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NETWORK / 10 / OCTOBER 2016 tonnes required for the demand needs of the conversion area in Leeds, so it's an eminently achievable production goal, Sadler argues. Not everyone is convinced by the idea of a hydrogen gas grid conversion, how- ever – with or without the carbon-control- ling benefits of CCS to clean up hydrogen production. A hole in the hydrogen hypothesis A report published this summer by Policy Exchange, titled Too hot to handle: How to decarbonise domestic heating, acknowl- edges that a large-scale move to a hydrogen gas grid, coupled with CCS for hydrogen production, would enable rapid and radi- cal decarbonisation – but at an eye water- ing cost. Converting the gas grid to run on hydro- gen would "achieve an estimated 73% re- duction in greenhouse gas emissions" says the report – in other words the lion's share of the UK's reductions commitments. However, Policy Exchange also observes that hydrogen conversion would require gas boilers and cookers to be changed in every home, causing cost and disruption to consumers. Furthermore "the construction of new infrastructure to produce hydrogen and store the CO2 produced as part of the process" would be "very costly". Referencing the H21 project in Leeds, the report points out that the upfront costs calculated for converting the city's gas grid are £2 billion, plus an annual cost of £139 million. "If these costs are scaled up to all 23 million UK homes on the gas grid," the report says, "this implies a capital cost in the order of £180 billion and ongoing cost of £12 billion per year." Adding a final blow to the hydrogen lobby, Policy Exchange also observes that H21 forecast the cost of hydrogen delivered to customers for heating and cooking in homes would be almost double the retail cost of gas. Others have argued it would be even higher. Do these arguments undermine Ox- burgh's theory that CCS will be most valuably deployed in the decarbonisation of heat? Not necessarily. Tony Day, direc- tor of Low Carbon Gas Ltd, is a committed proponent of bioenergy with CCS, or BECCS, as a route to affordable decarbonisation of the gas grid – and therefore heat. BECCS involves the production of syn- thetic methane from a combination of fuel inputs including waste, biomass and coal. This process is also proven but has the add- ed benefits of being even lower cost than carbon capture from SMR hydrogen produc- tion and is certainly "up to two orders of magnitude cheaper" than the application of CCS to power production according to Day (see chart, page 12). Day explains that this is because the methane production process operates pre-combustion and at high pressure. This improves the efficiency of the carbon cap- ture process and removes the need for cost- intensive carbon compression a£er capture. According to Day's calculations, the synthetic methane produced with the BECCS methodology is carbon negative – due to its balanced inputs of biogenic and fossil carbon and the application of CCS. It Recommendations 1. Establish a CCS Delivery Company CCSDC A newly formed and initially state-owned company tasked with delivering full-chain CCS for power at strategic hubs around the UK at or below £85/MWh on a baseload CfD equivalent basis. Formed of two linked but separately regulated companies: "PowerCo" to deliver the power stations and "T&SCo" to deliver the transport and storage infrastructure, the CCSDC will need c.£200-300m of funding over the next 4-5 years. 2. Establish a system of economic regulation for CCS in the UK The government will establish a system of economic regulation for CCS in the UK which is based on a regulated return approach. This will draw heavily on existing regulatory structures in the energy system and hence include: a CCS Power Contract based on the existing CfD or capacity contract to incentivise CCS for power; the regulation of T&SCo as other energy network operators; the introduction of an Industrial Capture Contract; and the continued regulation of the energy network industry. 3. Incentivise industrial CCS through Industrial Capture Contracts The Industrial Capture Contract, will be funded by the UK government and will remunerate industry for capture and storage of their CO2. It will be a regulated contract which will have a higher price in the early period in order to deliver capital repayment in a timescale consistent with industry horizons. Industry will have access to transport and storage through short-term contracts. Early projects will use existing infrastructure and pure streams of CO2. 4. Establish a Heat Transformation Group The Heat Transformation Group will assess the least cost route to the decarbonisation of heat in the UK (comparing electricity and hydrogen) and complete the work needed to assess the chosen approach in detail. The HTG has a likely funding need of £70-90m. 5. Establish a CCS Certificate System Government will implement a CCS Certificate System for the certification of captured and stored CO2. 6. Establish a CCS Obligation System Government will implement a CCS Obligation from the late 2020s as a means of giving a long-term trajectory to the fossil fuel and CCS industries. This will put an obligation on fossil fuel suppliers to the UK to sequester a growing percentage of the CO2 associated with that supply. Proof of storage and hence fulfilment of the obligation being via presentation of CCS Certificates. Balancing act Assuming policy support for the rollout of gas grid-focused CCS can be secured, doing it in a best value for money way may present conundrums. If, for example, expansion of a hydro- gen gas grid is promoted, a balance would need to be found between approaches that favour localised versus centralised hydrogen production facilities. A centralised approach might propose that the UK invest in, say, five big hydrogen production facilities nationally, in locations that are favourable for CO2 storage. This would minimise the investment required in CO2 transport networks. Conversely however, it would mean significant investment in new hydrogen transmission – and distribution too depending on whether existing gas GDN assets are widely updated to carry the new gas or not. A decentralised approach would invert the issue. Finding the optimum between these two extremes would be a balancing act – and one which some have argued would best be performed by the existing gas transmission and distribution operators. Dr Keith MacLean explains the argument: "A good way to drive down costs and finance growth of CCS for gas applications would be to have the steam methane reformation and CCS networks as regulated assets that the gas network owners would be responsible for – a bit like the old gas company which produced locally and distributed locally." An alternative, as Lord Oxburgh's report advocated, would be to set up a state-owned CCS company to own the assets and keep cost of capital low. Either way, MacLean emphasises: "Having CCS networks developed in a regulated monopoly is the right place for it. It won't develop properly in a commercial world." CCS FOR GAS