Hydrogen as a fuel in the provision of balancing services to the grid

Post Date: 17 June 2024
Read Time: 6 minutes

With UK government targets to decarbonise the power system by 2035, there are increasing pressures to find alternative and sustainable fuel sources to provide low carbon flexible generation capacity. As well as targets to reach Net-Zero, the UK is expecting electricity demand to grow by up to 60% by the middle of the next decade [1], further increasing the need for alternative fuels to ensure the power system remains balanced at all times.

Low-carbon technologies will need to be able to respond to rapid variations in electricity demand and replicate grid balancing system services currently provided by fossil fuel combustion.

Hydrogen as a low / no carbon electricity supply

One of the technologies which will support the transition to Net-Zero and balancing the grid is hydrogen power. Hydrogen power can offer a low carbon (blue hydrogen) or zero carbon (green hydrogen) electricity supply option. Hydrogen power can offer system benefits which can be deployed from larger mid-merit plants to smaller peaking plant facilities for longer periods than enabled by battery technology. In addition, hydrogen power can be stored and provide a low-carbon option during seasonal fluctuations and period of low wind output. Green hydrogen storage may be key for curtailed offshore wind power.

UK Hydrogen Strategy

The UK Hydrogen Strategy and corresponding updates [2,3] saw the UK government announce their aims to have 10GW of low carbon hydrogen production capacity within the UK by 2030.

This growing hydrogen production capacity will enable both new and existing power generation facilities to run on hydrogen fuel to contribute to the balancing market capacity. As well as a thermal fuel in power generation facilities, hydrogen can also be used in fuel cells to produce electricity.

In tangent, a Decarbonisation Readiness consultation published in March 2023 [4] requires all new build and substantially refurbished combustion power plants to be built in such a way that they could easily decarbonise by converting to hydrogen (or fit a carbon capture technology). These requirements are to come into force on 1st July 2024.

It is anticipated that these regulations, along with the UK Hydrogen Strategy and Net-Zero targets will see a number of smaller scale operators breaking into the hydrogen to power (H2P) market using hydrogen as part of the grid balancing market. An early example of this already in action is SSE’s Keadby 3 Power Station which is being designed to allow for conversion to hydrogen in the future.

The challenges of producing hydrogen at scale

To aid hydrogen in becoming a viable option for providing support to the capacity market, changes are needed to policy to encourage investment support in the sector and facilitate a capacity market where hydrogen power is economically viable for operators.

There are a number of strategic challenges for hydrogen to produce at scale and to bring hydrogen to the capacity market in the UK, including:

Cost of hydrogen relative to existing high carbon fuels
Uncertainty and increased investment risk from H2P being a First of a Kind (FOAK) technology
Policy and regulatory uncertainty
Need for enabling infrastructure i.e. hydrogen production, transport, and storage creating ‘cross-chain risks’
Hydrogen fuel supply risks
Lack of an established supply chain
Need for supply and demand coordination
Need for ‘first-of-a-kind’ and ‘next-of-a-kind’ investment and deployment.

It is anticipated that H2P facilities will need access to large volumes of hydrogen in response to demand on the grid, rather than at a steady and reliable pace. In the initial stages of hydrogen production, this is something the hydrogen market may not be optimised for. Construction of hydrogen distribution and storage infrastructure, with the emergence of better options than pressurised gas storage in the future could see these challenges mitigated.

Government support for the provision of hydrogen

While uncertainties are greater and hydrogen supply is scarcer, the government are proposing to introduce bespoke market intervention to encourage H2P plants to develop [5]. The hydrogen to power consultation recently released by the government proposes that a Dispatchable Power Agreement (DPA) style mechanism is the most suitable market intervention option in supporting the deployment of H2P. This scheme would be similar to that seen for the Power CCUS. Under the Power CCUS DPA design, facilities receive an ‘Availability Payment’, which is paid per unit of capacity that is available over time, regardless of dispatch. This scheme would be similar in form to a capacity market payment, but without the conditions related to the security of supply. This payment would be intended to provide investors with increased revenue certainty as they would have a stable regular payment, even in times of unstable supply. Guaranteeing facilities a payment in times of fuel unavailability would encourage investment in H2P plants.

Current barriers to deployment of H2P are on their way to being addressed through incentives set out by the government. Decarbonisation readiness policies also mean that power generation operators should be aware of their legal requirements for new or substantially refurbished plants to be able to either operate at 100% hydrogen-firing generation or fit a carbon capture unit. With government incentives and possible bespoke market intervention, the possibility of converting unabated power plants to H2P facilities could be a significant shift.

If you need any consulting support regarding H2P facilities, please get in touch with SLR. Our experts can help with the following and more: