It takes a lot of effort to make clean hydrogen. So it seems like an odd idea to then shove it back into gas pipelines, mixed with fossil fuel, to burn in boilers or power stations. So-called blending has plenty of drawbacks — but one big potential upside.
Developed nations have extensive gas supply networks. Cutting methane with hydrogen allows the latter to be deployed quickly at scale. Gas suppliers can mix in a modest amount of hydrogen — say 10 to 20 per cent — without requiring pipe or appliance upgrades.
A small UK pilot scheme operated successfully last year. Portugal is set to tender for blended gas supplies later this year.
The biggest bugbear is cost. In the future, “green” hydrogen from electrolysis might cost less than $1 per kilogramme, or $25 per megawatt-hour. But in the UK today it costs about $10/kg or $250/MWh. “Blue” hydrogen — from gas with carbon capture — costs about $4/kg.
Blended hydrogen would be sold for the price of accompanying fossil fuel, about €50/MWh in Europe at the moment, plus the carbon price industrial and power generation customers would avoid paying. That carbon price would be equivalent to less than €2/MWh. That would leave the input cost much higher than charges to recoup it.
Rationale is another stumbling block. Hydrogen is seen as a primarily industrial fuel, not a method of heating homes.
That leaves the argument looping back to blended hydrogen’s single strength: easy deployment. If hydrogen filled 10 per cent of the UK grid, it would be equivalent to about 70 terawatt-hours of hydrogen a year.
Making hydrogen in tiny distributed plants for small-scale uses will always be expensive. But a national distribution system would allow producers to invest in at-scale facilities, driving down costs.
Governments should see blended hydrogen as an adjunct to natural gas in their plans to transition to zero carbon. When they switch off the gas, hydrogen supplies would divert to industrial use and energy storage.
Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up.
