The growing fiscal and economic opportunity cost of increasing grid congestion is holding back the UK's world-class wind fleet, as analyzed by Policy Exchange in its new report. The paper details that in the absence of sufficient transmission capacity, the UK is losing £1 billion a year due to system constraints. By the time the planned solutions are implemented next decade, the cost of curtailment will have risen to £3.5 billion annually.

Researc, conducted by Policy Exchange with assistance from LCP Delta, finds that in 2022 the volume of wasted wind generation was sufficient to produce over 118,000 tonnes of green hydrogen, rising to 455,000 tonnes by 2029. Between 2021-22 congestion payments cost over £350 million.

"A world-class fleet of wind turbines is growing around and off the coastlines of Great Britain and Northern Ireland, generating ever larger volumes of cheap, clean and secure energy. But the transmission and distribution infrastructure required to connect that generation with energy consumers hasn’t kept pace with the growth, leaving ever growing volumes of power wasted. This ‘curtailment’, when wind generators are instructed by the network operator to disconnect from the grid due to ‘constraints’ on our power system, is a costly problem", says the report.

Several long-term initiatives aim to address challenges, including new transmission infrastructure, energy storage, and electricity market reforms (REMA). However, these plans, with a significant role for hydrogen, will take over a decade to materialize. Britain faces hurdles in scaling the hydrogen economy, crucial for achieving net zero. While electrification can decarbonize much of the economy, low-carbon hydrogen is essential. The report says that anticipated to contribute 20-30% of Britain's energy consumption by 2050, hydrogen's future role remains uncertain. Achieving this requires a 100-fold increase in clean hydrogen production capacity.

The chicken-or-egg problem

The hydrogen sector grapples with a challenging chicken-or-egg dilemma. High upfront costs deter early movers, while end-users hesitate without a reliable and affordable supply. Delaying solutions risks Britain falling behind in the competitive net-zero economy. Policy uncertainties have lowered the UK's attractiveness in the hydrogen sector, currently ranking eighth.

Despite government initiatives, decisions on hydrogen's role in residential heating are pending. The Net Zero Hydrogen Fund and Hydrogen and Carbon Capture Cluster Sequences face delays and may fall short of the 2030 target.

Recommendations

The report suggests that to unlock the potential of wind generators, especially those eligible for constraint payments, a dual approach of positive and negative incentives is essential. This involves establishing arrangements with electrolysers to utilize surplus power generation effectively. The electrolysers, whether behind-the-meter (BTM) alongside a generator or connected to the grid with a Power Purchase Agreement (PPA), require sustained incentives and a viable business model.

The focus is on encouraging them to consume electricity during curtailment events. Finally, the produced hydrogen must be efficiently delivered to industrial consumers or other end-users to complete the chain of the green hydrogen production process.

Through modelling conducted with LCP Delta, the report also determines that electrolysing the UK’s wasted renewable energy could create sufficient hydrogen to replace two-thirds of the current 700,000 tonnes of the UK's annual carbon-intensive grey hydrogen consumption.

Additionally, this process could lead to the decarbonization of the entire 7 million tonnes of the UK's annual steel manufacturing, meet over 90% of the national Sustainable Aviation Fuel (SAF) target for 2030, or contribute two-thirds to the electrolyser production capacity target for 2030.