EXECUTIVE SUMMARY
There is a growing focus in many countries on the roles that hydrogen and fuel cell (H2FC) technologies are likely to have in their future low-carbon energy systems. This report examines whether the UK is well placed to develop and secure some of the economic opportunities associated with this market, both in the UK and abroad, as part of the UK Government’s focus on clean growth.
Importance of hydrogen and fuel cells
Hydrogen is important because it is one of three key zero-carbon vectors for decarbonising economies in the future, along with electricity and hot water. The UK Government’s Clean Growth Strategy and the UK Committee on Climate Change have identified hydrogen as the most cost-effective option for decarbonising several parts of the UK energy system. Fuel cells convert fuels, including hydrogen, to electricity and heat. Fuel cells are important because they can generate electricity at higher efficiencies than most internal combustion engines, and with no emissions. For road transport, this means that they have a higher fuel economy than cars powered by engines.
Potential future markets for hydrogen and fuel cells
We examine the potential future markets for hydrogen and for fuel cells by comparing a range of UK and global energy decarbonisation studies. A clear pattern emerges from UK scenarios:
• Fuel cells are well suited to heavy-duty trucks and buses, and could power cars and trains.
• The gas networks could be converted to deliver hydrogen instead of natural gas to homes and businesses.
• Iron and steel, chemical feedstocks, and high-temperature processes could mostly be altered to use hydrogen.
• Hydrogen could integrate renewables and provide energy storage and flexible peak generation.
UK hydrogen consumption increases from 0.7 million tonnes (Mt) each year at present to 3–19 Mt by 2050 in these scenarios. The value of the hydrogen fuel alone would be £4bn–£28bn each year, and the value of vehicles, boilers, and other end-use devices would also be substantial. Global hydrogen demand of more than 500 Mt is projected, with a value of at least £380bn. This market could offer substantial export opportunities for bulk hydrogen and for H2FC technologies in the transport, industry, building heat, and electricity generation sectors.
Ref: h2fcsupergen
FOREWORD Looking beyond today’s high energy prices to see what the longer-term energy future holds is difficult. That is what this Outlook does. Our forecast considers the demand shock of the pandemic and the supply shock that came with Russia’s invasion of Ukraine and concludes that those developments exert little long-term influence over a transition that will be rapid and extensive.
Highlights – short term
High energy prices and a heightened focus on energy security
Europe is likely to accelerate its energy transition during and after the war in Ukraine. There will be a rapid phaseout of imported Russian fossil fuel sources and rising to the top of the agenda will be energy security, which hinges on a renewables-dominated energy system and measures to accelerate energy efficiency. Energy security and sustainability thus pull in the same direction. Affordability is a major short-term concern with record high prices for natural gas and electricity. The policy response focuses on diversification of supply initially, giving some fossil sources a short-term boost, but the main policy thrust is to achieve energy independence for Europe earlier, based primarily on renewable energy. Outside Europe, and particularly in low- and middleincome countries, high energy and food prices plus the looming risk of global recession have shifted attention to short-term priorities. Long-term climate change investments and actions like electricity infrastructure build-out are likely to be postponed. High-priced LNG could make for a short-term coal resurgence, and although renewables are local and support domestic energy security, domestic coal could find favour over imported gas. The net effect is that, due to short-term pressure, there is reduced likelihood of extraordinary action being taken to reach a net-zero future; however, the steady pace of the financially-driven energy transition will continue. Shortterm commodity cost increases and the war in Ukraine will not put the brakes on the big drivers of the transition like the plunging costs of renewables, electrification, and rising carbon prices.
COP26 and the IPCC have called for urgent action which has not materialized: emissions remain at record levels
At COP26, UN Secretary António Guterres stressed the urgency of immediate action on global warming, calling it a Code Red for humanity. His warning has been amplified by the successive AR6 reports from the IPCC. COP26 saw agreements on important issues like coal phase-down, methane reduction, and land-use changes, but that sense of urgency has generally not been reflected since then in national policy plans or actions. Global GHG emissions reduction of some 8% every year is needed for a net-zero trajectory. In 2021, emissions were rising steeply, approaching pre-pandemic all-time highs, and 2022 may only show a 1% decline in global emissions. That makes for two ‘lost’ years in the battle against emissions. The lack of action is attributed to a weakening global economy amid inflation challenges. However, our analysis points to enormous opportunities inherent in decarbonization for both companies and nations. Renewables expenditures are expected to double over the next 10 years to more than USD 1,400 billion per year, while grid expenditures also are likely to exceed USD 1,000 billion per year in 2030. We show that building out renewable technologies does not come at a green premium, but rather as a green prize. Owing to the considerable efficiencies linked to electrification and the plunging costs of renewables, the world will be spending far less on energy as a proportion of GDP by 2050. There is scope for accelerated action, and for private sector frontrunners to run well ahead of anticipated governmental support.
Highlights – long term
Electricity remains the mainstay of the transition; it is growing and greening everywhere
The strongest engine of the global energy transition is electrification, expanding in all regions and almost all sectors, while the electricity mix itself is greening rapidly. Electricity production will more than double, with the share of electricity rising from 19% to 36% in the global energy mix over the next 30 years. In addition, electricity will take over and dominate hydrogen production. The share of fossil fuels in the electricity mix reduces sharply from the present 59% to only 12% in 2050. Solar PV and wind are already the cheapest forms of new electricity in most places, and by 2050 it will grow 20-fold and 10-fold, respectively. Solar PV takes a 38% share of electricity generated in 2050 and wind 31%. Nuclear will only manage to slightly increase present production levels due to its high costs and long lead times; its share of the electricity mix will therefore decline. The strong growth of renewables in electricity is the main reason why the fossil-fuel share of total energy use in 2050 is pushed to just below the 50% mark.
Hydrogen will be only 5% of global energy demand in 2050, a third of the level needed for net zero
Hydrogen is inefficient and expensive compared with direct electricity use but is essential for decarbonizing hard-to-abate sectors like high-heat processes in manufacturing, and maritime transport and aviation. However, the global uptake of hydrogen as an energy carrier sees it supplying only 5% of energy demand in 2050, a third of the level needed in a net-zero energy mix. Hydrogen will scale in the manufacturing sector from the early 2030s in the leading regions. In heavy transport like aviation and maritime, we will see the hydrogen derivates ammonia, e-methanol and other e-fuels starting to scale in the late 2030s. We see a more limited uptake of hydrogen in heavy, long-distance trucking, and in the heating of buildings in areas with existing gas distribution networks, but almost zero use in passenger vehicles. Green hydrogen from dedicated renewables and from the grid will dominate hydrogen production; blue hydrogen remains important, for example in ammonia production. The number of hydrogen initiatives in hard-to-abate sectors is growing rapidly, but few have reached final investment decision.
Ref: DNV_ETO_main_report_2022
The past few years have been a rollercoaster for anyone involved in real estate. With Brexit and Covid, the UK market has already dealt with successive economic shocks. However, the events of the past 12 months appear to represent a more significant turning point. 2022 was the year in which the era of cheap money ended. This has led to an adjustment which, at the time of writing, is not yet complete. Meanwhile, the financial stress on occupiers and the public sector is growing as inflation really starts to bite. Nevertheless, there are still significant tailwinds for the right types of real estate. If investors and occupiers focus too much on the short term, and not on longer term challenges such as sustainability, they may find they are ill-prepared for the next wave of growth.
Inflation will fall back, but its delayed impact on the real economy will become more apparent, especially in H1.
Inflation continues to dominate headlines in the UK, but it will quickly fall back over 2023, dipping below 5% in the third quarter. But the economic headwinds will remain for some time, with prices higher for consumers and businesses alike. As inflation pressures subside, so will the pressure on the Bank of England to increase rates. They will peak at around 4-4.5% in Spring 2023. The Monetary Policy Committee may even be in the position to start cutting rates in early 2024 – but not to the level seen over the past decade. The era of cheap money is over. However, there are both positive and negative risks to this outlook; given wider volatility there is an unusual level of uncertainty around forecasts. Nevertheless, attention over the year will switch to the impacts on the real economy and the predicted recession. Unemployment will rise and some businesses will struggle with costs, but by Q3 or Q4 there may be some tentative evidence of green shoots. With energy prices having fallen back significantly since many end-of-year economic forecasts were compiled, and China moving out of its zero-Covid policy, this may prove to be shorter lived than was Once anticipated.
Capital markets will remain subdued until H2 – although some areas of distress will emerge
The outward pressure on yields will remain for the first half of the year, but the effects will become more differentiated, as the slowdown will not take its toll uniformly. The focus will gradually move from yield shifts to income resilience – in particular occupational risks and the divergent potential for rental growth (see below). Distress will be limited but pockets will emerge, where forced sales or refinancing will hasten the process of price discovery as the year progresses. This may be most apparent in sectors where leverage is more concentrated. Investment activity will improve in the second half of 2023 but will be orientated towards core assets where rental income is regarded as most secure. This core focus will be particularly evident in offices and retail; areas such as industrial and living may see broader activity given the likelihood of more widespread resilience and in the latter case even continued growth. Asia-Pacific buyers, particularly those from Singapore and Hong Kong, will represent an elevated proportion of buyers in 2023 compared to recent years. German buyers will also re-emerge as opportunities arise. The huge, energy-driven flows of capital into Middle Eastern Sovereign Wealth Funds could mean they become major players as the year progresses. Certain buyer groups, such as Private Equity and REITs, will probably play a smaller role this year given the wider pressures on their businesses.
With costs threatening aspirations for real estate, occupiers will turn to partnerships with landlords and others to achieve their goals
Occupiers have major aspirations for transforming and upgrading their real estate, but these will increasingly have to be reconciled with rising costs. The upcoming business rates revaluation and the removal of downward transition will instantly moderate some of these pressures in some sectors, particularly retail, while gradually intensifying those others. This means partnership working will become more important – including between landlords and occupiers – to achieve key goals in areas such as decarbonisation and workplace optimisation. There will also be an increasing appetite in areas such as life sciences for collaboration with investors, developers, local authorities and educational and research institutions – which will also help drive forward regeneration. Meanwhile, as technology will still be a focus for CRE teams, the underlying data, its accuracy and use will be more important in the shorter term than potential longer-term disruptions such as the metaverse and AI. While the focus is increasingly “making hybrid work”, businesses are also increasingly signalling a desire to occupy less, but better quality space, which will further polarise the market. Ref: JLL
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