SGN plans to test hydrogen in local gas network – but who pays?

Ofgem is asking who should fund an SGN-led live trial of transporting hydrogen in the local gas transmission system (LTS), after recommissioning a currently mothballed pipeline.
The trial will be used to produce a blueprint methodology for potentially repurposing and uprating5 existing LTS pipelines across GB to carry hydrogen. It will also develop evidence on the levels of linepack (in-pipe storage) and energy delivery that can be achieved in LTS pipes when used for hydrogen rather than natural gas. The regulator says “These are critical issues to understand in assessing the potential of using hydrogen for heating.”
SGN suggested that the £28 million funding for the project should be split. Around 55% would be funded as R&D and collected from all GB customers while the remainder would be put into SGN’s regulatory asset value (RAV) and be recovered through annual revenue from Scottish consumers. SGN argues those customers would benefit from the asset in the future.
Ofgem does not agree. It says first that there is considerable uncertainty around the future of hydrogen and no guarantee that the asset will have an enduring value to Scottish consumers. In addition, the project aims to provide evidence on the long-term role of hydrogen in the energy system rather than delivering “an asset of lasting value”. So the regulator says, “We do not think it is right to add assets for 100% hydrogen transportation into the RAV at this point in time, given that no decision has been taken by government”. As a result, Ofgem, says 100% of the project costs shoud be recovered through a charge on all GB consumers (collected by NGGT and passed on to SGN).
Ofgem also says SGN should pay more than its proposed 5.3% of project costs (£1.48 million). It says an appropriate level would be 10% – similar to a Network Innovation Competition (NIC) project.
See the full consultation here

Further reading
Towards 2032: switching gas customers to 100% hydrogen. How might it be done?
Towards 2032: costs rise to maintain aging gas transmission network

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