The UK could save billions of pounds each year by using excess wind power to generate green hydrogen, which would simultaneously fix the nascent H2 sector’s “acute chicken-or-egg problem”, claims a new report.

The UK’s ailing electricity grid has failed to keep pace with its “world-class” wind turbine fleet, according to London think tank Policy Exchange in a study published today (Tuesday).

This means that the government is having to pay huge sums in curtailment fees to wind farm owners to switch off turbines when they are generating more power than is needed.

Some £210m ($267m) of curtailment payments were made to renewable energy generators to curtail output in 2022, said the report. Since 2021, power system congestion more generally has cost consumers over £2bn.

With the UK planning to grow its offshore wind capacity from 14GW today to 50GW by 2030, the report says that curtailment costs are expected to rise to £3.5bn annually by the end of the decade.

While onshore wind development in England has been all but killed off in the last decade due to draconian planning restrictions, the report highlights that Scotland’s 8.8GW of onshore capacity – planned to hit 20GW by 2030 – will see particularly high levels of curtailment.

The UK is meanwhile facing challenges in scaling its “nascent hydrogen economy.”

Low-carbon hydrogen is expected to deliver up to a third of Britain’s final energy consumption by 2050, it said – requiring a more than 100-fold increase in the country’s clean hydrogen production capacity “even under the most conservative forecast.”

But the sector faces an “acute chicken-or-egg problem,” said the report.

This is because “large upfront costs required for hydrogen production and transportation discourage early movers and impose high marginal prices.”

Prospective end-users are meanwhile “reluctant to invest in hydrogen infrastructure and handling equipment until a reliable and reasonably priced supply is readily available.”

Use 'carrot and stick' approach

“Fortunately, Britain has the opportunity to resolve both challenges” for its wind and hydrogen sectors by using the “billions of pounds of curtailed [wind] generation for green hydrogen production over the next ten years and beyond,” says the report.

By 2029 the UK will have enough curtailed wind power to produce 455,000 tonnes of green hydrogen.

That’s enough to displace two-thirds of the 700,000 tonnes of the UK’s current, carbon-intensive “grey hydrogen” used annually, it said.

Policies will be needed to encourage this energy arbitrage, said the report, including presenting wind power generators with a “combination of positive and negative incentives to develop arrangements with electrolysers to offtake their surplus power generation.”

This could include amending the UK’s Contracts for Difference scheme used at green energy auctions to provide a “stronger incentive” to reduce receipt of curtailment payments and use their generation for “positive purposes.”

It could also introduce a “matchmaking” scheme used in the US to set up wind power producers with green hydrogen developers.

In a foreword to the report, Scottish National Party MP and chair of the UK's Energy Security and Net Zero parliamentary committee, Angus MacNeil, said “With Europe, the United States and countries around the world investing billions into their hydrogen sectors, Westminster needs to step up our policy game to remain competitive, not least in the lucrative hydrogen export market.”