Utility Week

UTILITY WEEK | 3RD - 9TH APRIL 2020 | 7 News The 'H' factor Gas is not just a transistion fuel but an integral part of our energy future: and that future has hydrogren writ large. Tom Grimwood talks to Cadent chief executive Steve Fraser about putting hydrogen towork. The plans initially foresee low-carbon "blue hydrogen" being produced by reform- ing methane and then capturing and storing the resulting carbon emissions. In February, the HyNet project was awarded £7.48 million of funding by the Department for Business, Energy and Industrial Strategy to develop the UK's † rst low-carbon hydrogen plant at Ellesmere Port in Cheshire. Fraser would like to see the govern- ment drive progress "from the bottom up" by mandating that all new boilers are ready for hydrogen: "I think mandating hydrogen- ready boilers from 2025 is easily doable and I think that will help ' ow back up the chain to say hydrogen is coming." This will encourage alternative forms of production, including of "green hydrogen" using electrolysis, he believes. "I think once people realise that the end user is going to be capable of receiving it, whether that's indus- trial or domestic, production will develop very quickly and innovations within produc- tion will develop very quickly." However, Fraser does not think it is "real- istic" to build new homes without gas boil- ers from 2025, as would be required by the Future Homes Standard being developed by the government. "If you speak to the electricity companies, they're struggling to keep up with the electric vehicle roll-out, and particularly because every one tends to plug their car in at the same time they're cooking their dinner," he says. Repurposing existing pipelines One of the gas networks' main arguments in favour of hydrogen conversion is that they can reuse many of the existing pipelines, thereby reducing the overall cost. All-out electri† cation, they claim, would require a massive increase in the capacity of the power grid, causing huge disruption to daily lives as roads and pavements are dug up to install thicker cables. They might not be able to make this argument were it not for the iron mains risk reduction programme. The aim of this mandatory programme is to reduce the risk of catastrophic failure of old iron mains by replacing them with new plastic pipes. But this also makes the mains suitable for trans- porting hydrogen, which cannot be carried in iron pipes due to a phenomenon known as embrittlement. The RIIO2 Challenge Group recently called for an "urgent review" of the pro- gramme to ensure "consumers pay only for what is necessary". Fraser is † rmly opposed to any reduction in scale. "We shouldn't be stopping the pro- gramme and I don't think we should be slowing it down either," he says. "Every mid- term review and every previous review has concluded that the pace and the way this programme is done in terms of risk is appro- priate. We're two-thirds of the way through it and we just need to press on to the end. "Whatever happens with gas, these mains are going to be used for a long time yet," he says, adding: "If you look at the failure rate of the assets that aren't in plastic, it is higher – way, way, way higher – than the assets that šare." As well as ensuring safety, Fraser says the programme also reduces spending on repairs. "If you look at the cost of a point repair, it is really expensive nowadays… par- ticularly if you get it in quite a diœ cult area," he says. Returns for investors Another issue explored by the RIIO2 Chal- lenge Group was network returns. Ofgem's latest indicative † gure for the real cost of equity – the baseline return for sharehold- ers – is 4.8 per cent. Despite "vigorous pro- testations" from every network company, the group said "none has persuaded us that Ofgem's working assumptions for the cost of capital make their businesses un† nanceable". Speaking to Utility Week, Fraser says 4.8 per cent is "at the lower end of what the sec- tor could cope with". He continues: "History has shown that in more cases than not, the sectors and regula- tors get this just about right, because with every regulatory return, whether it's water, gas or electricity, people † nd they have to move to get to the cost base and eventually they † nd a way to be able to make a reason- able return." But he says making sure networks are merely † nanceable is not suœ cient when they need to secure billions of pounds of investment for the future: "If you're † nance- able but you can't pay a dividend, owners aren't going to put their money into these companies. They're going to put it into otheršstuž ." "What the regulator doesn't want to do is cut the cloth so tight that there's no ' ex- ibility to do things like hydrogen," Fraser concludes. "You don't want to have compa- nies hunkering down just to get through the next † ve years, because that will take the sectoršback. "We don't want to be having to going to the regulator cap in hand for money. There needs to be a little bit of free board to allow us to make sensible long-term decisions for the good of the sector." Note: This interview was conducted prior to the coronavirus outbreak in the UK. Tom Grimwood, energy correspondent, Utility Week "Once people realise that the end user is going to be capable of receiving hydrogen, production will develop very quickly." Steve Fraser, chief executive, Cadent

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