When Hong Kong tycoon Li Ka-shing pounced on a major UK gas distributor in 2012, the Paris climate agreement was seven years away, and Prime Minister David Cameron was preparing to “cut the green crap”.
More than a decade later, efforts to address global warming have put the future of pipeline network owners under a cloud, including Wells & West Utilities, which was bought by LCKI Holdings 12 years ago.
It is one of the four companies that own gas networks in Britain, and faces uncertainty as ministers plan to abandon methane or natural gas for home heating as a main goal to reach net zero emissions by 2050.
WWU said in its most recent report published in September that reforming the energy system could lead to a “loss of value/business,” summing up the concerns of the entire gas sector.
To secure their future, networks are pinning their hopes on ministers backing hydrogen as a low-carbon alternative to methane or natural gas, along with moves to convert homes to electric-powered heat pumps.
But so far, the signs are not good for hydrogen as a home heating option. In November, the National Infrastructure Commission urged ministers to reject the fuel source and opt for heat pumps instead.
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Heat pumps are more efficient and readily available, unlike hydrogen, she said, adding that the government should make plans to decommission parts of the gas network that will not be needed.
Lord Martin Callanan, the energy secretary, said the same month that hydrogen would “no longer play a major role in home heating”.
In a further setback, hydrogen trials at Redcar and Whitby, near Liverpool, which networks had hoped would boost the gas case, were canceled due to local opposition and supply shortages.
There is only one trial left in Britain in Fife, Scotland, due to start in the second half of 2024, to prove the benefits of hydrogen before ministers make a final decision on the NIC recommendations in 2026.
Some gas groups have already acknowledged the potential hit to their businesses.
Northern Gas Networks said in its accounts in August that the “most likely scenario” for the company was an overall 46 per cent reduction in gas transported through its network by 2050.
The uncertain outlook makes it difficult for energy regulator Ofgem to assess how much network owners should be allowed to invest and charge customers, with the risk that money allocated to upgrade pipelines could backfire if they end up being decommissioned.
In December, the regulator warned that households could face higher bills as distributors recover costs from fewer customers, a sign of a potential shift to heat pumps.
Richard Lowes, of the NGO Regulatory Assistance Project, warned that consumers could suffer if landlords were allowed to invest large sums for upgrades, which would then have to be recouped through bills despite potentially falling customer numbers. “You are exposing the country to these financial risks,” he said.
The government, pending safety approval, has supported blending up to 20 percent hydrogen into methane or natural gas transported via pipelines. However, she stressed that the aim was to support broader growth of hydrogen in the economy, rather than decarbonisation of heating.
One positive for gas ranges is the potential complications in introducing heat pumps. This may prompt the government to support the use of hydrogen in home heating, as well as call on the National Investment Council to provide pumps.
Only about 250,000 pumps have been installed in British homes, a small part of the home heating market. The latest figures show that 72,000 installations were installed in 2022, despite grants for transfers, well short of the government's target of 600,000 installations per year by 2028.
In contrast, 85 percent of homes in the United Kingdom use methane.
The capacity of the electricity grid will also have to be increased if demand for pumps increases.
“We have never electrified heat in the UK before and we have never switched off the gas grid before,” said Sarah Williams, director of regulation and asset strategy at WWU, speaking shortly after the NIC decision.
She warned of the danger: “Either we don't have a flexible energy supply, or we have a flexible energy supply that costs much more than we need.”
Cadent, the UK's largest gas distribution network, has sent a report to the NIC commissioned by Imperial College London, arguing that switching to hydrogen could save £5.4bn a year by 2050 compared to a full switch to electric heating.
“Using hydrogen for heating is a viable option for cost-effective decarbonization of heat,” the study said.
Colm Gibson, a managing director at Berkeley Research Group, added that the NIC analysis does not “give due weight” to emerging hydrogen production methods, such as pyrolysis.
This involves splitting methane into solid hydrogen and carbon at very high temperatures.
Proponents say it could be cheaper than producing it from methane or natural gas at low temperatures, because it would not require infrastructure to capture carbon dioxide emissions.
WWU's Williams also insists that investors “absolutely see a future for the gas grid”.
“they [investors] Very supportive in their view of the long-term future of their investments in the UK. “I hope it stays that way.”
Colors of the hydrogen rainbow
Green hydrogen They are manufactured using clean electricity generated by renewable energy technologies to electrolyte water (H2O), separating the hydrogen atom inside from the double molecular oxygen. Currently very expensive.
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Blue hydrogen It is produced using natural gas but with carbon emissions captured and stored or reused. Minimal quantities in production due to lack of capture projects.
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Gray hydrogen This is the most common form of hydrogen production. It comes from natural gas by reforming methane with steam but without capturing the emissions.
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Brown hydrogen The cheapest way to produce hydrogen but also the most harmful to the environment due to the use of thermal coal in the production process.
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Turquoise hydrogen It uses a process called methane pyrolysis to produce hydrogen and solid carbon. Not widely proven. Concerns about methane leaks
