The government has unveiled its proposed approaches to helping drive forwards hydrogen transport and storage infrastructure.
Setting the scene, it explained that hydrogen transport and storage infrastructure will be crucial to ensuring the target for 10GW of low carbon hydrogen by 2030 can be met. This will help connect producers with consumers, while also balancing any misalignments in supply and demand. However, lengthy development lead times, high capital costs and uncertain financial investment returns risk stifling efforts to put this in place. This means that a supportive policy framework is required.
Therefore, it is proposing a Regulated Asset Base as the basis for the business model for hydrogen transport. It will focus on large-scale pipeline infrastructure at first, through which hydrogen is transported as a gas, and be supported with an external subsidy mechanism. This will ensure that charges to users of the pipelines and networks are not prohibitive but will allow hydrogen transport providers to make a reasonable return on their investment all the same.
For hydrogen storage infrastructure, the government is suggesting a revenue floor to mitigate demand risk for storage providers. This will cover the minimum amount of revenue the facility is due, meaning the costs of creating it, fixed operational costs and a relatively low return on investment. Geological storage, such as salt caverns or depleted natural gas fields, will be the initial focus, though the government is minded to retain optionality to support above-ground storage where similar market barriers are faced.
To enable both transport and storage infrastructure to be rolled out efficiently and cost-effectively, as well as in timely fashion, strategic planning is seen as the best approach, alongside elements of market-led development. The Future System Operator (FSO) will be tasked with undertaking strategic network planning for hydrogen transport and storage infrastructure, with the expectation being that it will start building competence in hydrogen as part of its network planning roles for electricity and gas, as well as in its duty to consider whole system impacts.
The government will work Ofgem and the Electricity System Operator to fully develop the detail of the FSO’s hydrogen planning role. In in the interim, the government itself is expecting to have a central role in strategic planning, working with industry and regulators. It will aim to assess early network requirements, identify priority projects and inform the business model allocation process.
Recognition was also given to how through the consultation, a majority of respondents felt existing market framework and industry commercial arrangements for hydrogen are sub-optimal to support the development of hydrogen transport and storage infrastructure. They will be kept under review, with the intention to introduce timely amendments where they are warranted. A consultation on hydrogen blending can also be expected later in the year, with work ongoing regarding the economic and strategic cases for it.
