ESO calls for faster decision on future of heat

The Electricity System Operator (ESO) has urged the government to bring forward its decision on the role of hydrogen in the decarbonisation of domestic heating.

In the latest annual update to its Future Energy Scenarios, National Grid ESO also highlighted several major challenges in converting gas network and boilers to run on hydrogen and stated that electric heat pumps are likely to be a more cost-effective option for the most common type of home.

The government has pledged to a make a decision on the use of hydrogen for residential heating by 2026 and in the meantime is supporting the gas sector in conducting a series of trials of a hydrogen neighbourhood, village and then town.

But the ESO said this is not soon enough: “Three years until this date may not seem much, but hydrogen projects can be well in to development and construction in that time, and as long as uncertainty remains on the decision for hydrogen for heat, developers will find it difficult to commit to financial investment.”

The ESO acknowledged the government’s plans for “small, localised trials” but said hydrogen will not be able to play a significant role in domestic heating “until 2028 at the earliest.”

Before this can happen, the body said several major challenges will need to be overcome: “Firstly, there is the lack of hydrogen supply, and the likelihood that as hydrogen ramps up it will initially see production and demand co-located on industrial sites.

“Secondly, short-term deployment is affected by the challenges of the transition from hydrogen to gas: in order for one household to transition to using hydrogen, either a new network of pipes would need to be installed or existing gas network infrastructure converted to deliver hydrogen.

“This would require all the other houses in the street or the local area to switch over at the same time, all requiring hydrogen-ready boilers (or an alternative solution) to be in place.”

It continued: “Without assurances on future hydrogen demand, new sources of hydrogen supply won’t come online, and without certainty on future supply, businesses and households may not make investments to enable the adoption of hydrogen boilers.”

Meanwhile, the ESO warned that installations of heat pumps are not ramping up quickly enough to meet the government’s target of 600,000 per year by 2028: “If heat pump take-up remains off-track in 2026 and hydrogen for heat is not supported, then the task of increasing heat pump uptake will be more difficult and expensive.”

Alongside an accelerated decision on the role of hydrogen, the ESO said heat pump targets and incentives should be reviewed accordingly.

In its latest Future Energy Scenarios, the ESO has retained the same four main scenarios as last year, three of which are compliant with the UK’s net zero targets.

The System Transformation and Consumer Transformation scenarios both meet the UK-wide target in 2050.

In the System Transformation scenario, decarbonisation is led from the supply side and most households have either a hydrogen boiler or a hybrid heating system in which they are combined with a heat pump. This is enabled by a national hydrogen network and the first hydrogen boiler installations take place in 2030.

In the Consumer Transformation scenario, decarbonisation is instead driven from the demand side. Hydrogen boilers are limited to hybrid heating systems and most households instead rely solely on ground or air-source heat pumps. In this scenario, heat pump installations would need to hit 900,000 per year by 2028.

Prevalence of heating technologies in Consumer Transformation scenario

There is also the Leading the Way scenario in which the UK-wide net zero target is achieved four years ahead of schedule in 2046 and the power sector achieves it net zero target one year early in 2034. This is partly enabled by the earlier uptake of hydrogen boilers, the first of which is installed in 2028.

However, their use is ultimately less widespread than in the System Transformation scenario, instead being limited to households covered by regional hydrogen networks centred around industrial hubs.

Due to a lack of supporting infrastructure, there are no hydrogen boilers whatsoever in the Falling Short scenario, which as its name indicates fails to meet the UK’s 2050 net zero target. As with System Transformation, this scenario also fails to meet the government’s 2028 heat pump target.

Ofgem recently suggested that the ESO should drop the Falling Short scenario from its analysis on the ground that it amounted to “planning to fail”.

As part of the report, the ESO also stated that electric heat pumps are likely to be more cost-effective than hydrogen boilers for the most common housing archetype in the UK – a medium, semi detached house with double glazing, cavity insulation and a gas boiler.

It said although heat pumps have higher upfront purchase and installation costs these are likely to be more than offset over the long run by increased running costs for hydrogen boilers.

Average heating technology costs for typical house over 15 years in Leading the Way scenario

The ESO noted that green hydrogen from electrolysis will always be more expensive than the electricity used to produce it due to conversion losses, whilst heat pumps can also produce several times more heat energy than the amount of electrical energy they consume, giving them an efficiency advantage over hydrogen boilers. Its analysis assumed an average coefficient of performance for heat pumps of 2.81.

The body acknowledged that the results of its analysis are sensitive to both electricity and gas prices. In the System Transformation scenario, most hydrogen would be so-called blue hydrogen, produced by splitting apart methane and capturing the carbon dioxide emissions.

In the Leading the Way scenario, the ESO said the fuel costs alone for hydrogen boilers would significantly exceed the overall costs of all other alternatives when averaged over a 15-year period for the most common housing archetype.

Relative costs of electrification versus hydrogen for typical house in Leading the Way scenario