UK’s green hydrogen ambitions fail to deliver
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Twelve months ago, Kwasi Kwarteng, then the UK’s business secretary, stood on a site in the English city of Sheffield where stainless steel was manufactured until the 1990s and declared the government’s support for a “new British industry . . . that will thrive over the next decade and beyond”.
Kwarteng — later appointed chancellor then sacked by UK prime minister Liz Truss before her own departure in October — was, at the time, referring to the production of hydrogen. He was visiting ITM Power, a London-listed company that makes electrolysis equipment in Sheffield to produce “green hydrogen” from water using renewable power.
In recent years, countries and companies around the world have come to view green hydrogen as a critical tool in decarbonising some of the world’s most polluting industries, such as chemicals and refining.
And, since the shock of Russia’s invasion of Ukraine in February, that interest has only accelerated. Green, or “renewable”, hydrogen features heavily in new policies, such as the RePowerEU strategy to diversify the European Union’s energy supplies away from imported Russian gas.
The UK also doubled its target for low carbon hydrogen production to 10GW by 2030 in its energy security strategy, which was drawn up following Russia’s assault on Ukraine.
Yet, just 12 months on from Kwarteng’s visit to ITM’s Sheffield factory, there are signs that Britain risks missing out on building a large new manufacturing sector around green hydrogen. ITM announced in September that it was scrapping plans to build a second electrolyser factory in the UK.
“All of our European competitors are being funded to the tune of tens or in some cases hundreds of millions,” Graham Cooley, ITM’s outgoing chief executive, later told the Financial Times in an interview.
His company had once been something of a stock market darling. At one stage, its market capitalisation rivalled that of established energy suppliers such as British Gas-owner Centrica.
But ITM’s shares have dropped by more than a quarter in the past month to trade at 87p last Friday, down 85 per cent since hitting peaks above £5.50 in early 2021, when money was pouring into green stocks.
Some of ITM’s woes are down to internal problems. It issued a profit warning at the end of October due to manufacturing delays with its newest product. Cooley agreed to step aside to make way for another leader — still to be named — who has more experience in building up manufacturing capabilities, although he intends to continue working with the group in a strategic capacity.
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ITM also partly blamed “incredible inflationary pressures” associated with construction projects more broadly for the decision to scrap its planned second UK factory.
However, others cite insufficient government backing — which leaves Britain at risk of losing out to other countries that are throwing subsidies at the nascent green hydrogen industry. Mistakes have been made before with industries such as offshore wind, where the UK built one of the biggest markets in the world but much of the manufacturing is done abroad.
“It’s not really a huge state secret that the British government is not particularly industrially minded, and neither is the investor base in the UK,” says Chris Jackson, chief executive and founder of Protium, a UK company that develops, finances and operates green hydrogen and other renewable projects. His customers include the Budweiser Brewing Group, part of global drinks company Anheuser-Busch InBev.
“There is a prevailing attitude . . . [of] why would [we] pay to do it ourselves when we can let others subsidise it and we can buy it cheaper later,” suggests Jackson, who is also a former chair of the UK Hydrogen & Fuel Cell Association. “That comes from a mindset that is a very free market, libertarian . . . and is not a particularly industrial strategy-grounded mindset.”
This year, the UK did launch a £240mn net zero hydrogen fund, although critics point out this is a drop in the ocean compared with EU and US incentives. The UK is also, controversially, backing both green hydrogen and so-called blue hydrogen, which is produced from natural gas with the resultant carbon dioxide captured and stored.
By contrast, more than €10bn of public money in the EU is being channelled into two large cross-border hydrogen projects, dubbed Hy2Tech and Hy2Use. That funding will go to companies that can help build up EU member states’ capabilities to produce renewable hydrogen. In recent months, competitors to ITM, including Germany’s Sunfire, have announced substantial EU funding. Most recently, the EU approved €220mn for a plant in Spain planned by Grupo Cobra.
Mark Hutchinson, the head of Australian billionaire Andrew Forrest’s clean energy business Fortescue Future Industries, has also that warned private sector money could flow into green hydrogen initiatives in the US to take advantage of the tax credits offered in the Inflation Reduction Act — president Joe Biden’s flagship climate, tax and healthcare legislation.
Cooley insists ITM Power is still working towards its annual target of delivering electrolysis equipment with the capacity of handling 5GW of energy — although not by the end of 2024 as it had originally planned. It intends to expand its existing Sheffield plant to have a capacity of 1.5GW a year — up from 1GW — but it will look abroad to fulfil the remainder of its 5GW ambition.
“We’re not walking from the UK,” Cooley says. But he adds that “around the world, there is very strong engagement to incentivise local manufacturing with funding — and that does not exist in the UK”.
The Department for Business, Energy and Industrial Strategy defends its strategy, though. It says: “The UK has a world leading ambition for 10GW of low-carbon hydrogen production capacity by 2030, with at least half from electrolytic hydrogen, which could unlock 12,000 jobs and £9bn in private investment across the country this decade.”