries and cannot access better dual fuel deals?  If the hydrogen users have less choice, less ability to access new products and savings and little ability to reduce their fuel costs, that may be so.

That suggests hydrogen is  a potential trap for consumers. And as above, while it is hard for consumers to drift into the gas option today, in future it will be easier for them to drift away. The number of gas users  will gradually shrink as new-build infills with electricity-only customers and individual gas customers defect .

BUT…

That’s not the complete picture. From a whole-systems point of view, these hydrogen customers will be providing some important services within our energy supply.

A hydrogen network would be a large energy store, able to soak up excess generation from what should be a huge renewable energy fleet, both here and in connected markets. That allows the best use to be made of renewables investment and reduces cost overall, and of course It meets the need for long term storage.

It is also a provider of flexibility, albeit over a different timescale than in electricity. At the moment this manifests by reducing the need for electricity at peak times, but in future perhaps it will be used  in other ways that interact with the electricity system, such a heat stores.

The hydrogen option is likely to remain necessary, used for:

• Gas engine ‘car park’ installations that respond quickly to meet ‘short burst’ power spikes – currently among the fastest growing group of network users.
• Hydrogen filling stations for heavy transport.
• Other transport uses such as rail.
• Making the most of biomethane, in areas where it is produced and used.

As above, any network is a form of mutual support and domestic users help spread the cost of a hydrogen network.

Hydrogen may be best used in cities, where it could be used for small heat networks. Also, in cities users are less likely to have individual electric vehicles to make electricity flexibility attractive, and it is harder to upgrade the electricity grid to accommodate electric heating. A hydrogen-ready network may even open interesting possibilities,  such as smaller networks using distributed electrolysers in areas where renewables production is highest, or topping biomethane in areas where that is abundant.

 

WHAT IS TO BE DONE?

If domestic hydrogen users are helping support other key hydrogen roles they have to get value for these services to balance the loss of the wider electricity opportunity.

It suggests compensation for providing flexibility and network services, in the same way that electricity users will be, although the link between user and service is less easy to make and the timescales are very different. It’s not clear how this can be done, but it may include credit for storage and flexibility passed on from the gas supplier.

It suggests the removal of gas standing charges, which reduce price signals for  flexibility even over longer periods – and also devalues other positive action like insulation.

It certainly suggests faster depreciation of gas infrastructure, so that if the number of customers remaining on the gas network dwindles they are not left paying for an investment made for all of us.

Finally, early consideration has to be given to the charge for the hydrogen itself. Should consumers who cannot choose have to pay the price because their hydrogen has the wrong carbon history or a longer route from its source?

These are some complex issues and some have not yet been considered in the nascent hydrogen economy. But imagining we are looking back gives us a clue to some of the pitfalls that we have to avoid as we are moving into this new industry.

Are these necessary considerations? And what else has to be done if we are to make sure hydrogen remains a benefit for consumers in the long term?

 

Further reading

The Internet of Things: utilities warned they may lose the customer relationship

‘National debate’ needed as some consumers will lose gas option

Did New Power call it right? The view from 2015 on ‘Energy retailers: how are they changing?’

OPINION: Do we need to redefine the social contract between utilities and consumers?

From New Power Report: energy issues in a switch to hydrogen gas