Blog: Hydrogen to power consultation

Here, we look at some of the key takeaways from the consultation response, considering these against pivotal milestones in the UK’s hydrogen journey, before assessing what the proposed H2P Business Model might mean for gas market stakeholders.

H2P: Transforming the power sector and beyond

H2P refers to the use of hydrogen as a fuel to generate electricity. Because hydrogen can be produced from low-carbon sources like renewable electricity (green hydrogen) or natural gas with carbon capture and storage (blue hydrogen), it’s seen as a crucial tool for decarbonising the power sector and achieving net zero emissions targets.

The Government’s response to the H2P market intervention reinforces hydrogen’s role as a powerful fuel to help decarbonise the UK’s energy system. Indeed, the consultation cites the National Energy System Operator’s (NESO) estimates that Britain’s electricity system could need around 40-45 GW of long duration flexible capacity by 2030. To that end, NESO views H2P to be one of the first-of-a-kind technologies required for a clean power system by 2030.

And while H2P plays an important role in the UK’s electricity system, the focus on low-carbon hydrogen also signals a shift that will have far-reaching implications for the hydrogen economy as a whole, felt in the gas industry too.

Hydrogen blending: A bridge to 100% hydrogen power

As part of the consultation, the Government asked for stakeholders' views on how to align hydrogen support mechanisms and policies to effectively deploy H2P. Respondents proposed a range of solutions to mitigate risks in this area, including the option to support plants by using hydrogen blending in the short term. It was suggested this would be a transitional phase, ‘before the switch to 100% hydrogen-fuelled power generation, once the hydrogen economy was sufficiently mature and the fuel supply risk sufficiently low'.^[1]

The Government also acknowledged in its response views expressed by some about the usefulness of hydrogen blending projects. As the Central Data Service Provider for Britain’s gas market, Xoserve has been a key partner for a number of important hydrogen projects.

While hydrogen blending is not the immediate focus of this consultation response, it’s clear blending has a fundamental role to play as part of the UK’s broader hydrogen strategy. With the Government having already outlined in December 2023 its support for blending up to 20% hydrogen into the gas grid, work is underway that addresses safety assessments, legislative processes, commercial framework review to enable blending (Workgroup 0849R), and potential network modifications. Nevertheless, industry should expect a cautious approach - commercial-scale blending is not expected before 2025-2026.

Low-carbon hydrogen: Standards and infrastructure

The UK Government remains committed to establishing a clear and robust standard for ‘low-carbon’ hydrogen. While the specifics are still being developed, the Hydrogen to Power (H2P) consultation underscores the pivotal role of low-carbon flexible technologies in achieving and sustaining a clean power system. A well-defined standard is crucial to ensure that only hydrogen produced with minimal greenhouse gas emissions qualifies, safeguarding the environmental integrity of hydrogen used in power generation.

The consultation response also highlights the critical interdependence between hydrogen power and enabling infrastructure. Stakeholders emphasized the essential role of hydrogen storage in facilitating successful deployment. Several respondents suggested that hydrogen infrastructure warrants dedicated support, such as a Hydrogen Storage Business Model, to address key challenges. Such interventions would enable:

• Balancing hydrogen supply and demand.
• Enhancing system flexibility and resilience.
• Accelerating the development of a comprehensive hydrogen ecosystem.

As a significant early user of hydrogen transport and storage systems, H2P will stimulate demand, catalyze infrastructure development, and drive the growth of the broader hydrogen economy. These measures are vital for creating a seamless, low-carbon energy future.

How could the H2P Business Model transform the gas market?

Critically, the consultation advocates a Dispatchable Power Agreement (DPA) - what’s presently used for carbon capture, usage and storage projects - for the proposed H2P Business Model. By incentivising hydrogen power, the H2P Business Model aims to strengthen energy security while providing a pathway to make the power sector more sustainable.

The H2P Business Model will provide stable support payments to encourage efficient hydrogen power generation, balancing investor needs with demands for cost-effective decarbonisation.

The Government notes that it intends to present more detail on the proposed design of the H2P Business Model in due course, before undertaking a further market engagement exercise to gather feedback on its plans. It also states it will shortly be commissioning research to update its evidence base on the costs of different H2P technologies, to inform the design of the H2P Business Model. This way, it can effectively address deployment barriers and maximise value for money.

But how could the proposed DPA-style H2P Business Model impact the gas market?

Gas Suppliers

Gas suppliers could become incentivised to embrace hydrogen, as this will unlock new revenue streams. By supplying hydrogen to power plants for renewable electricity, or heat for industrial processes, they will be able to diversify their offerings and participate in the growing hydrogen economy.

It also fosters and nurtures new partnerships, encouraging closer collaboration with hydrogen producers and power generators for a whole systems approach, while ensuring gas suppliers are playing their part in contributing towards ambitious decarbonisation goals.

National Gas Transmission

The H2P Business Model will fuel investment in a hydrogen-ready gas system, connecting pipelines and storage to major industries and power stations. This will empower the gas network to modernise infrastructure and embrace hydrogen’s potential.

Integrating hydrogen into the gas network, either as 100% hydrogen or blended with natural gas, will also present its fair share of challenges and opportunities, as network operators strive to ensure the system operates both safely and efficiently. Nevertheless, it will contribute to a more secure and reliable energy system in the long run, especially given the increasing integration of intermittent renewable sources as part of the evolving energy landscape.

Gas Distribution Networks

For now, the Government has proposed their response to a hydrogen-to-power-only model. However, as hydrogen develops as a key fuel source in Britain’s future clean energy mix, it provides an opportunity for hydrogen for heat to develop. Some respondents recommended that the business model include support for Combined Heat and Power (CHP) plants.

If hydrogen as a fuel forms part of Britain’s energy mix, network operators need to monitor changes happening across the energy sector. Insights from across the sector can help prepare for potential changes needed to the network infrastructure and processes to deal with a potentially mixed gas system as we transition from unabated natural gas.

Gas Shippers

The emergence of a hydrogen market will create new trading, storage and transportation opportunities for gas shippers, as they will potentially be able to transport hydrogen from production sites to power plants or storage facilities.

Shippers will also have the chance to diversify their portfolios by including hydrogen. Furthermore, the introduction of the hydrogen market will undoubtedly encourage greater innovation in transportation and logistics solutions. This will present a valuable opportunity for shippers to develop new expertise and specialised services, and set themselves apart from competitors.

Shaping tomorrow’s energy system

To this end, Xoserve has a crucial role to play in assisting the integration of hydrogen into the energy system. From supporting key hydrogen trials such as H100 Fife, to developing innovative data solutions that can manage the complexities of a hydrogen-enriched gas network, we can help pave the way towards a more sustainable energy system.

Our close relationship with industry stakeholders also means we can share invaluable knowledge and insights to support policy development, helping to facilitate a co-ordinated approach to hydrogen integration.

Finally, our expertise in gas data management can inform industry best practices, ensuring a fair and efficient transition to a hydrogen-powered future.

The UK government's commitment to hydrogen power signals a significant shift in the energy landscape. As this exciting new market takes shape, collaboration and innovation will be key. Our expertise in gas data management and strong industry partnerships can play a central role in supporting the safe, efficient and cost-effective integration of hydrogen into the UK's energy system.

By working together, we can unlock the full potential of hydrogen to deliver a cleaner, more secure, and sustainable energy future for all.

^[1]
UK Government, Hydrogen to Power: Market Intervention Consultation Response, p.36

Get in touch

To learn more about how Xoserve supports the decarbonisation of gas, take a look at our decarbonisation knowledge centre.

If you have any feedback, questions or suggestions for our Decarbonisation Team, please email us.

Email us