How to incentivise hydrogen energy technologies for net zero: Whole-system value chain optimisation of policy scenarios

Abstract

Policy intervention is essential for enabling energy decarbonisation, and historic examples such as wind and solar power show how well-designed policy can lead to long term system benefits. Hydrogen technologies are emerging technologies that, with sufficient policy support, can also become established and provide valuable energy services. In this study, the policies available for supporting emerging energy technologies and encouraging system decarbonisation are analysed, and their relevance to hydrogen technologies is considered. Value chain optimisation is used to assess the effectiveness of these policies in a system undergoing transition to net-zero emissions. The optimisation results show that both carbon budgets and carbon taxation approaches can be effective in achieving net-zero emissions, but that the details of the policy design can significantly influence overall costs and emissions. The results also show that in a net-zero energy system, hydrogen technologies have a role in industry without needing specific policy support, but policy intervention is needed for hydrogen to become established in other sectors (such as domestic and commercial heating). Both feed-in tariffs and obligations for hydrogen injection were found to be effective at increasing hydrogen uptake, although with an increase in overall system cost of £11–14 for each additional MWh of hydrogen in the system. This study shows the benefits of using value chain optimisation to analyse energy policies and technologies. It also emphasises the importance of careful policy design in order to achieve the best overall system outcomes.