"KEEP your friends close, but your enemies closer" so the saying goes, however when it comes to critical national infrastructure, there is such a thing as too close. The journey of Huawei’s oscillating involvement, and ultimate ban, in the UK’s 5G network casts a long shadow beyond telecommunications with lessons to be learnt for the nation’s nascent hydrogen industry.
To understand the story of Huawei and its relevance to the burgeoning hydrogen industry within the UK, one must cast the mind back 30 years. In the last decades of the 20th Century the West had fully embraced neo-liberal political thinking with the UK in particular adopting a laissez-faire outlook to economic growth. National boarders were becoming ever more economically porous resulting in the increasing globalisation of supply chains. The practical effect of these policies was incremental exportation of supply chain stages, with China becoming the factory of the world and the primary supplier to the West. The term “made in China” moved beyond being a stale demarcation of manufacturing provenance and entered the social lexicon to define an age.
This geopolitical dynamic led to cheaper production and greater consumption in the West, and economic opportunities for the then "developing world". However, in the last 30 years the economic might of the supplier of choice has grown1 from a GDP of US$350bn to US$14.3trn; a factor increase of 41. According to the IMF2, in 2014 China surpassed the US as the largest economy on GDP purchasing power parity. Successive UK Governments implemented economic policies that valued short-term economic gains over long-term strategic interests, leading to greater economic prosperity but increasing reliance upon foreign investment in critical infrastructure such as telecommunications, utilities and transport.
The growth in China’s economic power is itself mirrored in the growth of Huawei, which started trading 30 years ago and has become one of the world’s leading telecommunications companies approaching Apple and Samsung in terms of phones sales. Due to the laissez-faire outlook of UK economic policy, the international telecommunications landscape is devoid of a British counterpart to Huawei, Samsung and their US rivals. The last major British-based telecommunications company was the General Electric Company (GEC), which dissolved in the later part of the 2000s and was replaced as the supplier of choice within the UK by international rivals, including Huawei.
Within the low-carbon sector, in 2019 the UK was the single largest market for offshore wind, accounting for a third of the total global offshore wind installed capacity (10.4 GW UK installed capacity3 compared to 29 GW of global capacity4), with total UK wind installed capacity expected to reach 100+ GW by 2050. However, the UK has no major manufacturing capacity, with the major international players based in Denmark, Germany, China and the US.
A lack of a domestic source of competitive critical technology creates an uneasy tradeoff between technological advancement and national security. Economic growth and geopolitical positioning in the 21st Century will be a function of harnessing technological advancements. The banking industry is a clear example of this, where modern-day traders take the form of physicists developing complex algorithms instead of relying upon human scale information processing and decision making. The tension between national security interests and technology adoption lies at the heart of the story of Huawei’s involvement in the UK’s 5G network, with a recognition by the UK Government that the banning of Huawei components will likely delay the ultimate development and adoption of a 5G network within the UK. The effect of this will be a competitive disadvantage for the UK economy for a period of time.
Therefore, without domestic sources of competitive technology in critical infrastructure, the UK will be destined to repeat the playbook of Huawei and ultimately have to either compromise national security interests or accept an ever-increasing delay in technological adoption. Both of these scenarios are mutually exclusive with the UK retaining its position as one of the leading economies of the world through the technology-driven 21st Century. The lessons of Huawei and the uncomfortable truth that foreign investment in critical infrastructure comes with national security implications should be taken as a warning shot for the UK Government with respect to the nascent hydrogen industry.
The development of advanced and globally influential technologies is heavily influenced by first-mover advantage and early strategic investment. The inherent benefits of simply being the first to do something should not be underestimated, as a first-mover advantage often creates a feedback loop between revenue and investment which leads to compounded economic inertia and an increasing dominance within an industry.
Hydrogen and its use within a net-zero energy system is gaining increasing international attention, with successive governments and political institutes outlining their hydrogen strategies. Within the EU’s recently-published Green Deal, hydrogen was named as a “priority area for a clean and circular economy”5. Within just the UK the total hydrogen opportunity has been outlined by the Committee on Climate Change6 (CCC) to be of the order of 270 TWh/y by 2050, which is comparable to the current total UK electricity demand. Various market studies7,8 have concluded a likely compound annual growth rate (CAGR) of global hydrogen demand over the next 5–10 years of between 6–8%, which is a larger CAGR than the telecommunications market9.
The growing societal pressure on governments to decarbonise the world’s economy is resulting in hydrogen being seen as an increasingly dominant technology within the future energy landscape. Therefore, the criticality of this technology to energy supplies within net-zero economies should be realised now and seen for what is – a burgeoning technology with significant international export opportunities.
Although the global low-carbon hydrogen industry is still in its infancy, the UK has a leading position. The two core production technologies of hydrogen; natural gas steam reformation with carbon capture and storage (“blue” hydrogen) and electrolysis (“green” hydrogen), are both being developed at pace within the UK.
The highly efficient auto-thermal reforming (ATR) process being developed by UK chemicals company Johnson Matthey (JM) has become a key player for bulk hydrogen projects, primarily due to its low levelised cost of hydrogen (~£45/MWh) and high carbon capture rate of 97%. The scale and deployment pace of hydrogen projects within the UK outstrips all European counterparts as a result of leveraging this process-engineering based solution which inherently benefits from economies of scale. An example is the HyNet project, which is due to bring more than 300 MW of ATR production online by 2025 and was recently named “the leading hydrogen and CCUS project in the UK today” by the Hydrogen All Party Parliamentary Group10.
The UK is also home to advanced electrolysis manufacturing, with the British electrolyser company ITM Power in the process of constructing the Gigastack factory in Sheffield. Which, when constructed, will be the largest electrolyser production facility in the world. This will help to drive down the cost curve of green hydrogen to allow it to be deployed at larger volumes than is currently economically viable.
These two technology categories (natural gas reformation and electrolysis) in combination cover the spectrum of production technologies currently identified to be the primary suppliers of low-carbon hydrogen. The favourable economics of blue hydrogen are likely to tip the scale, as recognised by the Government’s independent advisor, the CCC, which has suggested11 that 85% of hydrogen generation is likely to take this form, and 15% via electrolytic production. Nonetheless, electrolytic hydrogen will play a vital role in the deployment of high purity hydrogen, such as that required for fuel cell transport.
Investment in low-carbon technologies has been identified by the UK Government as a key area in the Build Back Better strategy to recover from the economic damage of the coronavirus. The importance of hydrogen development is recognised within the UK Government’s broader economic strategy and has led to programmes such as:
The support to date by the UK Government has enabled the development of bulk hydrogen deployment projects and their underlying technologies. These strategic investments must be followed up with a practical and timely energy policy to allow business models to be developed for the needed investment in hydrogen production, distribution and CCUS at scale to make the transition to private investment-based growth of these critical technologies.
Currently, the UK is driving the hydrogen agenda and enjoys a leading position on the world stage. But pride is the notorious forbearer of falls, and this momentum must be galvanised. Through strategically supporting the development of the domestic hydrogen supply chain industry, the UK will have successfully identified and captured a critical technology with global potential outreach. However, to fail to support the continued growth of this industry will be to forget the lessons of the past 30 years and to step aside to allow other nations to capture the export market and political leverage that comes with critical technology dominance.
1. The World Bank, Data, 2020 https://data.worldbank.org/country/CN
2. IMF, World Economic Outlook, 2017
3. Renewable UK, UK Wind Energy Database, 2020
4. Global Wind Energy Council, 2020 Progress Report, 2020
5. EU, European Green Deal, 2020
6. CCC, Net Zero – The UK’s contribution to stopping global warming, 2019
7. Business Wire, Global Hydrogen Market: Insights, Trends and Forecast, 2020
8. Global Market Insights, Hydrogen Generation Market Size by Deliver Mode, 2020
9. The Economist, Telecommunications Briefing & Forecast, 2019
10. Hydrogen APPG, How the UK’s hydrogen sector can help support the UK’s economic recovery, 2020
11. Committee on Climate Change, Net Zero Technical Report, 2019
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