Households Could See Levy on Gas Bills to Support Hydrogen

Households could face a levy on their gas bills to support hydrogen as a low-carbon alternative to gas-fired heat, with the government advising on a similar funding mechanism, similar to the one that has increased the UK’s offshore wind capacity.

A new hydrogen strategy, to be released next week, will outline ways to increase production and use of the UK’s low-carbon gas as part of its net zero pursuit. Boris Johnson’s 10-point green plan calls for the UK to host 1 GW of low-carbon hydrogen production capacity by 2025 and 5 GW by 2030. This is backed by government funding of £ 240 million for hydrogen production facilities.

Hydrogen can be produced in two different ways: by electrolysis of water, powered by renewable electricity (“green hydrogen”) or from natural gas, whereby the emissions that are generated are intercepted (“blue hydrogen”).

Blue hydrogen is initially considered to be cheaper because it can use existing gas pipelines. It is being driven by large energy companies who are seeing the government undertake carbon capture and storage projects that would be a crucial component of a blue hydrogen infrastructure. However, climate protectionists prefer green hydrogen.

Hydrogen is expected to play a role in decarbonizing sectors such as heavy industry, shipping and long-haul flights that resist simple electrification. However, it has also been discussed as a means of decarbonizing home heating, an alternative to natural gas heating and low-carbon electric heat pumps. Households are responsible for around a fifth of the country’s CO2 emissions, a large part of which comes from gas boilers and cookers.

Hydrogen proponents even argue that the gas in the UK gas network can be mixed with natural gas or replaced entirely. Attempts to deliver hydrogen gas over the gas network, either mixed with natural gas or alone, are already underway.

A new funding mechanism will ensure that companies producing hydrogen gas can expect a predictable price for future sales. The scheme is similar to the Contracts for Difference (CfD) auctions, which guarantee the price of electricity produced by renewable generators such as offshore wind farms and the next generation of nuclear power plants, including the Hinkley Point C power plant currently under construction.

This funding mechanism is credited with reducing the price of offshore wind by more than 70% over the past decade, making it one of the cheapest ways to generate electricity. In the short term, however, CfD means higher costs for consumers as they subsidize the construction of new capacities.

However, some environmental groups argue that hydrogen is a less effective means of decarbonizing home heating than electric heat pumps, especially when the hydrogen used is blue hydrogen. They say hydrogen gas should be reserved for heavy industry where electricity is not viable. They also warn that blue hydrogen, fueled by large oil and gas companies, will secure the future of gas producers if the world moves away from fossil fuel mining.

They argue that government support for blue hydrogen should be limited as the fossil fuel-derived gas should only be a transition step towards a cleaner gas.

Doug Parr, senior scientist at Greenpeace UK, said funding for hydrogen should not come at the expense of other forms of renewable energy.

“There isn’t an infinite amount of bandwidth in government or household bills to support multiple dues,” he said. “We expect the prices of green hydrogen and other forms of renewable energy to fall faster … so there is a risk that the UK will be locked into a more expensive and less clean fuel in the long run.”

The government is also wary of backlash from MPs and the public regarding the impact of the country’s decarbonization efforts on household finances. This week, the Sun reported that the government intends to postpone a ban on gas boilers until 2035 amid concerns about the cost of replacing them, either with electric heat pumps or hydrogen appliances.

The government is already considering another tax on the gas bill: to finance the construction of plants for the production of the “green gas” biomethane. Ways to reduce utility bills are also being considered to ensure that electric heat pumps are no more expensive to run than gas boilers, and one of the proposed mechanisms could be to shift some of the taxes on utility bills – in support of the renewable generation and fuel-poor households – on gas bills.

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