How 'Green' Should Green Hydrogen Be?

The UK Hydrogen Strategy, The RTFO And The UK Low Carbon Hydrogen Standard

On 17 August 2021, the UK Government published its long-awaited UK Hydrogen Strategy [1] (Strategy). Launched by the Department for Business, Energy and Industrial Strategy (BEIS), the Strategy maps out the Government's ambitions for low carbon hydrogen production up to 2030 and beyond. It will also form a key plank of the UK Government's policy platform to drive the UK towards net-zero carbon emissions by 2050. See our article, Creating a new market from scratch: the UK hydrogen strategy for more detail.

In advance of COP26 in Glasgow this November, the Strategy is an example of the UK Government looking to develop its hydrogen credentials. But the key question is, how to define 'green' hydrogen and whether hydrogen production plants can use electricity from the grid and still be classed as green. If not, hydrogen from electrolysis will be tied to co-locating with renewable generation plants and won't be able to take off as quickly as BEIS envisages. Jeopardising the whole Strategy.

Archetype 1

The Strategy sets out a roadmap, split into 'archetypes' by time period, envisaging the development of the hydrogen economy in the UK. The first of these archetypes covers the period from 2022 to 2024.

During this initial phase, the expectation is that UK hydrogen production will centre on small-scale electrolysis plants, producing 'green' hydrogen using electricity and water. As noted in the Consultation on a UK Low Carbon Hydrogen Standard [2] (Consultation), rapid growth in electrolytic hydrogen production, i.e. the production of green hydrogen, is a "critical element" of the Strategy.

Whether or not this growth will materialise, is entirely dependent on how 'green hydrogen' is defined. There is a very fundamental issue concerning the renewability of the electricity used to produce green hydrogen.

In the Consultation, the UK Government states the obvious: "Hydrogen produced from electricity… is only as low carbon as the electricity used to produce it." A key issue therefore is determining how the use of low carbon electricity in the process should be accounted for and the evidence required to prove that the electricity procured in fact comes from a low carbon source.

The easiest route to access electricity for production is to make use of the national grid. However, this electricity is considered to be only partially renewable given that the grid supply comes from a mix of renewable and non-renewable sources. In other words, it is insufficiently low carbon. At present, the only viable option for truly 'green' hydrogen production is to co-locate the renewable energy source with the hydrogen production facility.

This necessity of co-location, cuts across the economic reality of locating production facilities where the need for hydrogen is greatest, i.e. around population centres. It also raises problems from a transmission perspective given that those centres are often a considerable distance from where the renewable energy is generated. Together, these are inhibiting factors to the growth in electrolytic hydrogen production in Archetype 1 that the UK Government sees as the foundational step in the development of the hydrogen economy.

A solution to this issue would be to open up avenues to allow grid-procured power to be deemed sufficiently renewable to enable the production of green hydrogen in a low carbon way. The UK Government has, however, analysed the various hydrogen production pathways and decided that electrolysis using grid power is unimpressive when compared with renewable electrolysis in terms of both cost of production and carbon emissions. The solution to the problem, therefore, is less obvious than we might think.

The Consultation seeks to address the question of how to evidence the renewability of grid procured power for electrolysis. A number of options are under consideration. The importance of selecting the right one(s) is exemplified by the knock-on effect to other areas of UK Government policy, such as the Renewable Transport Fuel Obligation (RTFO).

The RTFO

The RTFO was introduced by the Department for Transport (DfT) in 2008 with the aim of reducing greenhouse gas emissions by incentivising the use of biofuels. The RTFO scheme was expanded in 2018 to include a specific set of 'development fuels'. These include hydrogen, but only where it is produced using biomass or where it is green, i.e. produced using non-biological renewable power.

Under the current regime, in order to be eligible for support, renewable hydrogen must satisfy applicable sustainability criteria. These include a requirement for the fuel to produce a greenhouse gas emission saving of either 50% or 60% from its use.

As national grid power is derived from a mix of renewable and non-renewable sources, any hydrogen produced via grid power is unlikely to satisfy the minimum emissions saving required by the RTFO scheme. Consequently, it will be ineligible for RTFO support. Without any change to the scheme, the only way to receive support for hydrogen would be through co-location of energy generation and hydrogen production, but as we have explained above this approach will not achieve the ambition of large scale green electrolytic production.

In response to this problem, the UK Government has proposed, in a recent consultation on the RTFO scheme [3], to make it easier for suppliers dealing with fuels such as green hydrogen to receive support where the renewable power used to produce such fuels is procured from the national grid, rather than directly from a renewable energy source. This would allow the energy generation to take place in a different location from the fuel production, providing much greater flexibility for suppliers. In short, it would be a game changer for electrolytic green hydrogen production here in the UK.

Stakeholders engaged with the RTFO consultation and the UK Government published its initial response on 14 July [4]. However, there was no response on the specific green hydrogen-focussed points. As might have been expected, these questions have been pulled into the orbit of the wider Consultation on a Low Carbon Hydrogen Standard. The future of RTFO support for green hydrogen now hinges on the definition of the low carbon hydrogen standard for the UK. Simply put, the UK Government has to make the right choice.

Four Options

How should operators using low carbon electricity for green hydrogen production account for it, and what supporting evidence will be required? The Consultation sets out four principal (but not mutually exclusive) options.

The first option is to allow the use of low carbon electricity to be claimed based on the physical links between the energy generation and hydrogen production, so co-locating the hydrogen plant with a renewable electricity generation plant.

The second option is to allow the use of low carbon electricity to be evidenced through traded activities. For example, hydrogen producers could be required to show the renewability of a certain percentage of the electricity they use by procuring that energy through power purchase agreements and then cancelling guarantees of origin, or another form of certification, following use of the energy. A benefit here is the associated evidence of renewability of the energy (something which could come in particularly useful in respect of the RTFO).

The third option being consulted upon is an expansion on the previous one. The approach would generally be the same, i.e. cancellation of guarantees of origin or another form of certification. However, in order to avoid creating an additionality problem (diverting existing low carbon electricity capacity from other users, resulting in further greenhouse gas emission-intensive electricity generation), further conditions would be imposed. These could include requiring the energy use to have a temporal and geographical correlation with the energy generation.

The fourth, and last, option on the table is to allow electrolytic producers to connect to the national grid without restrictions. While straightforward in the sense that it could be readily progressed, there is a clear issue with evidencing the low carbon nature of the grid mix. Calculation of greenhouse gas emissions for this option could require an average carbon intensity of the wider grid to be taken, or the identification of local or temporal data from the time of use. Ultimately, however, any form of compliance would be entirely dependent on the grid being sufficiently decarbonised. Such a dependency on grid decarbonisation is precarious given that it may take some time for that to be realised. It also raises important questions for the concept of sector coupling which are beyond the scope of this piece.

These four options are out for consideration by stakeholders as part of the wider Consultation and the approach to ultimately be decided on remains to be seen. As an aside though, to ensure effective cross-government collaboration on this topic, it would seem prudent for a decision to be reached that aligns with DfT requirements for the RTFO.

Final Thoughts

While the Strategy is a welcome and a powerful statement of intent by the UK Government, it is ever-increasingly clear that an agreed position on the low carbon hydrogen standard will be of greater, likely paramount, importance in driving large-scale production of green hydrogen in the UK.

Various key questions remain unanswered and, while this is undoubtedly a complex area, the UK Government has to get the answers to these questions right if green hydrogen is to play any form of meaningful role in decarbonising the UK economy. The Consultation is due to close on 25 October, with a low carbon hydrogen standard finalised by early 2022. We eagerly await the response from the UK Government to the points identified above and the views of those operating in the sector on these.

In advance of both any response to it from the UK Government, however, we are delighted to announce that Addleshaw Goddard will be hosting a webinar on green hydrogen in the coming weeks. Further details will be made available on the firm's website in due course but anyone interested in attending is welcome to register their interest in doing so here. We very much hope that you will be able to join.