26 July 2022

Suki Ferris, Hydrogen Market Strategy Lead at National Gas Transmission

Suki explains the importance of hydrogen Guarantees of Origin. 

Anyone with keen eyes on net zero progress will notice that UK policy makers are picking up the pace in an effort to meet our nation’s ambitious targets, dubbing the next ten years a ‘decade of delivery’ on decarbonisation.

While the UK’s energy industry has already made a significant contribution to the decarbonisation of our economy, the primary focus so far has been on power rather than gas, where the challenges arguably run deeper. With incredible strides made in renewable electricity, the transition to a low-carbon gas system is increasingly becoming a focus area for our policy makers and energy industry leaders. There is broad consensus that low carbon gases, including hydrogen, will be an essential piece of the net zero puzzle.

However, developing a hydrogen market will be crucial to unlocking the potential of this low to zero carbon energy source. To address this challenge, National Gas Transmission is working with industry to drive the Hydrogen Gas Market Plan, a programme of work examining how the market could change to integrate hydrogen into the UK’s energy mix, and our latest project explored the potential development of a Hydrogen Guarantee of Origin (GoO) scheme.

What are hydrogen Guarantees of Origin and why are these so important?

If decarbonisation is the key driver for developing hydrogen products, it’s going to be vital that gas market participants can disclose the carbon value of these products that may have different emission benefits, depending on how the hydrogen is produced. For example, blue hydrogen is produced through reforming natural gas (CH4) with the added process of carbon capture, usage and storage. While blue hydrogen is a low carbon product, other hydrogen products such as green hydrogen, produced through electrolysis of water (H2O) using zero carbon renewable power, have zero emissions.

In the UK’s hydrogen transition, it is going to be key to be able to associate a climate value premium to the lowest emission hydrogen products. However, once gas is injected into the gas pipeline system, it is impossible to differentiate or trace where gas molecules go or have come from. This is where GoOs can drive value.

GoOs are digital documents that capture information such as when, where and how an energy product was generated. While a GoO can’t influence the energy that ultimately enters a consumer’s meter, it can provide an audit trail for the production of energy products matched with the claimed end use of energy products.

A hydrogen GoO scheme could verify the production of low carbon hydrogen, account for claims of low carbon hydrogen consumption, and associate a climate value premium for low carbon hydrogen products.

Who will benefit from hydrogen Guarantees of Origin?

Sustainability focused gas consumers are keen to demonstrate their gas supply can be attributed to low or zero gas products, such as hydrogen. By matching hydrogen production with gas consumption through a GoO scheme, customers can confidently claim their low or zero carbon gas credentials. Gas consumers could choose to purchase hydrogen GoOs in scenarios of both hydrogen blended networks, or 100% hydrogen networks. The premise of this system is exactly the same as currently in place for renewable electricity tariffs, where sustainability focused electricity consumers purchase ‘100% green’ electricity tariffs that are backed up by renewable electricity GoOs.

Looking beyond the consumer, a GoO scheme will also support the interests of hydrogen producers. Hydrogen producers could generate an additional revenue stream by selling GoOs and also allow them to understand the appetite that exists for hydrogen products. When demand for GoOs is high, it will create a market pull force to increase production of low and zero carbon hydrogen products. Producers may then choose to reinvest the new revenue stream created from the sale of the GoOs to expand hydrogen production capabilities, and investors may be more easily persuaded to support new hydrogen production projects.

How do Guarantees of Origin work?

To be completely clear on how this works, it’s important to explain that a GoO market operates separately from the physical energy market. The core principle is that one GoO can be issued for every one MWh of eligible (i.e. low or zero carbon) energy product, and the GoO and the energy product itself can be sold independently. Please see Figure 1 below for an illustration on how GoO schemes work:

Figure 1: 

To provide some further helpful context to Figure 1, when a GoO is issued, ownership of the GoO can be transferred from the energy producer to a trader or supplier. When sold to an end user (i.e., consumer), the GoO will be cancelled to avoid double counting. This entire process would be managed through a GoO registry, an IT platform responsible for tracking the issue, transfer and cancellation of GoOs.

For example, if H2 Limited (a low carbon hydrogen producer) generated 50 MWh of hydrogen, then H2 Limited would be issued with 50 hydrogen GoOs that would be stored on a hydrogen GoO IT platform. H2 Limited could sell these GoOs to a supplier or trader, and the IT platform would transfer the ownership of these GoOs to the buyer. When the hydrogen GoOs are sold to an end user (such as a domestic, industrial, commercial, power generation or transport consumer) the hydrogen GoO would be cancelled and removed from the IT platform.

What’s next for a UK hydrogen GoO scheme?

It’s crucial to remember that a potential UK hydrogen GoO scheme would be developed against the backdrop of multiple UK climate value market mechanisms already in place, including the UK Emissions Trading Scheme (UK ETS), Renewable Energy Guarantees of Origin (REGOs) for electricity and Renewable Gas Guarantees of Origin (RGGOs) for biomethane. There is also extensive hydrogen Guarantee of Origin work taking place in the EU. UK hydrogen GoOs would closely interact with existing schemes and would need to be compatible with cross-border requirements.

National Gas Transmission has already explored how a hydrogen GoO scheme could benefit the development and acceleration of a UK hydrogen economy. A key recommendation includes piloting a UK hydrogen GoO scheme, to trial the process in a real-life setting and gain insight into stakeholder and customer needs.

To find out more about how a UK hydrogen GoO could drive a hydrogen economy and see our recommendations for implementing a hydrogen GoO scheme in the UK, please read the latest output from the National Gas Transmission Hydrogen Gas Market Plan programme, "The role of Guarantees of Origin in driving a future UK hydrogen market".

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