Hydrogen Production from Thermal Electricity Constraint Management

Executive Summary

The investigation conducted by Arup, in collaboration with National Grid ESO and NGT, explores the feasibility of using electrolytic hydrogen production facilities to manage thermal constraints on the UK's electricity transmission system. As the electricity sector transitions towards decarbonization, large-scale renewable energy sources are increasingly integrated into the grid, necessitating substantial reinforcement of the transmission network.

Key Findings:

• Thermal Constraints: The intermittent nature of renewable energy generation leads to regional power flows exceeding the thermal capacity of electricity transmission assets during peak renewable generation periods, requiring interventions like turning down renewable generation or dispatching fossil fuels.
• Current Costs: The cost associated with thermal constraint actions, passed onto consumers through energy bills, has significantly escalated, totaling £1.5 billion in 2022/23.
• Future Outlook: Anticipated increases in thermal constraints over the coming decades until network reinforcement alleviates the issue, suggesting a strong case for alternative solutions to manage thermal constraints within the next 10-20 years.

Technical Viability:

• Electrolysers can rapidly respond to thermal constraints, with response times ranging from 10 seconds to 20 minutes, making them suitable for managing such constraints. Facilities in a 'warm' state can respond more quickly than those starting from a 'cold' state.
• However, the high capital cost of electrolysers and the intermittent nature of renewable energy generation pose significant commercial challenges for hydrogen production facilities aiming to manage thermal constraints.

Commercial Solution:

• Contract Mechanisms: Four potential contract options have been identified to mitigate market risks and incentivize hydrogen production facilities:
  • Option 1 (Utilisation Payment): A fixed payment received for each 30-minute settlement period where the facility provides demand response during periods of thermal constraints.
  • Option 2a (Availability and Utilisation Payment): An initial availability payment followed by a utilization payment during constraint periods, with seasonal adjustments to reflect varying constraint costs.
  • Option 3 (Fixed Payment): A predetermined sum to cover response during constraint periods.
  • Option 2b (Seasonal Availability Payment): Similar to Option 2a but without seasonal adjustments.

Next Steps:

• The project recommends implementing these contract mechanisms to secure a viable revenue stream for hydrogen production facilities, enabling them to support thermal constraints management effectively. This approach aims to balance market risks and ensure fair compensation for the whole system benefits provided to the electricity system.

Recommendations

To realize the potential of hydrogen production in managing thermal constraints, the following actions are recommended:

1. Policy and Regulation: Develop supportive policies and regulations that incorporate the proposed contract mechanisms.
2. Market Integration: Enhance market mechanisms to facilitate the integration of hydrogen production into the existing electricity and gas networks.
3. Investment Incentives: Provide financial incentives to encourage investment in hydrogen production facilities capable of supporting thermal constraints management.
4. Collaboration: Foster collaboration among stakeholders including utilities, industrial users, and policymakers to streamline implementation and optimize outcomes.

Conclusion

With appropriate commercial arrangements, the use of hydrogen production facilities can offer a viable solution to manage thermal constraints on the UK's electricity transmission system. By addressing the challenges of intermittency, high capital costs, and market risks, these facilities can contribute to the decarbonization of the UK's economy while ensuring reliable energy supply.