When Hong Kong tycoon Li Ka-shing swooped on one of the UK’s major gas distributors in 2012, the Paris climate accords were seven years away and prime minister David Cameron was gearing up to “cut the green crap”.
More than a decade on, efforts to tackle climate warming have put the future of these pipeline network owners under a cloud including Wales and West Utilities bought by Li’s CKI Holdings 12 years ago.
One of Britain’s four gas network owners, it faces uncertainty as ministers plan to ditch methane or natural gas for home heating as a key objective to reach net zero emissions by 2050.
WWU said in its latest accounts published in September that the overhaul of the energy system could lead to “loss of value/business”, summing up the concerns of the whole gas sector.
To secure their future, the networks have been pinning hopes on ministers backing hydrogen as a low-carbon alternative to methane or natural gas, alongside moves to switch households to electric powered heat pumps.
But so far, the signs are not good for hydrogen as an option to heat homes. In November, the National Infrastructure Commission (NIC) urged ministers to reject the fuel source and opt for heat pumps instead.
It argued that heat pumps were far more efficient and readily available, unlike hydrogen, adding that the government should make plans to decommission parts of the gas network that would no longer be needed.
Lord Martin Callanan, an energy minister, said in the same month that hydrogen “will not play a major role in home heating”.
In another setback, hydrogen trials in Redcar and Whitby, near Liverpool, which the networks hoped would strengthen the case for the gas, have been scrapped because of local opposition and a lack of supplies.
Just one trial is left in Britain in Fife, Scotland, planned to start in the second half of 2024, to demonstrate hydrogen’s benefits before ministers make a final decision on the NIC’s recommendations in 2026.
Some gas groups have already acknowledged the likely hit to their businesses.
Northern Gas Networks said in its accounts in August that the “most likely scenario” for the company is an overall 46 per cent fall in gas transported through its network by 2050.
The uncertain outlook makes it hard for energy regulator Ofgem to assess how much network owners should be allowed to invest and charge customers, with risks that money for pipeline upgrades could prove counterproductive if they end up being decommissioned.
In December, the regulator cautioned that households could face higher bills as distributors recoup costs from fewer and fewer customers, a nod to a possible switch to heat pumps.
Richard Lowes, at NGO the Regulatory Assistance Project, warned consumers could suffer if owners are allowed to invest large sums for upgrades, which then need to be recouped through bills despite the possibility of falling customer numbers. “You are exposing the country to these financial risks,” he said.
The government has supported, pending safety approval, blending up to 20 per cent of hydrogen into the methane or natural gas being carried through the pipelines. However, it has stressed the aim is to support wider growth of hydrogen in the economy, rather than decarbonise heating.
One positive for the gas groups are potential complications in rolling out heat pumps. This could prompt the government to back hydrogen for home heating as well as the NIC’s call for pumps.
Only about 250,000 pumps have been installed in British homes, a fraction of the home heating market. The latest figures show 72,000 were installed in 2022, despite grants for conversions, a long way short of the government’s target of 600,000 installations per year by 2028.
In contrast, 85 per cent of UK homes use methane gas.
The capacity of the electricity grid will also have to rise, if demand for pumps does pick up.
“We’ve never electrified heat in the UK before and we’ve never decommissioned the gas network before,” said Sarah Williams, director of regulation and asset strategy at WWU, speaking shortly after the NIC’s decision.
She warned of the risk that “either we don’t have a resilient energy supply, or we have a resilient energy supply that costs far more than it needed to”.
Cadent, the UK’s largest gas distribution network, has sent the NIC a report it commissioned from Imperial College London, arguing that switching to hydrogen could save £5.4bn a year by 2050 compared with switching fully to electric heating.
“Hydrogen for heating is a viable option to decarbonise heat cost-effectively,” the paper argued.
Colm Gibson, managing director at Berkeley Research Group, added that the NIC’s analysis does not “give due weight” to emerging hydrogen production methods, such as pyrolysis.
This involves splitting methane into hydrogen and solid carbon at very high temperatures.
Supporters argue it could be cheaper than producing it from methane or natural gas at lower temperatures as it would not require infrastructure to capture carbon dioxide emissions.
Williams at WWU also insists investors “absolutely see a future for the gas network”.
“They’re [investors] extremely supportive in terms of their view of the long-term future of their own investment in the UK. And I’m hopeful that will remain.”
The colours of the hydrogen rainbow
Green hydrogen Made by using clean electricity from renewable energy technologies to electrolyse water (H2O), separating the hydrogen atom within it from its molecular twin oxygen. Currently very expensive.
—
Blue hydrogen Produced using natural gas but with carbon emissions being captured and stored, or reused. Negligible amounts in production because of a lack of capture projects.
—
Grey hydrogen This is the most common form of hydrogen production. It comes from natural gas via steam methane reformation but without emissions capture.
—
Brown hydrogen The cheapest way to make hydrogen but also the most environmentally damaging because of the use of thermal coal in the production process.
—
Turquoise hydrogen Uses a process called methane pyrolysis to produce hydrogen and solid carbon. Not proven at scale. Concerns around methane leakage.
