A commercial framework to facilitate hydrogen blending

To meet the target of net zero emissions in the UK by 2050, it is likely that low-carbon hydrogen will need to play a role in the UK’s energy mix.  As a transitional step, hydrogen can potentially be blended into the existing methane grid at greater volume than is currently allowed. 

Our new report, commissioned by Cadent Gas through Network Innovation Allowance (NIA) funding, sets out a roadmap for developing the gas commercial framework to facilitate this hydrogen-blended system.

The Committee on Climate Change (CCC) has highlighted that low-carbon hydrogen should play a significant role in meeting the UK’s net zero target. In its ‘Further Ambition’ scenario, it predicts that, by 2050, up to 270TWh of low-carbon hydrogen would be required in a year.  Blending hydrogen into the gas grid could be an important stepping stone during the transition to this sustainable, net zero system.  Hydrogen blending would:

  • provide a significant and reliable source of demand for hydrogen producers, supporting the investment case for hydrogen;
  • provide learnings and incremental change towards what could potentially become a 100% hydrogen grid; and
  • immediately decarbonise a portion of the gas flowing through the grid.

Technical questions relating to hydrogen blending are being taken forward by the industry, e.g. through the HyDeploy project.  But if blending is to take place, changes to the existing commercial arrangements will be necessary.  In particular, the commercial framework will need to ensure that limits on the percentage of hydrogen that can safely be blended (currently expected to be around 20% by volume) are not exceeded. 

The focus of our new study is on establishing what those commercial arrangements might look like, and what needs to be done to get there.  We identify proposals relating to system operation and dispatch; network charging; and network connection arrangements.  We also reflect on potential issues with shrinkage measurement and billing of final customers, noting that further detailed work on these issues is being undertaken by the industry.

Our report concludes that the existing commercial framework can remain mostly intact, including energy trading and balancing arrangements. Only a limited number of changes need to take place to enable hydrogen blending, particularly under “baseline” circumstances, when there will be a relatively small number of (fairly dispersed) hydrogen injection points.  It is possible that these baseline circumstances could persist for some time, potentially all the way to a net zero system.

Our report also sets out a clear, phased ‘roadmap’, which will both enable early producers to connect, and establish a more standardised framework as the market grows.  This includes a set of recommended next steps for the government, Ofgem and the industry to take forward.  

Some of these next steps can be initiated by industry already, with relatively low regrets.  However, for further work to proceed, the government also ideally needs to make clear that hydrogen blending – if proven to be technically feasible – is an important transitional option, and identify a target for when it hopes early low-carbon hydrogen projects will be connected.  In due course, the government will also need to introduce funding arrangements to support low-carbon hydrogen production - recommendations for these arrangements can be found in our separate report for BEIS.  Once these policy aspects are in place, our roadmap sets out a detailed framework and workplan which can be taken forward to implementation by industry and Ofgem. 

Click here to read our annex with further information. 

We recently discussed the findings of our report with Cadent during a joint Webinar. Listen to the full webinar here.

Hydrogen Blending Commercial Framework