Ofgem has been urged by a government advisor to step up the decarbonisation of heating by using the RIIO2 price controls to begin funding the conversion of gas networks to run on hydrogen.
Charlotte Morgan, energy and infrastructure partner at solicitors Linklaters, told the Westminster Forum conference on carbon capture use and storage (CCUS) earlier this week the regulated asset base (RAB) model could provide an effective mechanism for financing the infrastructure overhaul.
But she said such a move would require a “clear political statement” from the Department for Business, Energy and Industrial Strategy (BEIS) that it wants to take this route for decarbonising heating.
Morgan, who led the BEIS taskforce on CCUS, said the ongoing RIIO2 review offers an opportunity to look at bringing forward hydrogen assets using the RAB funding model, which would allow investors to start making returns before they are operating.
“It needs a clear political direction from BEIS and the regulator to allow the cost of hydrogen assets to be added to gas distribution network as part of the regulatory system,” said Morgan.
“We are currently in the middle of a price review and it may be Ofgem is able to look at either the RIIO2 mechanism or some reopening of that price mechanism later.
“This would provide a mechanism to share the cost of decarbonising heat with gas consumers as well.”
Will Lochhead, head of the CCUS policy team at BEIS, said the government is currently examining incentives to bring forward the carbon capture technology with a view to consulting in the summer and providing an indication of its thinking by the end of the year.
He also said that BEIS is looking at how existing infrastructure, including offshore gas and oil pipelines, can be reused for transporting and storing CO2.
Mike Hemsley, senior power analyst at the Committee on Climate Change (CCC), said that the government must develop its model for CCUS transport and storage by the middle of this year, adding: “Real urgency is needed here and it needs to be government led.”
He said CCUS could play a “crucial” role in reducing the energy intensity of power sector emissions below 50gCO2/kWh: “CCUS isn’t absolutely essential but it’s very, very useful. Not having CCUS is like starting a football match without a goalkeeper: you can still win the game, but you are definitely lowering your chances.”
And strong government leadership is required on the issue “now”, he warned, to establish as soon as possible the feasibility of rolling out CCUS on a commercial scale: “CCUS is an option we need to know about sooner rather than later because it could be an essential part of the UK’s decarbonisation objectives at lowest cost.”
Hemsley said capturing 180 megatonnes (Mt) of CO2 annually by 2050 – the upper end of what the CCC believes will be needed to help meet the UK’s greenhouse gas goals – will require a doubling of transport and storage capacity every five years.
“This could get up to one new pipeline per year in the 2040s which by any measure sounds quite difficult.”
Even reaching the lower end target of 60Mt per annum in 2050 would require the installation of 10Mt of capacity every five years. which he described as “quite stretching”.
Hemsley said that offsetting emissions via CCUS would play an important role in meeting the UK’s climate change targets, given the lack of known options for decarbonising sectors like aviation.
But Katie Black, director of policy at the National Infrastructure Commission, said that CCUS is unlikely to be a cost-effective option for decarbonising the power system.
Nevertheless, she agreed with Helmsey on the importance of research into the technology in order to establish the contribution it can make.
“All options for decarbonisation need to be explored in lot more detail and proved in the next three to five years so we have all the information that is required and can make a decision.”