Hydrogen transport strategy for London

Transcription

1 Hydrogen transport strategy for London June 2014 Michael Dolman Saleem Butt Ben Madden Element Energy Limited

2 Acknowledgement The research leading to this strategy has received funding from the European Union s 7 th Framework Programme (FP7/ ) for the Fuel Cells and Hydrogen Joint Undertaking Technology Initiative under Grant Agreement Number The project partners would like to thank the EU for establishing the fuel cells and hydrogen joint undertaking for supporting this activity. 2

3 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix 3

4 A hydrogen transport rollout strategy to position London and the UK as a world-leader in zero emission mobility A transformational shift in vehicle propulsion is required to achieve the UK s long term emission reduction targets (GHG emissions and pollutants that impact on local air quality). Hydrogen-fuelled vehicles are one of very few technical options which could deliver mass market zero emission mobility. Momentum in the hydrogen transport sector has been growing in recent years. The Hydrogen Transport in European Cities (HyTEC) project has facilitated the delivery of new fuel cell electric vehicles and hydrogen refuelling infrastructure in London and Copenhagen. This project also supports analysis of next steps towards commercialisation of the technology and has allowed the development of a hydrogen transport rollout strategy for London. This strategy sets out a vision and associated action plan that could make London and the UK a leading early hydrogen transport market. 4

5 Geographic modelling reveals the number of HRS needed to provide coverage across London and priority areas for the first stations A 20 station network covering London (7km radius)* Principles for hydrogen refuelling station (HRS) siting: Target sites at or near major road intersections (for proximity to traffic). Population Density (people / km 2 ) 0,000 1,000 1,001 3,000 3,001 5,000 5,001 8,000 8,001+ Hatton Cross Illustrative This map indicates areas in which HRS could be built to provide full coverage of London in an efficient manner. The circles show 7km radii (with HRS being positioned at the centre of each circle). This level of coverage corresponds to all populated areas being within c.14 minutes drive (maximum), or 10 minutes on average, of an HRS. The network would be expected to be developed over a number of years (see below). Limit the number of HRS in central London one or two stations should suffice for the early years. Ensure coverage of the outer London boroughs is provided e.g. by placing stations on / near the North / South Circular. Prioritise coverage of areas in west London (based on concentrations of wealth and traffic). Consider areas of major growth and intensification in London. In practice the siting approach should be sufficiently flexible to ensure good coverage of London and the surrounding area (e.g. the Home Counties). * We have also considered less ambitious scenarios in terms of number of HRS (see main section of report). 5

6 No. of HRS in London The HRS network is expected to be developed, expanded, and upgraded over a number of years In terms of hydrogen refuelling infrastructure a recommended lead strategy for London involves building an initial network of 20 HRS (which could be expanded over time), with an even split between delivered hydrogen and on-site production of green hydrogen. The HRS should be designed to be upgraded from the early 2020s to meet growing hydrogen demand. 20 HRS build-out over time (High coverage, scenario C) The steering group for this study discussed various options for developing a London-wide HRS network The rate of deployment of stations is a balance between maximising customer convenience in the early years by rapidly building new HRS (thus supporting vehicle sales), and practical and economic considerations (time taken to site, build, and deploy stations; minimising sunk costs in an under-utilised network). 100 kg/day 500 kg/day 1,000 kg/day HRS size measured as maximum daily capacity. FCEVs typically consume c.0.5kgh 2 /day (based on average driving distances), which suggests a 100kg/day HRS is sufficient to support around 200 vehicles. This graph summarises the agreed aspiration for delivering the strategy for London. 6

7 Hydrogen demand (th 2 /day) Uptake of hydrogen-fuelled vehicles is expected to be gradual, with greater market share being achieved from the 2020s By considering vehicle availability and the total cost of ownership of hydrogenfuelled vehicles relative to their counterfactuals we have developed a base case vehicle uptake trajectory. Uptake of hydrogen-fuelled vehicles is based on an underlying assumption of favourable conditions (in terms of policy support, access to fuelling etc.). The uptake trajectory leads to a steady increase in demand for hydrogen in London, rising from low tens of kg/day in 2015 to c.0.6t/day in 2020 and 13t/day in Further demand may arise from other vehicle classes, particularly buses. However, FC buses are not expected to share HRS with other vehicle types, which suggests plans for delivering a publicly accessible network should be developed independently of public transport vehicle refuelling infrastructure. Stock of hydrogen-fuelled vehicles in London (base case) Vehicle Taxis (FCETs) ,950 Passenger cars (FCEVs) ,400 ICE vans (HICELCVs) Fuel cell vans (FCELCVs) 0 0 1,340 Hydrogen demand in London, (base case) FCEVs FCET HICELCV FCELCV 7

8 The net financing need (after accounting for funded HRS) is c. 15m for a 20 HRS network and could be split between various parties Including the existing (Hatton Cross) and planned HRS in London in the lead rollout strategy reduces the amount of additional financing required. Note that these figures are based on a network with equal numbers of HRS using delivered hydrogen and HRS with on-site production. Total in initial London network Existing / planned (i.e. with funding secured) No. of HRS in London 20 New financing required 15 5 Potential sources of funding This suggests that c. 25% of the net financing need for the initial stations has already been secured.* On this basis, the remaining net financing need for the initial network is c. 15m (to 2019). Net financing need to 2019 for 20 HRS network Public funding (e.g. national government / FCH JU) Private sector / GLA 10.5m (70%) 4.5m (30%) TOTAL 15m Indicative sources of funding on the assumption that national government and Europe s FCH JU funding programmes could provide 70% of the costs and the remainder could come from the GLA and the private sector. National government has signalled its intended support of zero emission transport (e.g. via the recent call for evidence on how to allocate a budget of 500m to support ULEVs in the period). The EC (via the FCH JU) represents a further potential source of public funding for HRS (and FCEVs) in the early years of the rollout. * This figure is approximate as in practice the types of stations to be deployed have different specifications and HRS deployed as part of demonstration projects are not fully funded to 2019 /

9 London hydrogen transport strategy delivery plan: public sector actions GLA Group & London boroughs Initiation phase (pre-2017) Support HRS siting & planning activities. Network expansion (early 2020s) Support private sector applications for national (and international) public funding. Consider investing in initial HRS network. Secure H 2 demand from vehicles (public procurement, supportive policies etc. details in policy analysis section). Lead / coordinate awareness-raising activities. Work within UK H 2 Mobility and with Government and internationally to promote London as an early adopter city for H 2 vehicles. Exploit role as coordinator of the HyFIVE project to further London s position as a leading adopter of H 2 vehicles. Maturing market (post-2025) Provide long term certainty on mechanisms to create demand for H 2 vehicles ULEZ, zero emission taxi policy, congestion charge exemptions etc. Successful rollout of hydrogen transport will require coordinated, concerted efforts from a range of public and private sector actors. Recommended actions for private sector organisations are set out below. 9

10 London hydrogen transport strategy delivery plan: private sector actions HRS providers Vehicle providers Initiation phase (pre-2017) Applications for funding. Justify co-investments. Supply, build, and maintain HRS demonstrate reliability & availability. Secure low cost electricity for HRS with WE. Work with relevant bodies to develop guidelines for HRS installation on forecourts.* Network expansion (early 2020s) Upgrade and expand HRS network, including working with forecourt operators. Reduce CO 2 intensity of hydrogen supply. Continue efforts to reduce the capex and opex of HRS. Inform detailed HRS siting decisions for the initial network. Bring vehicles to the UK market and provide advanced information on models, specifications, introduction dates and prices as far as possible. Provide greater clarity on plans to introduce a commercial fuel cell taxi for the London market. Support FCEVs in use (train dealerships, implement maintenance support network etc.). Collect customer feedback on vehicles to inform development of future generations and provide confidence about long term outlook for the sector. Maturing market (post-2025) Continue to invest in HRS (and H 2 production) to further expand / upgrade the network according to H 2 demand. Expand range of FC vehicle classes. Continue technology development to produce lower cost, higher performance FCEVs. * National guidelines for installing HRS on forecourts are not currently in place. A process to develop guidelines began in early

11 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix 11

12 The desire to change how vehicles are powered is based on a variety of economic, environmental, and energy security drivers International and national context EU legislation seeks to limit emissions from new vehicles - e.g. fleet average emissions of 95gCO 2 /km by 2021 for new cars. The UK Government has stated an ambition for mass market transition to ultra low emission vehicles, an approach consistent with the commitment to reduce cross-sector GHG emissions by 80% by 2050 (relative to 1990 levels). Our vision is that by 2050 almost every car and van in the UK will be an ultra low emission vehicle (ULEV), with the UK at the forefront of their design, development and manufacture, making us one of the most attractive locations for ULEV-related inward investment in the world Driving the Future Today: A strategy for ultra low emission vehicles in the UK, OLEV (September 2013), p.6. The Committee on Climate Change (CCC) has set out a scenario in which UK transport emissions are 93MtCO 2 in 2020 (90% of which are road transport emissions), falling to 69MtCO 2 in 2030; on a path to near full decarbonisation by 2050.* Other strategic drivers for transitioning away from traditional internal combustion engine (ICE) vehicles include reducing reliance on imported energy, and improving local air quality. * Fourth Carbon Budget Review part 2, Chapter 5, transport, CCC (December 2013). 12

13 The health impacts of poor air quality in London provide a strong incentive for action to increase the uptake of ULEVs Local context Poor air quality in London provides a strong incentive to reduce vehicle emissions in the city. The Mayor s transport strategy (published in 2010) recognised the need to support uptake of low emission vehicles, but makes limited reference to hydrogen transport. London s battery electric vehicle (EV) sector has grown significantly over the past few years, with over 1,400 charge points now installed at over 300 sites across London.* NO 2 annual mean concentrations (μg/m 3 ), 2008 Source: Mayor s Transport Strategy, p.229 (2010) However, achieving the overarching strategic objectives set out above will require a mix of zero emission power-trains (e.g. see A portfolio of power-trains for Europe: a fact-based analysis (2010)). The GLA and TfL is now undertaking further work related to ULEVs, including: Ultra low emission zone announced by the Mayor in February 2013, TfL is investigating options and conducting stakeholder engagement in spring 2014, leading to a preferred option in late summer Transport emissions action plan a plan developed alongside the ULEZ that suggests further interventions to address air quality and CO 2 emissions, to help London achieve its CO 2 reduction target and meet EU limit values for air pollutants. Low emission vehicle roadmap considering all vehicles in London, the roadmap sets out the mix of alternative fuels required to meet strategic objectives. * 13

14 Fuel cell electric vehicles are expected to play a key role in meeting strategic environmental objectives in the UK Automotive Council s Technology Roadmap for cars and vans Fuel cell electric vehicles (FCEVs) are one type of a range of ULEVs under development. FCEVs are currently in a precommercial demonstration phase (see next slide) and could become mass market in the 2020s. FCEVs offer a number of key advantages: zero emission at point of use, high range, ability to refuel in a few minutes. Source: NAIGT A number of global automotive OEMs have announced plans to introduce FCEVs in selected launch markets from The choice of launch markets will depend on availability of refuelling infrastructure and the local policy environment (which affect the offer to customers). London now has the opportunity to help position the UK as an early market for FCEVs and thus stimulate the UK s hydrogen and fuel cells sector. 14

15 London is well placed to build on existing hydrogen transport activities to position itself as a key market for commercial FCEVs * CHIC Pre-commercial demonstration projects HyTEC LHNE HyFIVE * National rollout plans for H 2 transport under development through the UK H 2 Mobility project (since 2012) HyFIVE started in April 2014 transition to commercial deployment London is a leading European city for hydrogen transport, with projects such as: Clean Hydrogen In European Cities (CHIC) eight FC buses and one HRS. Hydrogen Transport in European Cities (HyTEC) one new publicly accessible HRS (installed in 2012), five FC taxis, and a fleet of FC passenger cars. London Hydrogen Network Expansion (LHNE) a new publicly accessible HRS (due in 2014), five FC passenger cars and six H 2 ICE vans. Hydrogen for Innovative Vehicles (HyFIVE) three new public HRS and up to 50 new FCEVs in London. HRS = hydrogen refuelling station(s). 15

16 This document sets out a strategy for hydrogen transport rollout in London over the period to 2025 There is currently a lack of dedicated policies to support the rollout of hydrogen transport As zero emission vehicles, FCEVs should qualify for the existing Plug-in Car Grant (up to 5k per car). They should also qualify for exemption from London s Congestion Charge and benefit from zero vehicle excise duty. The rollout of EV charging points has been supported by initiatives such as Plugged-in Places (a national government programme to match fund charge points), and Source London (a charge point network launched in May 2011). The lack of public sector support for hydrogen transport (in particular the required refuelling infrastructure) highlights the need for a clear strategy. A hydrogen transport rollout strategy for London This strategy, developed as part of the HyTEC project, sets out a vision for hydrogen transport in London and recommended delivery actions.* National policies for hydrogen transport are being developed by OLEV (e.g. DfT s call for evidence (Nov to 10 th January 2014) on measures to support the uptake of ULEVs between 2015 and 2020). This strategy focuses on a vision for London and recommended actions London can take to complement the national activities. * Further details of the strategy development process are provided in the Appendix. 16

17 Report structure The hydrogen transport rollout strategy for London seeks to address a number of key questions: How many HRS are required to provide adequate coverage across London? Where should HRS be located? What types of hydrogen-fuelled vehicles could be introduced to London? How many may be sold and over what period? Who are the most likely early adopters? What sources of H 2 could be used to meet growing demand? What policy environment will be needed to deliver the rollout? This document sets out a strategy in a number of sections: Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Executive summary setting out the vision and recommended actions. Background and context to the strategy. Results of GIS-based modelling of HRS distribution based on selected metrics. Consideration of vehicle availability, total cost of ownership (TCO), and end users. Brief review of H 2 production options; economic analysis of HRS rollout scenarios. Summary of the longer term benefits of delivering the strategy. Discussion of local policy options in the context of the national actions. What is the cost of the rollout and who will provide the necessary finance? Conclusions and recommendations Appendix Section bringing together the analysis into a clear action plan. Contains supporting material. 17

18 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix 18

19 Geographic modelling has been used to identify strategically important areas for deployment of hydrogen refuelling stations Introduction to hydrogen refuelling stations (HRS) From a siting point of view, there are two broad options for HRS: Standalone the HRS is constructed as an independent facility on its own site. Hosted the HRS is deployed as part of an existing fuel retail outlet (forecourt). The Hatton Cross HRS built as part of the HyTEC project (a standalone station near Heathrow airport). An HRS as part of a forecourt in Frankfurt, Germany separate island for H 2 dispensers. Geographic modelling of HRS deployment As of early 2014 there are two HRS in London (one at First Group s depot in Stratford serving the FC buses and a publicly accessible station at Hatton Cross); with plans in place to install four further public HRS. The number of HRS will be limited in the pre- / early-commercial phase. It is therefore important to carefully consider station siting for the initial network. Source: Zero Regio project The geographic modelling informs the choice of areas for new HRS, within which specific sites (either standalone or forecourts) can be sought. 19

20 The geographic modelling is based on selected metrics that help reveal priority areas Geographic modelling objectives and methodology Objective Methodology Understand level of coverage provided by different numbers of HRS. Inform decisions on priority areas for deploying HRS. Mapping of selected metrics to reveal priority areas (e.g. traffic / population density, wealth proxies, non-domestic building area etc.). Mapping various network sizes and optimising for coverage across London. Metrics used to inform priority areas for HRS Priority areas for building HRS are identified based on where hydrogen-fuelled vehicles are most likely to be driven and refuelled. A literature review and input from local experts led us to consider the following metrics: Traffic density used to identify roads / areas with the highest traffic volumes. Property prices (a proxy for wealth) first generation FCEVs will be more expensive than ICEVs, which suggests a higher concentration of early adopters in wealthy areas. Non-domestic land area some businesses / fleets are considered to be potential early adopters, giving a rationale for siting HRS in / near areas of commercial activity. Population density and car ownership levels used to check coverage offered by an HRS sited based on the metrics above. 20

21 The geographic analysis covers Greater London and the surrounding areas Greater London is made up of 33 boroughs. The boundaries for these boroughs are shown below, along with major roads (motorways and major A-roads). London: Major Roads & Boroughs Key London Borough Boundary Major Roads 21

22 Using house prices as a proxy for wealth indicates areas of wealth concentration in and around London Average house prices across London (2012) House prices in millions 0 6m Average house prices across London are shown on the map above. This analysis revealed a large spread in average property prices (wealth) across London and its surrounding areas. The overall trend in property prices suggests a greater concentration of wealth in central and western areas of London. Average house price data from the UK Land Registry. 22

23 There is a higher traffic density along the major roads feeding into the western side of London Traffic Density Average Annual Daily Flow M25 A40 A406 A12 (2012) 55,001 75,000 75,001 95,000 M4 A2 95, , , ,000 M25 M25 150, ,000 This map shows all major roads in London. Annotation indicates roads with the highest traffic density. The map above shows traffic density along London s major roads. Average annual daily flow is the count of all vehicle types driving past a point for an average day of the year. Roads with the highest traffic density include the M25 (particularly to the west of London), the M4, the A40, A406 (North Circular), A12, and A2 (east of central London). Average Annual Daily Flow data from the DfT. 23

24 Land used for non-domestic applications is concentrated around major road intersections in Greater London Non-domestic land use (2012) (2012) % of land used for non-domestic purposes 0 7.5% % 15 50% Non-domestic land use was included in the geographic analysis to identify areas of high concentration of businesses and hence potential fleet operators. The highest concentration of land used for non-domestic purposes is in central London (within the inner ring road), however the number of fleet operators in this area is expected to be relatively small. Beyond this, areas of high concentration of non-domestic land use are clustered near major roads and main intersections. Source: Generalised Land Use Database 24

25 The proportion of adults with access to a private car is highest in outer London (far lower car ownership in central London) Car access in London (by borough) Proportion of adults in London with household access to a car Harrow Barnet Havering 10 29% Hillingdon 30 49% Bexley 50 59% Richmond 60 69% Sutton Bromley 70 79% This map illustrates how car ownership varies by borough across London. Access to private cars is lowest in central boroughs (City of London and Islington), and tends to increase with distance from the centre. Source: 25

26 The geographic analysis suggests that providing coverage in the west of London should be a priority for the early HRS network The following general principles should be applied for siting the initial stations in the network: Target sites at or near major road intersections (for proximity to traffic). Siting some of the initial stations at motorway service stations (of which there are six on / within the M25 (see appendix)) is also a logical strategy based on traffic flow data. Limit the number of HRS in central London one or two stations in the centre of London should suffice for the early years. Ensure coverage of the outer London boroughs is provided (based on car access data) e.g. by placing stations on / near the North / South Circular. Prioritise coverage of areas in west London (based on concentrations of wealth and traffic).* Although the initial network of stations is expected to be limited, some level of comprehensive coverage of London (and beyond) will be required for hydrogen-fuelled vehicles to appeal to the maximum number of potential customers. The following slides explore the level of coverage that could be provided by an initial network of a limited number of HRS (if sited strategically). We first introduce the concept of coverage and present data on customers expectations (in terms of drive time to fuelling stations), before showing illustrative maps of how early HRS networks could be laid out in London. * London s first publicly accessible HRS is located at Hatton Cross near Heathrow Airport, to the west of London. The station was installed in 2012 under the HyTEC project and has good transport links, being very close to the M4 and M25. 26

27 Coverage provided by HRS can be expressed in terms of distance and / or time to reach the station We can measure HRS coverage in terms of: A. Proximity to the station (based on a catchment area (radius R)), and / or; B. Time taken to drive to the HRS (based on as-the-crow-flies distance and average driving speed). R HRS The average traffic speed across London is approximately 29km/h. This is lower for central London where the average traffic speed is approximately 15km/h. R = Radius of circle around HRS Average time within radius R to reach HRS = 2 Radius of Circle around HRS 3 Average speed of FCEV driver The table below shows the average and maximum times it would take to reach an HRS for three levels of coverage based on average London traffic speeds. These values are indicative as they take no account of local road networks (a simplifying assumption deemed appropriate for the purpose of this analysis). Maximum distance to HRS (i.e. radius) 7km 10km 13km Average travel time to an HRS in London ~10 minutes ~14 minutes ~18 minutes Maximum travel time to an HRS in London ~15 minutes ~21 minutes ~27 minutes Note: at central London speeds (rather than average London speeds) these times would approximately double. Source: 27

28 The majority of early adopters require a drive time of no more than around 15 minutes to refuel their vehicles The graph below shows the proportion of consumers willing to drive for a given period to a hydrogen refuelling station. The data behind the graph were derived from a national (UK) survey of around 2,000 people. Early adopters tend to be more willing to drive further to refuel (compared to technology followers) Steep fall in number of people willing to drive >15 minutes to an HRS Proportion of people willing to drive to find fuel Source: UK H 2 Mobility Phase 1 report, Figure 9, p.15 (April 2013) These results suggest that providing HRS within <5mins drive would offer full coverage. While this is not feasible for all drivers in the early years, siting HRS to be within minutes of most drivers appears to be a reasonable compromise for the initial network. 28

29 A network of 20 HRS could ensure that all areas in London are within 7km (c. 15 minutes maximum drive time) of a station A 20 station network (7km radius) HRS concentrated along major roads and intersections within London. Hatton Cross Five HRS alongside / near to the M25. Population Density (people / km 2 ) Average travel time to HRS: 10 minutes 0,000 1,000 1,001 3,000 Max travel time to 3,001 5,000 HRS: 15 minutes 5,001 8,000 8,001+ Illustrative Source: Element Energy 29

30 With a 10km radius around each station, a network of 13 HRS could provide comprehensive coverage of London A 13 station network (10km radius) Welcome Break Three HRS at existing M25 service stations: Extra MSA, Welcome Break, Road Chef. Population Density (people / km 2 ) 0,000 1,000 1,001 3,000 3,001 5,000 5,001 8,000 Hatton Cross Extra MSA Road Chef 8,001+ Illustrative HRS kept along major roads and intersections. Average travel time to HRS: 14 minutes Max travel time to HRS: 21 minutes Source: Element Energy 30

31 The funded network of five HRS plus one for London if located solely to minimise overlap provides coverage at a 13km level A 6 station network (13km radius) This coverage option is based on a network of five stations that have already secured funding, plus one additional station to provide complete coverage. Stations positioned to maximise coverage within the M25. Population Density (people / km 2 ) Average travel time to HRS: 18 minutes 0,000 1,000 1,001 3,000 Max travel time to HRS: 3,001 5, minutes 5,001 8,000 8,001+ Illustrative Source: Element Energy 31

32 Geographic modelling suggests that London s hydrogen transport rollout strategy should consider an initial network of of 6 20 HRS 20 stations Travel time to HRS (mins)* Avg. 10 Max. 15 A 20 station network provides coverage at a 7km level (i.e. all areas in London are within 7km of an HRS). These stations can be positioned alongside major roads and intersections without sacrificing coverage of large population centres. 13 stations Avg. 14 Max. 21 A medium sized network of 13 stations can provide comprehensive coverage based on 10km radii (as-the-crowflies). 6 stations Avg. 18 Max. 27 A basic network (based on existing funded stations with one additional HRS) provides full coverage with 13km radii. The economic implications of alternative approaches to HRS network development are explored in the refuelling network analysis section below. * Based on an average traffic speed across London of 29km/h. 32

33 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix 33

34 Hydrogen-fuelled vehicles introduction This section focuses on hydrogen-fuelled vehicles, which are a fundamental component of the rollout strategy. Successful planning of refuelling infrastructure to support vehicle introduction requires an understanding of vehicle types available, vehicle characteristics, and the potential end users. Such information informs decisions on refuelling station numbers, size, location, specification etc. This section therefore considers: Vehicle availability Total cost of ownership Vehicle uptake Timeline of the expected availability of hydrogen-fuelled vehicles in London. Comparison of the costs of owning hydrogen-fuelled vehicles against counterfactual vehicles. This section also explores potential mechanisms for bridging the TCO gap. Uptake scenarios for hydrogen-fuelled vehicles that are used in the economic analysis of the HRS network (in the following section). 34

35 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Vehicle availability Total cost of ownership Vehicle uptake Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix 35

36 The use of hydrogen as a fuel is increasing in various vehicle classes Passenger cars Taxis Many global automotive OEMs have been developing FCEVs over a number of decades. The first commercially available fuel cell vehicles are being introduced into launch markets over the next two years. Intelligent Energy, working in partnership with LTI and Lotus, developed a fuel cell electric taxi that completed extensive road testing during the HyTEC project. Buses Hydrogen ICE light commercial vehicles Fuel cell light commercial vehicles A fleet of fuel cell buses has been running in London since 2011 (following a successful initial trial that ran from 2003). UK-based Revolve Technologies has developed a hydrogenfuelled internal combustion engine van, based on a modified Ford Transit. The advantage over FC vehicles is lower up-front cost, the downside being that combusting hydrogen gives lower tankto-wheel efficiencies compared to an electrified drive-train. Being developed by a number of FC integrators. For example, Symbio FCell is developing a hydrogen fuel cell range extended EV in a Renault EV. Trials of the vehicle with La Poste in France are due to begin in

37 The availability of hydrogen-fuelled vehicles in the UK is expected to increase over the coming years Passenger Cars Phase Demo projects / development Taxis Early commercialisation Buses Mass market introduction H 2 ICE LCV FC-LCV The commercialisation of hydrogen ICE LCVs may depend on the market introduction and success of FC-LCVs as these are expected to have higher efficiencies. OEMs expected to bring vehicles to market* Potential introduction of London ULEV Zone The vehicle classes considered in this study are those for which a hydrogen-fuelled variant may be available in the UK over the next five years or so. * In selected launch markets, based on public announcements. 37

38 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Vehicle availability Total cost of ownership Vehicle uptake Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix 38

39 Total cost of ownership calculations provide insights into attractiveness of FCEVs and the need for additional policy When first brought to market, hydrogen-fuelled vehicles (like any new technology) are likely to have higher purchase prices compared to counterfactual (ICE) vehicles. However, capital cost is only one element of the overall cost of running a vehicle, and alternativefuelled vehicles can offer on-going running cost savings. We therefore consider the total cost of ownership (TCO) including capex, fuel, and other ongoing costs (insurance, maintenance, VED, congestion charge, etc.). Understanding the TCO of hydrogen-fuelled vehicles relative to diesel vehicles provides insights into: How attractive hydrogen-fuelled vehicles may be to customers (based on economic considerations). The need for / impact of policy mechanisms to bridge any TCO gaps and thus encourage the uptake of zero emission vehicles. This section presents the results of TCO analyses, focusing on FCEVs (passenger cars), followed by other vehicle types (buses, taxis, vans). 39

40 The TCO calculations require a range of input assumptions FCEV TCO calculation (base case) input assumptions (C/D segment passenger car) Input assumption Purchase price (inc. VAT) Residual value after four years Fuel consumption Fuel price (inc. VAT) ICEV FCEV Notes 20k 30k, 45k, 60k 40% 20% 6 l/100km 1 kgh 2 /100km A scenario approach to FCEV price has been used (based on public statements on target price ranges). Capex values are annualised using an interest rate of 7%. RVs for FCEVs are not yet known with a high degree of certainty. The baseline assumption is that the RV after four years (in % terms) is half that of a typical ICEV. FCEV consumption taken from public UK H 2 Mobility Phase 1 results. 140p/litre 8.40/kgH 2 (p/km basis) relative to diesel. This price is consistent with Hydrogen price selected to give a small fuel cost saving the 10/kg target of pre-commercial demonstration projects. Mileage 16,000km/yr 16,000km/yr VED 115/year 0/year Other costs (maintenance, insurance etc.) 1,500/yr 1,500/yr Typical average annual mileage of 10,000 miles/yr (assumption tested as a sensitivity). Assumption that VED exemption for ZEVs will apply to FCEVs. We take the simplifying assumption that other costs (maintenance / servicing, insurance, parking etc.)* do not vary between the ICEV and FCEV. An allowance of 1,500/yr is included in the calculation to account for these costs. * There is a risk that insurance premiums for FCEVs will be higher than for equivalent ICEVs due to the higher prices of these vehicles in the early years. However, at the time of writing no FCEV has been given a Group Rating in the UK, which makes the likelihood and scale of this risk difficult to assess. 40

41 Annual TCO ( 000s / year) With no policy support, FCEVs are expected to command a significant premium relative to traditional vehicles Annual TCO of an FCEV at three capex price points (no policy support), four year ownership period % +107% % 17.0 A combination of higher capital cost and higher (assumed) depreciation for FCEVs leads to a significant TCO premium in all cases (with no policy support) Other Fuel (inc. VAT) Capex (inc. VAT) Other costs include insurance, maintenance, VED etc. (little difference between ICEVs and FCEVs).* ICEV ( 20k) FCEV ( 30k) FCEV ( 45k) FCEV ( 60k) With no support, FCEVs are likely to attract a significant TCO premium (rel. to ICEVs). Vehicle capital cost dominates the annual TCO for FCEVs, e.g. accounting for 80% in the case of the 45k FCEV. Existing policies can help to reduce the TCO premium (see below). * This is an assumption which will be tested over the coming years as the first wave of OEM FCEVs are deployed in London. There is a risk that FCEVs will attract higher insurance premiums than ICEVs (due to their higher prices). 41

42 Annual TCO ( 000s / year) A combination of measures could be used to reduce the TCO premium faced by early adopters of FCEVs We consider the potential impact of policies on the TCO of the mid-price ( 45k) FCEV TCO analysis for a 45k FCEV (annual mileage of 30,000km/yr) +91% Analysis for high mileage drivers. TCO premium reduced to c.+28% through a combination of 5k capital grant, residual value guarantee, and low cost hydrogen % 5 0 ICEV (30k km/yr) No support 5k grant RV guarantee Low cost H₂ Grant + RV + low cost H₂ Other Fuel (inc. VAT) Capex (inc. VAT) FCEV TCO The RV guarantee scenario involves setting the residual value of FCEVs after four years to 40% (vs. 20% in the base case). In the low cost H 2 scenarios, hydrogen is offered to customers at 4.20/kg (half the base case price). 42

43 Annual TCO ( 000s / year) Exemption from the Congestion Charge will greatly improve the economic case for considering an FCEV London-specific policy tools offer the opportunity to greatly improve the TCO of FCEVs for the earliest adopters TCO analysis for a 45k FCEV (operating in the C-charge zone) +77% % ICEV 16.0 No support k grant 13.3 RV guarantee FCEV TCO C-charge exemption Grant + RV + C-charge exemption Exemption from the London C-Charge can be worth 000s/yr. Combined with other support mechanisms for FCEVs (e.g. capital grant and RV guarantees), the TCO gap can be reduced to <10% for certain drivers C-charge cost based on 240 days/yr, 10.50/day*. TCO premium reduced to c.+10% through a combination of 5k capital grant, residual value guarantee, and Congestion Charge exemption. C-charge Other Fuel (inc. VAT) Capex (inc. VAT) Value of C-charge exemption is an upper bound as it represents a vehicle driving into the zone on a daily basis (e.g. a commercial delivery vehicle). * Based on the proposed auto pay daily charge which if approved would come into effect in June

44 Various additional mechanisms could be used to further enhance the offer to early customers of FCEVs Additional mechanisms that can be used to support the uptake of FCEVs include: Dedicated parking a lack of parking spaces is a common problem for drivers in congested cities. Offering dedicated parking spaces to FCEV drivers could be an attractive time-saving measure. Free parking providing subsidised or zero cost parking for FCEVs may be worth hundreds of pounds annually to certain drivers. Reduced price or free parking could be offered at public car parks and / or through reduced price resident parking permits (e.g. Westminster city council offers a 100% discount on permit prices for eco vehicles ). Restricted access to certain areas for conventional vehicles for example, ultra low emission zones / low noise zones ( green zones ). Implementing such zones in London and providing access for FCEVs would improve the case for owning this type of vehicle. Such measures are not easily quantified but could be highly valuable to certain drivers and should be considered to help secure demand for vehicles in the early commercialisation period. 44

45 Continued grant support, guarantees of residual values, and exemption from the C-Charge are required to offer a favourable TCO Total cost of ownership analysis for FCEVs conclusions Without any form of support / incentives, FCEVs are likely to command a significant TCO premium in the early years of the rollout (of the order % relative to diesel vehicles). Vehicle capital cost is the dominant factor in the TCO of FCEVs. This suggests that prices OEMs set and the residual value cars can achieve will be crucial in determining the economic case. A mechanism to underpin residual values for FCEVs (e.g. ensuring a long-term, stable support regime for FCEVs) will be important in making an attractive offer to customers. OEMs FCEV pricing strategies remain uncertain. By making itself an attractive launch market for FCEVs, London should aim to attract as many OEMs as possible and thus stimulate competition that could help reduce the prices charged for vehicles. Hydrogen price has a relatively minor impact on overall TCO in the early years when the capital cost is high, but is important from a perception point of view. Pricing hydrogen to offer comparable (ideally cheaper) fuel costs on a p/km basis (vs. diesel) is recommended to avoid offering vehicles with higher capex and higher fuel costs. Existing policies ( 5k capital grant, exemption from the Congestion Charge) go some way to reducing the TCO gap, but for a strong commercial offer to customers further action is required. The analysis above suggests that drivers who enter the Congestion Charge zone on a regular basis could be a key early market for FCEVs as exemption from this charge is worth 000s per year. The conclusions above assume that customers expect / require an attractive TCO for FCEVs. While some customers are relatively insensitive to price, the economics (in particular purchase price) feature highly in purchasing decisions for the majority of consumers. 45

46 We also consider the TCO of a broader range of vehicle types TCO input assumptions ICET FCET ICE bus FCEB ICE- LCV H 2 ICE- LCV ICE- LCV FC- LCV Capex 36k 55k 150k 650k 19k 28k 16k 30k Diesel consumption (l/100km) H 2 consumption (kgh 2 /100km) Taxis* Buses** ICE vans** FC vans** Mileage (km/yr) 70k 70k 65k 65k 15k 15k 15k 15k TCO period (years) Lifetime * Capex values including VAT (on the basis that most taxi drivers are not VAT-registered (the current threshold for registration is a turnover of 79k/yr)). The TCO calculation also uses fuel costs including VAT for taxis. ** Capex values excluding VAT (assuming these vehicles are mainly purchased by VAT-registered companies). The TCO calculations for these vehicle types use fuel costs excluding VAT. The calculations are based on an indicative hydrogen price of 8.40/kg (inc. VAT) ( 7.00 exc. VAT), and diesel price of 140p/litre (inc. VAT) (117p/litre (ex. VAT)). Full details of the input assumptions, including references to data sources, are provided in the appendix. Source: 46

47 Annual TCO ( 000s / year) Without policy support all FC vehicle types considered in this analysis present a TCO premium relative to their ICE equivalents % % TCO comparison for a selection of vehicle types* Taxis Buses LCVs (H 2 ICE) FC-LCVs % ICET FCET ICEB FCEB ICE-LCV H₂ICE- ICE-LCV FC-LCVs (medium) LCV (small) With a typical lifetime of years, a conventional taxi has a relatively high residual value after four years. On the other hand, first generation fuel cell taxis may be depreciated to zero value after four years (70,000km/yr for four years is roughly 10,000 operating hours at average London traffic speeds). The higher capex and lower residual value are the main reasons for the TCO premium of the fuel cell taxi relative to the ICE version. However, with the Mayor s announcement that all new taxis from 2018 must be zero emission capable** the counterfactual taxi in 2020 (i.e. the date when FCETs are expected to come to market) may be a hybrid or pure battery electric vehicle. This is likely to significantly impact the capex differential between an FCET and the counterfactual taxi in 2020, improving the relative TCO of the fuel cell version. FC buses are currently >4x the cost of ICE buses, leading to a high TCO premium. 148 With no policy support (such as grants / C-Charge exemption), hydrogen-fuelled vans are likely to be more expensive than their ICE equivalents in the early years of the rollout. *Full details of input assumptions are included in the appendix. ** % % 10.4 Other Fuel Capex 47

48 Normalised TCO premium ( /kgh 2 ) Normalising TCO premium with respect to hydrogen consumption reveals cost-effective vehicle types for sustaining network utilisation Normalised TCO premium with respect to hydrogen demand per vehicle ( /kgh 2 ) 50 This graph shows the normalised TCO 43.6 premiums for the five vehicle types 40 considered above H₂ICE- LCVs 12.3 FC taxis 15.7 FC buses 17.3 FC-LCVs FCEV ( 45k) TCO premiums are calculated with base case assumptions and no policy support in all cases. This metric indicates where support for vehicles could be most effectively directed from an HRS network point of view (lower /kg => more costeffective). The normalised TCO premiums show that H 2 ICE vans and fuel cell taxis offer the most cost effective options from a network perspective. Other vehicle types with high hydrogen demand also appear relatively attractive e.g. FCEBs, whose TCO premium is the highest of all vehicle types (+123%), are attractive from a network point of view due to their high fuel consumption. 48

49 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Vehicle availability Total cost of ownership Vehicle uptake Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix 49

50 Demand for hydrogen may come from various vehicle types we use a scenario-based approach to forecasting uptake We have developed a number of uptake scenarios based on the indicative vehicle availability timelines and TCO analysis presented above. The table below shows the stock of each vehicle type to Stock of hydrogen-fuelled vehicles in London Vehicle Buses (FCEBs)* Taxis (FCETs) Passenger cars (FCEVs) ICE vans (HICELCVs) Fuel cell vans (FCELCVs) ,357 1, ,300 5,100 9,050 14,150 20, ,340 Further explanation of these uptake scenarios is provided on the following slide. * The stock of FC buses is anticipated to decrease in 2020 due to the existing fleet of eight vehicles reaching the end of their service lives in this year (and not being replaced until the following year). 50

51 The vehicle uptake scenarios are derived from a range of sources and represent a relatively conservative outlook Summary of rationale behind the vehicle uptake trajectories Buses uptake numbers to 2020 based on existing demonstration projects and a potential large FCH JU-backed demo project from We assume that FC buses are a valid commercial choice from the early 2020s and achieve modest annual sales in London from this date (c.25/yr).* Taxis sales begin in Uptake is based on a relatively conservative ramp-up trajectory with FC taxis slowly achieving increased market share (to c.25% of new sales by the mid-2020s), driven partly by the Mayor s policy on ZE taxis. Given the high degree of uncertainty regarding when a fuel cell taxi will be brought to market in London, we include scenarios with no FC taxis in the sensitivity testing (see below). Passenger cars uptake based on the assumption that 5% of FCEVs in the national rollout projections set out in UK H 2 Mobility Phase 1 are deployed in London. ICE vans uptake based on successful demonstrations in 2014/15, followed by a doubling in sales year-on-year to Limited further sales beyond 2020 are assumed as a FC version comes to market and out-competes the H 2 ICE van. Fuel cell vans uptake based on the assumption that a commercial FC-LCV is available from 2020 and begins to grow market share from this date. * The Committee on Climate Change sees a significant role for H 2 buses in a low carbon transport sector: We continue to assume that 50% of new buses are hydrogen fuelled by 2030 CCC s Fourth Carbon Budget Review part 2 (Chapter 5, transport), p

52 Total demand for hydrogen in London will depend on which vehicles are brought to market and sales volumes achieved For the purposes of the economic analysis of hydrogen refuelling infrastructure for London that follows, we have created a number of distinct scenarios for vehicle uptake. Vehicle types using a publicly accessible London HRS network FC taxis H 2 ICE vans FC vans FC cars FC buses Base case FCETs & vans only FCEVs only Inc. FCEBs The base case assumes that all vehicles currently under development are brought to market in London as set out in the trajectories introduced above. The FCETs & vans only scenario represents a future where OEMs postpone or cancel the deployment of fuel cell passenger cars in London. The FCEVs only scenario is used to explore the impact of hydrogen-fuelled taxis and vans failing to achieve significant traction in the London market. In the Inc. FCEBs scenario, hydrogen demand from FC buses is included for the purposes of analysing HRS network economics.* * The base case assumption is that buses refuel at separate stations (i.e. depot-based refuelling). This is consistent with current operating practice. 52

53 Passenger cars Vans Taxis Buses Uncertainty regarding vehicle deployment presents a significant challenge in planning a network of refuelling stations for London Various factors combine to create uncertainty regarding vehicle deployment This adds to the challenge (and risk) of HRS network planning Expanding London s existing fleet of FC buses depends on further demonstration activity and vehicle cost reductions. Further development work needed to bring to market a commercial model. Competition in the zero emission taxi market is expected from battery electric vehicles. H 2 ICE vans are currently at the early demonstration phase. Demand for vehicles has not yet been fully tested. No OEM has announced plans to produce a fuel cell van before While various OEMs have announced plans to offer FCEVs from around the middle of the decade, firm decisions on launch markets have not yet been made. Vehicle pricing (which affects demand) is also an area of substantial uncertainty. Building a suitable HRS network involves taking decisions on: Technical specification of stations. Station numbers and location. Sources of hydrogen. Etc. This requires an understanding of: Expected demand build up over time. Who (and where) customers are. Expected usage patterns. Etc. However, availability of and demand for vehicles is subject to various uncertainties. Furthermore, demand is also linked to HRS availability. This demonstrates the need for coordinated action between vehicle and infrastructure providers and flexibility in the HRS rollout plans. The first fleet of FC taxis entered day-to-day operation in London in 2012 (through HyTEC). 53

54 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Introduction Hydrogen demand and HRS rollout scenarios for London Economic analysis core scenarios Sensitivity and policy analysis Conclusions Benefits Policy analysis Action plan and next steps Appendix 54

55 Economic analysis of alternative HRS rollout scenarios can inform decisions on the preferred strategy for London The potential rollout of hydrogen-fuelled vehicles is considered in the previous section. Clearly the uptake of vehicles is linked to the availability of hydrogen refuelling stations in London (and beyond). This section focuses on the economics of HRS rollout. The Hatton Cross HRS deployed under the HyTEC project Any organisation planning an HRS network faces a number of choices (e.g. number of stations to build, station specification, rate of deployment, whether to add capacity to the network by building new HRS vs. upgrading existing sites etc.). We have undertaken an economic (cashflow) analysis of alternative approaches to building an HRS network in London. This provides insights into the key questions to be addressed: What is the cost of rolling out an HRS network for London and who may be able to provide the necessary finance? What are the impacts of key risks (e.g. hydrogen demand failing to grow) to the overall economic case? What policy support may be required to attract private sector investment? 55

56 There are various approaches to deploying a London-wide HRS network There are two broad approaches to HRS network development: Demand matching build HRS one-by-one, only increasing capacity when hydrogen demand reaches a certain percentage of the total network capacity. Seed network build a network of stations to provide coverage and a more attractive customer proposition. The network will be under-utilised in the early years and is only expanded once demand builds up beyond a certain point. Consultation with experts during the development of this strategy* revealed a consensus that a minimum level of coverage is required to make London (and the UK) an attractive launch market for hydrogen-fuelled vehicles (particularly OEM FCEVs). We therefore consider three levels of initial coverage, and in all cases expand the network capacity as demand for hydrogen increases (see following sub-section). Following an analysis of the economics of these alternative rollout scenarios we select lead scenarios for further sensitivity testing and policy analysis. HRS rollout scenarios Lead scenario(s) Rollout strategy options Economic analysis Sensitivity testing / policy analysis * Strategy development was informed by Hydrogen London s Transport Delivery Group see appendix for further details. 56

57 Rollout of an HRS network in London over the next decade can be characterised by two distinct phases Early rollout phase (seed network) Network expansion phase Capital investment in initial network to seed the market. Low / negative ROI due to low hydrogen demand. Construction of small stations (to minimise financing need), which struggle to provide returns even when fully utilised (see additional analysis in appendix). Further investment in expanding network capacity (subject to clear signals of increasing vehicle uptake). Deployment of larger (potentially profitable) stations. Vehicle numbers / H 2 demand increasing over time Second generation FCEVs from the early 2020s accelerated vehicle deployment Key challenges Positioning London as an early launch market for hydrogen transport. Minimising financing need and risk. Maximising coverage with a limited network of stations. Matching hydrogen supply and demand. Optimising cash flows and return on investment. Developing low carbon sources of hydrogen. 57

58 The net financing need and net present value inform the level of risk and success of a network in this analysis The key performance indicators used to assess the economic attractiveness and risk of each scenario are: Undiscounted Net Financing Need (NFN) to This is a measure of the level of investment required during the early years. Net financing need to (the end of) 2019 is a particularly important metric as further investment in an HRS network beyond this date would be subject to signals that demand for hydrogen is increasing. Net Present Value (NPV) over the period from We calculate the NPV based on cash flows occurring in the years of HRS construction / upgrade. Note that this metric includes all the costs of building a network but does not include the lifetime revenues. A discount rate of 12% is used in the NPV calculation. Net Present Value over the period For the purposes of this calculation we assume no further capital investment in the network beyond 2025 and a constant average HRS utilisation rate (set at the 2025 value). This metric is used to assess the performance of the network over its whole life (rather than just in the early years in which utilisation is low and profitability is hard to achieve). Further explanation of the need to consider NPV over different periods is given below. 58

59 An example cash flow illustrates the need to consider the economic case over the entire network lifetime Example cash flow costs and revenues in each year (non-annualised capex) Low HRS network utilisation seen as low revenues Capex Fixed opex Variable opex Revenue Early rollout phase losses accrue due to need to invest in a seed network of under-utilised stations. Network Expansion phase the NPV to the end of the network expansion phase will tend to be low due to a relatively long period of under-utilised stations. HRS network has a value at this point based on potential for future profits and this is captured in the NPV to The period in which the network becomes profitable is beyond the first two phases, where FCEV numbers increase and network utilisation can be sustained at a higher level. 59

60 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Introduction Hydrogen demand and HRS rollout scenarios for London Economic analysis core scenarios Sensitivity and policy analysis Conclusions Benefits Policy analysis Action plan and next steps Appendix 60

61 Demand (th 2 /day) Hydrogen demand depends on the types and numbers of vehicles deployed and is an exogenous input into our analysis We calculate the change in demand for hydrogen over time based on the vehicle uptake trajectories introduced in the previous section. Demand per vehicle depends on specific demand (kgh 2 /km) and annual driving distance (km/yr) (see appendix for full details of assumptions). Demand under different vehicle deployment scenarios in London 20 Base case 20 Inc. FCEBs FCEVs FCEBs FCET HICELCV FCELCV Base case: H 2 demand in London is due to passenger cars (FCEVs), taxis and vans. Demand reaches 0.6t/day by 2020, rising to 13.2t/day by Inc. FCEBs scenario represents buses sharing HRS with other vehicle types (which would require a change to current operational arrangements). 61

62 A scenario approach allows us to explore the relative merits of different network sizes and alternative expansion strategies The HRS rollout scenarios have been developed based on the following principles: Build an initial network of 100 kg/day HRS (in the first two / three years of the rollout), starting with either 6, 13, or 20 stations (see geographic modelling above). 1 Expand / upgrade the network as demand increases. The expansion approach is based on a target average network utilisation rate of 70%.* Options for increasing capacity include: Start by upgrading existing HRS (from 100 to 500 to 1,000 kg/day) before building new stations. Build new HRS (up to a network of 20) before upgrading existing stations. This option provides a greater number of HRS (increased coverage) earlier and is therefore preferable from a customer s perspective. New HRS built in 2020 and beyond are at least 500 kg/day (on the basis that there are clear signals that demand is increasing by this date). For each scenario no two sequentially built HRS use the same source of hydrogen i.e. if an HRS using delivered hydrogen is built, the following HRS uses on-site production. This methodology ensures that in the central scenarios each network scenario has an even mix of on-site produced and delivered hydrogen. Note: The electricity prices used in this analysis are based on the tariff available to extra large energy users in the manufacturing industry, with a price of <7p/kWh in The economics of a network involving HRS with on-site H 2 production via water electrolysis (WE) are highly sensitive to this input and low electricity prices are needed for a positive investment case (assuming a limited H 2 selling price). Low electricity tariffs are used to reflect the fact that HRS with WE can generate additional revenues by providing balancing services to the grid. More details and sensitivity analysis are provided in the appendix. This approach leads to five distinct scenarios which are described in further detail on the following slide. 1 Funding for a number of these stations has already been secured (e.g. the HyTEC HRS). However, the economic results that follow do not account for existing funding this is considered at the end of this section. * This figure is consistent with the approach taken in similar work carried out for Denmark (in parallel activities under the HyTEC project). 62

63 Expanding network capacity options The five core HRS deployment strategies allow us to explore the range of costs involved in providing basic to high levels of coverage Graphs show number of HRS in London over time by station capacity. New HRS first New HRS are built before existing HRS are upgraded. A maximum of 20 HRS are built in London Basic Early Coverage 6 HRS by 2015 providing 13km coverage Coverage Options Medium Early Coverage 13 HRS by 2016 providing 10km coverage High Early Coverage 20 HRS by 2017 providing 7km coverage Basic, Build (A1) Medium, Build (B1) High, Build (C) Upgrading first Existing HRS are upgraded before new HRS are built. A maximum of 20 HRS are built in London Basic, Upgrading (A2) Medium, Upgrading (B2) 100 kg/day 500 kg/day 1,000 kg/day Rules i) For the purpose of this analysis the maximum number of HRS in London to 2025 is capped at 20. ii) Post-2020 the size of new HRS is 500 kg/day (i.e. the 100 kg/day size is discontinued). 63

64 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Introduction Hydrogen demand and HRS rollout scenarios for London Economic analysis core scenarios Sensitivity and policy analysis Conclusions Benefits Policy analysis Action plan and next steps Appendix 64

65 In this section we present the KPIs for a selection of HRS rollout scenarios When considering the results that follow we should keep the following points in mind: Hydrogen demand Demand for hydrogen is as per the base case (for each HRS rollout scenario). This is based on all vehicle types apart from buses using London s HRS network and leads to a total demand of 0.6tH 2 /day by 2020, rising to 13.2tH 2 /day by This demand is an exogenous input assumption i.e. for the purposes of modelling we have not linked vehicle uptake numbers with numbers of stations deployed. This is a simplifying assumption required to limit the degrees of freedom in the modelling. In practice some link between the number of stations available and vehicle uptake numbers would be expected. We explore the impact of alternative demand scenarios in the sensitivity analysis. HRS types (source of H 2 ) Cost data are based on a network of HRS with an even split between delivered hydrogen and onsite production. We assume cost reductions over time in equipment capex based on market projections and learning rates (see appendix for further details). Furthermore, the economic KPIs do not account for existing (i.e. built or planned) HRS. The implications of the fact that London has a number of HRS with funding in place is considered separately. 65

66 NPV ( ) ( m) A London-wide HRS network can give a positive ROI over its lifetime, providing demand for H 2 can be secured The economic KPIs for each of the five core scenarios are presented below. More detailed results (cash flows over time) are included in the appendix. Economic KPIs for alternative HRS rollout scenarios in London NPV to end of life (2035) Scenario A1: Basic network, build new HRS A2: Basic network, upgrade first B1: Medium network, build new HRS B2: Medium network, upgrade first C: High coverage network NFN to 2019 NPV ( ) NPV ( ) 6.9m 11.1m 6.5m 6.9m 10.6m 7.0m 13.6m 14.3m 3.2m 13.6m 13.9m 3.6m 20.3m 17.2m 0.4m NPV values calculated using a 12% discount rate Without policy support, the NPV to 2025 is negative in all cases. However, considering the investment over the whole lifetime of the network (to 2035), positive returns are possible. These results show that (as expected) increasing early coverage reduces the NPV (hydrogen demand, and therefore revenue from H 2 sales, is constant across scenarios) A1: Basic network, build first 7.0 A2: Basic network, upgrade first Prioritising upgrading over building new HRS is a more cost-effective strategy 3.2 B1: Medium network, build first 3.6 B2: Medium network, upgrade first 0.4 C: High coverage network Scenarios selected for sensitivity testing (results below) 66

67 Comparing cumulative cash flows for each scenario allows us to quantify additional at-risk investment for offering higher coverage m Undiscounted cumulative cash flow for each core scenario The initial HRS network is loss-making for a number of years, but offers the potential for positive returns in the long term with larger, better utilised stations (provided that hydrogen demand increases). Differences post-2020 due to upgrading vs. building new HRS first A1 (Basic, Build) A2 (Basic, Upgrade) B2 (Medium, Upgrade) C (High, Build) -40 Coverage vs. Investment New HRS are 500 kg/day Cumulative cash flows to 2025 are negative in all cases due to these figures including all capex costs (but excluding future revenues). The resulting network would have a residual (positive) value based on the potential for future profit making (this value is captured in the NPV to 2035 metric). The Basic Coverage network (six initial HRS) leads to a NFN of 6.9m to This is the riskiest investment period (e.g. maximum uncertainty regarding future demand for hydrogen). Offering enhanced coverage increases this NFN to c. 13.6m and c. 20.3m for the Medium (13 HRS) and High (20 HRS) scenarios respectively. In the medium term (to 2025) there is relatively little difference between the upgrade first vs. build new HRS first strategies (as expected given that the final network consists of 20 HRS in all cases). 67

68 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Introduction Hydrogen demand and HRS rollout scenarios for London Economic analysis core scenarios Sensitivity and policy analysis Conclusions Benefits Policy analysis Action plan and next steps Appendix 68

69 Number of HRS We have selected two lead scenarios for sensitivity analysis to understand the impact of key risks This section explores the sensitivity of the two separate HRS networks to various economic factors (e.g. hydrogen price / demand) and potential policies. These scenarios have been selected as they present the most attractive networks for London. An overview of both networks is presented below. Scenario Scenarios selected for the sensitivity analysis Medium, Upgrading (B2) High, Build (C) 14 minutes average travel time to HRS 10 minutes average travel time to HRS Early Geographic Coverage Number of HRS by size and change in network utilisation over time % 50% 0% % 50% 0% 100 kg/day 500 kg/day 1,000 kg/day Utilisation Base Case Base Case Key performance indicators NFN to 2019 NPV ( ) NPV ( ) 13.6m 13.9m 3.6m NFN to 2019 NPV ( ) NPV ( ) 20.3m 17.2m 0.4m 69

70 The business case for infrastructure rollout has been stress tested against selected sensitivities We test the sensitivity of the economic KPIs by varying the key input assumptions. This allows us to explore the effect on the business case of variables such as hydrogen price, and to examine what policies may be required to provide a more attractive investment case. This section includes sensitivity test results for: Hydrogen demand the demand for hydrogen in London depends on hydrogen-fuelled vehicle availability and uptake. We define three alternative scenarios (in addition to the base case) to test the impact of lower / higher hydrogen demand on the economics of the network. Hydrogen cost / price this sensitivity tests the impact (on network economics) of varying the hydrogen price charged to vehicle end users. Grant support for initial stations given the long-term nature of the investments required, the high risks, and lack of first mover advantage, grant funding may be made available to support the initial phase of HRS rollout. This sensitivity test examines the impact of alternative levels of grant support. Hydrogen source through this sensitivity we explore the impact of electrolysis on the economic attractiveness of a network. The base case includes an equal mix of electrolysis and delivered hydrogen. We explore the scenarios of: exclusively on-site production, and exclusively delivered hydrogen. 70

71 Demand th 2 /day OEMs postponing or cancelling the launch of their vehicles would impact significantly on hydrogen demand in London We consider two scenarios to explore the risk of demand being lower than the base case: FCETs & Vans Only a scenario where FCEVs from global OEMs are not launched in the UK market. The fuel cell taxi, H 2 ICE van, and FC van uptake trajectories are as per the base case. FCEVs Only this scenario represents failure of hydrogen to achieve significant market penetration in all segments except for passenger cars. FCEV uptake is as per the base case. An additional sensitivity explored in this analysis is the refuelling of FCEBs at public HRS. Buses do not refuel at public refuelling stations under current practice. This sensitivity allows us to explore whether the business case for an HRS network could be significantly improved through FCEBs refuelling at public stations. Demand under different vehicle deployment scenarios in London 20 Base Case 20 FCETs & Vans Only 20 FCEVs Only 20 Inc. FCEBs FCEVs FCEBs FCET HICELCV FCELCV 71

72 Utilisation, % Postponement of either FCETs or FCEVs could significantly impact hydrogen demand and hence network utilisation The utilisation for each sensitivity is shown below. In the base case network utilisation in the early years slowly rises to the 70 80% level by Post 2020 the utilisation is kept at this level by increasing the refuelling capacity of the network in accordance with demand. The alternative demand scenarios show the impact of different vehicle rollout trajectories on utilisation of each network. Utilisation of each network under different demand scenarios Medium, upgrading (B2) High coverage (C) FCEVs Only FCETs & Vans Only Inc. FCEBs Base Case Demand Allowing FCEBs to refuel at public HRS leads to increased utilisation, particularly in the early years. This scenario would also result in a demand for hydrogen in excess of the network capacity between 2019 and In practice expansion of the network would be tailored to the actual and expected increases in demand. * Indicative average utilisation figures needed to for an individual HRS to be profitable. 72

73 NFN to 2019 ( m) Sharing an HRS network between buses and other vehicle types could reduce the net financing need to 2019 by c. 2m Net financing need to 2019 under different demand scenarios m +2.1m Extreme Case B2 (Medium, Upgrade) C (High) 0 Base case Inc. FCEBs FCEVs Only FCETs & Vans Only Zero demand Lower demand leads to lower revenues, which in turn have a negative impact on the attractiveness of a network. The sensitivities with FCETs and Vans Only, and FCEVs Only demonstrate the risk if certain vehicle classes are not brought to market. Allowing FCEBs to refuel at public HRS can reduce the NFN to 2019 by c. 2.1m. This would also increase the NPV (due to the higher average network utilisation (see previous slide)). However, this would require a change in operational practices for bus operators. The increase in NFN to 2019 (relative to the base case) in the extreme scenario of zero demand arising is c. 0.6m (<4% of base case NFN). This reflects the fact that NFN is dominated by capex and fixed opex in the early years of the rollout (revenues from hydrogen sale have little impact). This effect is greater for a High early coverage network (C) as there a greater number of HRS are under utilised in the early years. * No difference in hydrogen price between vehicle types is included in the modelling. 73

74 / kg / kg p / kwh We also test the sensitivity of economic KPIs against hydrogen cost / price assumptions The retail price of hydrogen (i.e. price at HRS), and the cost of delivering hydrogen to (or producing hydrogen at) an HRS affect the economic attractiveness of a network. The base case delivered hydrogen cost trend from has been linked to natural gas price projections, and the 2014 production cost taken from A portfolio of power-trains for Europe: a fact-based analysis.* For the base case water electrolysis hydrogen cost we assume that on site electrolysers can access relatively low cost electricity (figures based on tariffs available to extra large energy users (i.e. >150GWh per annum)). The base case retail price for hydrogen assumes a 3/kg mark-up on the delivered cost which has to pay for the cost of HRS equipment and generate any profits for the network. The impact of changing this assumption is explored on the following slide. DECC Central Cost of Industrial Natural Gas and Extra Large Energy Users Electricity p / kwh 10 5 Natural gas Electricity 0 Cost of hydrogen to a HRS, / kg Hydrogen price to consumers, / kg 10 Hydrogen costs excluding any HRS capex / fixed opex costs Delivered hydrogen cost WE hydrogen cost 5 Base case retail price (inc. VAT) * Source (H 2 cost): Source (electricity cost): 74

75 NPV ( ) ( m) A mark-up on H 2 sales of c. 3.20/kg provides a positive NPV for the High coverage network (scenario C) NPV ( ) with different H 2 mark-ups* B2 (Medium, Upgrade) C (High) /kg 3/kg (Base Case) 4/kg 5/kg Mark-up on hydrogen sold at HRS ( /kgh 2 ) Mark-up is defined as the difference between the price of hydrogen sold at the HRS and the cost of delivering / producing the fuel. E.g. if the delivered cost of hydrogen to a station is 4/kg, a mark-up of 3/kg leads to a selling price to the driver of 7/kg (excluding VAT). This analysis includes an implicit assumption of inelastic hydrogen demand (i.e. H 2 demand does not differ between the scenarios above). These results suggest that a mark-up of around 3.00/kgH 2 is the point at which the whole life NPV turns positive (using a 12% discount rate) for a High coverage network. This implies a hydrogen price of approx. 7.00/kg (excluding VAT). In practice, hydrogen may need to be priced to offer an attractive proposition to customers relative to petrol / diesel in order to support vehicle uptake. *Analysis based on a discount rate of 12%. 75

76 NPV ( ) ( m) Grant funding may be used to de-risk early investments, but a long-term view will still be needed to see returns on investment Economic KPIs for grant sensitivity testing NPV ( ) Medium, Upgrade (B2) NFN to 2019 NPV ( ) NPV ( ) Total grant Base case (no support) 13.6m 13.9m 3.6m 0m 50% capital grant 6.5m 8.4m 9.2m 5.4m 75% capital grant 2.9m 5.6m 11.9m 8.1m High coverage (C) NFN to 2019 NPV ( ) NPV ( ) Total grant Base case (no support) 20.3m 17.2m 0.4m 0m 50% capital grant 9.8m 9.2m 8.3m 8.3m 75% capital grant 4.6m 5.2m 12.3m 12.4m Grant support scenarios: grant funding for the initial stations (i.e. those built before 2020). NFN values in these case indicate remaining level of private sector investment required. The grant support scenarios modelled represent public sector money being used to reduce the investment required by industry. In the scenarios above grant funding is applied to the capital cost of the initial network of HRS. Even with a high level of funding for the initial stations (75%), the NPV to 2025 remains negative for both network options. This highlights the need to view investments in an HRS network over an extended period (for positive returns). Although insufficient to deliver short-term returns, grant funding is likely to have an important role to play in attracting and de-risking private sector investment in the initial network of HRS for London, when any private sector investment is the hardest to attract B2 (Medium, Upgrade) 0.4 Base case (no grant) % capital grant 11.9 C (High) % capital grant 76

77 The hydrogen production mix is likely to impact the economic attractiveness of a network Water electrolysis is likely to play a key role in achieving a number of strategic drivers for hydrogen transport in London. These include but are not limited to: Energy storage capabilities: Increasing amounts of intermittent renewable energy sources are expected to be added to the UK s generation mix over the coming years. Electrolysers are highly responsive so can provide grid balancing services, and provide a mechanism to generate hydrogen for use as an energy storage medium. Decarbonisation of the transport sector: Using hydrogen as a transport fuel leads to zero tailpipe emissions. Well to wheel emissions for hydrogen transport depend on the source of hydrogen used. Decarbonising the production process through electrolysis (using renewable energy) can decarbonise the hydrogen production mix and in turn reduce emissions from the transport sector. Energy security and stable fuel prices: Domestic hydrogen production from renewable energy sources will reduce the requirement to import fuel for transport applications. Sourcing electricity solely from renewables could provide more certainty over production costs as the costs of renewable electricity generation are largely insulated from fossil fuel prices. As part of this analysis we explore the impact of different amounts of electrolysis on the economic attractiveness of a network. 77

78 Number of HRS We explore the impact of H 2 production mix on overall economics by considering two extreme cases: 100% delivered & 100% on-site The base case includes an equal split in HRS between delivered H 2 and on-site production. For the purpose of this analysis two sensitivities have been defined: Exclusively on site all HRS are equipped with electrolysers and produce 100% of their hydrogen requirement on site. Exclusively delivered scenario with no on-site production: all HRS rely on delivered hydrogen. Number of HRS in London through time Medium, Upgrading (B2) High (C) Base Case Exclusively on site (Green) Exclusively delivered (Brown) B2, Base Case C, Base Case 15 B2, Green B2, Brown C, Green C, Brown 100kg/day delivery 500kg/day delivery 1,000kg/day delivery 100kg/day on-site 500kg/day on-site 1,000kg/day on-site 78

79 NPV ( ) ( m) Electrolysis raises the absolute cost of a network but offers wider benefits such as carbon abatement and energy storage Net financing need to 2019 for different mixes of on site and delivered hydrogen NPV ( ) Scenario Medium, upgrade (B2) High coverage (C) () = % change from base case Base case NFN to 2019 Exclusively delivered Exclusively on-site 13.6m 9.0m (-34%) 18.9m (+39%) 20.3m 12.8m (-37%) 27.7m (+36%) C (High) Base case B2 (Medium, Upgrade) Exclusively delivered Exclusively on-site Including electrolysers in all 20 HRS raises the net financing need to 2019 for both networks by around one third, i.e. to 19m for a Medium early coverage network (B2) and 27.7m for a High early coverage network (C). The NPVs for both networks from have gone from almost neutral in the base case to negative when considering on-site electrolysis as the only source of hydrogen ( 6.2m and 10.6m respectively). This is a result of the relatively high capital costs of electrolysers compared to HRS dispensing delivered hydrogen and is the cost of securing green hydrogen for London from the outset. The reverse scenario where all HRS dispense delivered hydrogen presents net financing needs which are approximately a third lower than the base case, and NPVs from of 13.5m and 11.2m for a Medium and High network respectively. 79

80 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Introduction Hydrogen demand and HRS rollout scenarios for London Economic analysis core scenarios Sensitivity and policy analysis Conclusions Benefits Policy analysis Action plan and next steps Appendix 80

81 A positive long-term business case could be unlocked with a relatively modest initial investment The economic analysis presented above suggests that an initial network of HRS to provide full coverage of London could be delivered for c. 7m 21m (NFN to 2019). The lower end of this range corresponds to basic coverage (six HRS), with a higher investment required to build an initial network of twenty stations. All rollout scenarios, except the high early coverage option, considered can offer a positive NPV (12% discount rate) when the investment is evaluated over the network lifetime. Positive returns over a shorter (e.g. ten year) period do not appear feasible, even with grant support for the initial stations. A staged approach can be used to reduce the at-risk investment. For example, a scenario that delivers thirteen stations initially requires an investment of just under 14m to Further capital spend to upgrade / expand the network could be subject to clear indications that vehicle numbers (and demand for H 2 ) are increasing. Net financing need to 2019 is relatively insensitive to hydrogen demand. This is due to low network utilisation in the early years, which means NFN is dominated by capex and fixed opex of the stations (which are independent of hydrogen demand). However, the business case depends critically on revenues from hydrogen sales in the medium term (from the 2020s and beyond). Mechanisms for securing vehicle uptake and hence hydrogen demand are explored in the Policy analysis section below. 81

82 An initial network of 20 HRS offers a balance between additional financing need and providing coverage across London The geographic modelling results demonstrate that a network of 20 HRS, if strategically placed, could provide coverage across London such that all areas are within 7km (c.10 minutes drive on average) of a station. 20 stations Surveys from other studies suggest that this is the minimum coverage required to provide an acceptable level of convenience to a wide pool of potential vehicle users. For this reason this should be considered the lead scenario for London. The results above show that the net financing need to 2019 for the High network (20 initial HRS) is c. 20.3m. This figure includes the cost of electrolysers for on-site production at half of the stations, which offer the potential to secure green hydrogen supplies from the outset. There are currently five funded HRS for London (existing / planned) that could form part of the publicly accessible network. As a first approximation, this reduces the additional net financing need (to 2019) to c. 15m. Various options for funding this additional investment exist. For example, a combination of public funding (from national and / or local government) and private sector investment may be an appropriate means of delivering this strategy (see following slide). 82

83 The net financing need (after accounting for funded HRS) is c. 15m for a 20 HRS network and could be split between various parties Including the existing (Hatton Cross) and planned HRS in London in the lead rollout strategy reduces the amount of additional financing required. Note that these figures are based on a network with equal numbers of HRS using delivered hydrogen and HRS with on-site production. Total in initial London network Existing / planned (i.e. with funding secured) No. of HRS in London 20 5 Potential sources of funding Public funding (e.g. national government / FCH JU) Private sector / GLA 10.5m (70%) 4.5m (30%) TOTAL 15m New financing required 15 This suggests that c. 25% of the NFN for the initial stations has already been secured.* On this basis, the remaining net financing need for the initial network is c. 15m (to 2019). Indicative sources of funding on the assumption that national government and Europe s FCH JU funding programmes could provide 70% of the costs and the remainder could come from the GLA and the private sector. National government has signalled its intended support of zero emission transport (e.g. via the recent call for evidence on how to allocate a budget of 500m to support ULEVs in the period). The EC (via the FCH JU) represents a further potential source of public funding for HRS (and FCEVs) in the early years of the rollout. * This figure is approximate as in practice the types of stations to be deployed have different specifications and HRS deployed as part of demonstration projects are not fully funded to 2019 /

84 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix 84

85 Facilitating the deployment of hydrogen transport provides a range of financial and non-financial benefits The benefits to London and the UK of implementing a hydrogen transport system can be classified as: Environmental positive local impact through improvement of air quality, and potential to decarbonise the road transport sector, thus reducing the UK s contributions to global CO 2 emissions. Economic positioning London and the UK as a centre for zero emission vehicle deployment helps attract inward investment, leading to job creation and concomitant economic and social benefits. Energy security the diversity of primary energy sources for hydrogen is one of the key advantages of a system based on this energy vector. This provides security and also the benefit that many of the sources are derived in the UK, leading to an on-shoring of energy supply. This is likely to be an increasingly important consideration in the context of falling domestic fuel production (e.g. UK production of petroleum products fell 20% between 2000 and 2012).* While transitioning to a zero emission transport system offers some immediate benefits (e.g. positive impact on local air quality), the main advantages accrue in the medium to long term. This section briefly explores the benefits of hydrogen transport under each of the three broad areas listed above and includes a summary of the emissions improvements and associated benefits which could be realised from vehicles deployed in London in the base case for the refuelling network analysis. Details of the methodologies used to calculate the reduction in emissions and the associated economic indicators are provided in the appendix. * Source: DUKES 2013, Chapter 3, p

86 Hydrogen transport offers the opportunity to significantly improve air quality in London and reduce CO 2 emissions from transport In common with many major cities, London faces a challenge in improving air quality. Poor air quality reduces the quality of life for residents and the experience of visitors to the city, and represents a serious health risk. Road transport is currently a major (and highly visible) source of air pollution, contributing approximately 80% of certain emissions (PM 10 and PM 2.5 ).* Facilitating the rollout of hydrogen transport as set out above can play an important role in reducing local emissions and is consistent with the key measures of the Mayor s Air Quality Strategy, including: Promoting technological change and cleaner vehicles. Reducing emissions from [...] public transport fleets. Mayor of London s Air Quality Strategy London is particularly well placed to catalyse wider (national) rollout of hydrogen transport, which could lead to emissions savings worth m/yr in the UK by 2050 (based on FCEVs accounting for around half of the vehicle parc by this date).** In addition to air quality improvements (which are relatively short term), hydrogen transport provides a pathway to decarbonising the transport sector in the medium to long term (see section on hydrogen production (appendix)), thus could be an important aspect in mitigating the potentially severe risks of climate change. * Source: Clearing the air: The Mayor s Air Quality Strategy (December 2010). ** Source: UK H Mobility Phase 1 report, p.24 (April 2013). 86

87 CO 2 saving ktco 2 /yr NO x saving t/yr PM 10 saving t/yr While emissions savings are modest in the near term, the rollout strategy is an important first step towards mass market uptake Emission abatement from the uptake of hydrogen-fuelled vehicles in London (base case) The CO 2 abatement figures presented above are based on a 50:50 mix of hydrogen from SMR (carbon intensity of c.9.5kgco 2 /kgh 2 ) and hydrogen from water electrolysis using renewable electricity (carbon intensity of 0kgCO 2 /kgh 2 ). NO x emissions savings are calculated based on hydrogen-fuelled vehicles being purchased in place of ICEVs that comply with Euro VI standards (see appendix for details). NO x emissions in London from cars and taxis in 2008 totalled around 10kt*, which suggests that the annual savings above are relatively low. This is due to the tightening emissions standards for new vehicles (higher savings per vehicle are achieved by replacing more polluting older vehicles, rather than substituting zero emission vehicles for efficient Euro VI models). Under the base case vehicle uptake, PM 10 emission abatement in London reaches over 2t/yr by the mid-2020s. While this is a relatively modest saving compared to the c.60t/yr PM 10 emissions from taxis and cars in 2008**, the main benefits accrue in the longer term as zero emission vehicles gain increasing market share. Estimated monetary values of these NO x and PM 10 emissions reductions are presented below. * Clearing the air: The Mayor s Air Quality Strategy, Figure 2.15, p.45, (December 2010). ** Clearing the air: The Mayor s Air Quality Strategy, Figure 2.11, p.40, (December 2010). 87

88 saving ( /yr) saving ( /yr) The annual benefit of improved air quality in London resulting from FCEV uptake could reach c. 0.5m/yr by the mid-2020s Air quality benefit associated with the abatement of NO x and PM 10 in London (undiscounted) 40,000 NO x PM ,000 Benefit due to NO x 30,000 20,000 10,000 0 Benefit due to PM , , , ,000 0 These graphs show the undiscounted financial benefit from offsetting the harmful tailpipe emissions PM 10 and NO x. These benefits are quantified by DEFRA* as approximately 1,000/tNO x, and 200,000/tPM 10. Further details are provided in the appendix. In 2025 the annual benefit due to air quality improvements is approximately 40k p.a. from NO x reductions, and 400k p.a. from PM 10 reductions, with a total cumulative benefit to this date of c. 1.1m. Note that no inflation in damage costs is included in these figures. This is a conservative assumption as in practice the value of air quality improvements may increase through time if air quality problems in London (and the associated health issues) persist. Provided that FCEVs continue to increase market share into the next decade and beyond, the main benefits from reduced emissions accrue in the medium to long term. Delivering this strategy will position London (and the UK) on a pathway to high penetration of zero emission vehicles that will provide longterm environmental benefits. * 88

89 Positioning London as a centre for H 2 transport rollout will allow the UK to capitalise on opportunities in the ULEV sector The UK s automotive industry is an important sector of the national economy, with a turnover of c. 56bn in 2011 (automotive manufacturing), and 27bn worth of exports (9.2% of total UK exports).* The UK Automotive Council s technology roadmap for passenger cars identifies hydrogen transport as a strategically important element of the approach to decarbonising road transport. The development of hydrogen transport in the UK leads to opportunities across the value chain (advanced R&D, design, vehicle manufacture, fuel production, etc.), which could bring significant economic benefit to the UK. Positioning London as one of the key launch markets for hydrogen-fuelled vehicles is consistent with delivering national Government s vision for the UK to be a global leader in ultra low emission vehicles. Passenger car low carbon technology roadmap** * Source: Motor Industry Facts 2013, SMMT, p.9 (2013). ** Source: Automotive Council: 89

90 Mega-tonnes Local production of hydrogen is an opportunity to stimulate economic activity within the UK, potentially within London The diversity of potential energy sources is a key advantage of hydrogen as an energy carrier (see appendix for an overview of H 2 production). Increased use of hydrogen is therefore consistent with a strategy to reduce the UK s reliance on imported fossil fuels. Given that hydrogen fuel for the transport sector can be produced locally, substituting hydrogen for petrol / diesel leads to direct local economic benefits. Domestically produced petroleum-based fuels can be exported, which means that the increased use of hydrogen will improve the UK s balance of payments. Producing hydrogen via water electrolysis also leads to indirect benefits for the UK s power sector as the technology can offer valuable grid balancing services and facilitate the integration of increased levels of renewable electricity generation. According to the UK s Digest of UK Energy Statistics (Chapter 3, Petroleum): The UK s refineries [...] are geared to produce motor spirit for domestic cars [...]. With the increasing dieselisation of the UK s car fleet [...] UK domestic production of individual petroleum products is increasingly no longer aligned with the domestic market demand. * UK production and consumption of selected petroleum products (2012) Motor spirit Diesel Source: DUKES (2013) Production Consumption * Source: DUKES 2013, Chapter 3, p

91 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix 91

92 Some level of public sector intervention is likely to be required to build an HRS network across London and beyond The economic modelling results presented above demonstrate that investment in a hydrogen refuelling station network can yield positive returns if viewed over a sufficiently long period. Enabling the uptake of hydrogen-fuelled vehicles can also deliver long-term environmental and economic benefits for London. However, the nature of the investment required (long-term, with relatively high risks, particularly in the early years) means that a full HRS network is unlikely to be delivered by the private sector without some form of public sector intervention. In this section we present policy measures that the GLA could consider implementing to support the rollout of hydrogen transport in London. This is followed by a recommended action plan for stakeholders in the public and private sectors. Note As of early 2014, London has one publicly accessible HRS (the HyTEC station at Hatton Cross), with plans (and funding) in place to install four further stations. Plans for national rollout of hydrogen transport are being developed through the UK H 2 Mobility project. The recommendations below allow London to build on existing demonstration activities to provide full HRS coverage of the capital. While full details of the strategy and appropriate actions will depend to some extent on national plans, London is extremely well placed to take the lead in this area and ensure the UK is an attractive launch market for OEMs seeking to commercialise FCEVs. 92

93 There are various risks facing HRS investors which may be mitigated to some extent by public sector support The principal risks to delivering a sustainable, long-term hydrogen transport sector can be categorised into a number of areas. Various national / local government support options can help mitigate these risks and increase the chances of a successful rollout. Risk 1: No short-term returns for infrastructure investors The nature of the investment required means that ROI is possible in the medium / long term (but very challenging to achieve in the short term). Risk 2: Lack of increase in H 2 demand over time undermining the business case The GLA (along with national government) has a role to play in ensuring London (and the UK) is an attractive market for FCEVs and in supporting their uptake. Risk 3: Lack of sites for new HRS Site selection for new HRS is particularly important in the early years of the rollout, when the network is limited. The GLA is well placed to support site identification and selection activities (discussed further below). Risk 4: Delays / obstructions in obtaining planning permission for new HRS As the owner of The London Plan (which sets the overall strategic direction for London), the GLA is in a position to ensure that the planning process does not hamper the rollout of HRS in London. 93

94 Policy options for supporting / de-risking the rollout: lack of shortterm returns for HRS investors Past experience suggests that a major transformational shift, such as the transition to hydrogenfuelled transport, will not occur over a short period. The dynamics of this market mean that investors in hydrogen refuelling infrastructure must take a long-term view to see positive returns. While local / national government bodies can do little to alter the fundamental characteristics of this market, actions to address the challenge of no short-term returns include: Offer grant support for the initial network of stations to reduce the level of private sector investment required in the earliest phase of the rollout. Grant funding may be available from national government (e.g. as part of OLEV s 500m funding package for ULEVs between 2015 and 2020). Provide clear signals regarding the long-term future of the hydrogen transport sector. A supportive, stable policy environment for hydrogen transport will increase the chances of attracting private sector investment. Consider investing in HRS (e.g. seed investment of the initial London-wide network). Options for providing funding support (e.g. equity investment / soft loans) include the London Enterprise Panel (LEP, the local enterprise partnership for London), and the London Green Fund (a 100m fund to invest in carbon emission reduction schemes in London). Such public sector support of HRS rollout could attract further investment from private sector investors able to take a long-term view. 94

95 Policy options for supporting / de-risking the rollout: lack of hydrogen demand increase over time (1) As the TCO analysis section above demonstrates, the economic attractiveness of hydrogen-fuelled vehicles will depend heavily on purchase price (and residual value). A wide range of policy options is available to the GLA to help secure hydrogen demand; both by enhancing the offer to prospective customers, and by using public sector procurement to demonstrate and showcase the technology. Policy options include: Public procurement of hydrogen-fuelled vehicles e.g. ensure that FCEVs play a part in meeting the Mayor s commitment to introduce 1,000 low emission vehicles into the GLA Group fleet by Continue to support technology providers able to bring to market a FC taxi the Mayor s announcement that all new taxis registered from 1 st January 2018 should be zero emission capable is a welcome signal of the need for a product in this area. Implement a mechanism to ensure that higher capital costs of FC taxis do not act as a barrier to their uptake (e.g. a low cost financing scheme). Ensure that FCEVs are exempt from the Congestion Charge. Coordinate awareness-raising campaigns as the hydrogen transport market develops. The GLA (Hydrogen London) is very well placed to lead this type of activity. 95

96 Policy options for supporting / de-risking the rollout: lack of hydrogen demand increase over time (2) Additional mechanisms that can be used to support the uptake of FCEVs include: Dedicated parking offering dedicated parking spaces to FCEV drivers in London could be an attractive time-saving measure. Free parking reduced price or free parking could be offered at public car parks and / or through reduced price resident parking permits Restricted access to certain areas for conventional vehicles for example, ultra low emission zones / low noise zones ( green zones ). London s proposed extended ultra low emission zone could also be an effective mechanism for supporting ULEV uptake. Placing strict restrictions on where ICEVs can drive provides a strong incentive for encouraging use of zero emission vehicles. 96

97 Policy options for supporting / de-risking the rollout: HRS siting and planning permission The London Plan supports technologies such as HRS through Policy 5.8. The Mayor can continue to support HRS rollout by ensuring that such policies are retained or strengthened in future revisions. Further ways in which the GLA can support HRS rollout include: Strengthen policy in the The London Plan, e.g. earmark land for HRS in major new developments, require developments above a certain size (or new forecourts) to include HRS, etc. Identify potential HRS sites on GLA-owned land. Continue to work with London Boroughs and other land owners to identify further sites suitable for HRS. Where possible, make land available on commercial terms that reflect the nature of this nascent sector that could help London meet a range of its strategic long-term aims. Support HRS providers through the planning application process, e.g. by providing pre-application advice via the Mayor s Planning Decisions Unit. Communicate relevant information (background to hydrogen transport, lessons from existing installations etc.) to borough planning officers to allow them to make informed decisions. Continue to facilitate input into HRS siting decisions from all stakeholders, for example through Hydrogen London s Transport Delivery Group. Extracts from The London Plan (July 2011) Policy 5.8: Innovative Energy Technologies The Mayor supports and encourages the more widespread use of innovative energy technologies to reduce use of fossil fuels and carbon dioxide emissions. In particular the Mayor will seek to work with boroughs and other partners in this respect, for example by stimulating: a. the uptake of electric and hydrogen fuel cell vehicles b. hydrogen supply and distribution infrastructure c. the uptake of advanced conversion technologies such as anaerobic digestion, gasification and pyrolysis for the treatment of waste 5.45 The Mayor will work with the London Hydrogen Partnership, boroughs and others to support the development of a Hydrogen Action Plan, and the development of energy infrastructure based on hydrogen as a principal energy carrier. 97

98 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix 98

99 London hydrogen transport strategy delivery plan: public sector actions GLA Group & London boroughs Initiation phase (pre-2017) Support HRS siting & planning activities. Network expansion (early 2020s) Support private sector applications for national (and international) public funding. Consider investing in initial HRS network. Secure H 2 demand from vehicles (public procurement, supportive policies etc. details in policy analysis section). Lead / coordinate awareness-raising activities. Work within UK H 2 Mobility and with Government and internationally to promote London as an early adopter city for H 2 vehicles. Exploit role as coordinator of the HyFIVE project to further London s position as a leading adopter of H 2 vehicles. Maturing market (post-2025) Provide long term certainty on mechanisms to create demand for H 2 vehicles ULEZ, zero emission taxi policy, congestion charge exemptions etc. Successful rollout of hydrogen transport will require coordinated, concerted efforts from a range of public and private sector actors. Recommended actions for private sector organisations are set out below. 99

100 London hydrogen transport strategy delivery plan: private sector actions HRS providers Vehicle providers Initiation phase (pre-2017) Applications for funding. Justify co-investments. Supply, build, and maintain HRS demonstrate reliability & availability. Secure low cost electricity for HRS with WE. Work with relevant bodies to develop guidelines for HRS installation on forecourts.* Network expansion (early 2020s) Upgrade and expand HRS network, including working with forecourt operators. Reduce CO 2 intensity of hydrogen supply. Continue efforts to reduce the capex and opex of HRS. Inform detailed HRS siting decisions for the initial network. Bring vehicles to the UK market and provide advanced information on models, specifications, introduction dates and prices as far as possible. Provide greater clarity on plans to introduce a commercial fuel cell taxi for the London market. Support FCEVs in use (train dealerships, implement maintenance support network etc.). Collect customer feedback on vehicles to inform development of future generations and provide confidence about long term outlook for the sector. Maturing market (post-2025) Continue to invest in HRS (and H 2 production) to further expand / upgrade the network according to H 2 demand. Expand range of FC vehicle classes. Continue technology development to produce lower cost, higher performance FCEVs. * National guidelines for installing HRS on forecourts are not currently in place. A process to develop guidelines began in early

101 Further work is needed to deliver the hydrogen transport rollout strategy for London set out above This document provides a strategy to increase the role of hydrogen as a transport fuel in London, and to position London (and the UK) as an attractive launch market for global OEMs deciding where to market FCEVs. The next steps required to deliver the strategy include: Communication of the strategy to policy makers within the GLA Group to secure senior level support for proceeding with the recommended actions. Work on implementation of recommended actions in the context of broader support measures for the ULEV sector. Continued engagement of the GLA with national government and the UK H 2 Mobility project to understand UK-wide plans for hydrogen transport and ensure that London s activities complement the wider rollout. Work with public and private sector organisations to identify potential sites for the initial network of HRS across London, focusing on the priority areas identified through the geographic modelling. 101

102 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix Strategy development process Geographic modelling additional results Economic modelling input assumptions & additional results Benefits calculation methodology Hydrogen production 102

103 The development of this strategy has been informed by a steering group of experts in low emission transport The hydrogen transport delivery group is a sub-set of Hydrogen London members and has been providing input into the development of this strategy. x Transport Delivery Group 103

104 The next steps towards commercialisation task under HyTEC provides a strategy for FCEV and HRS rollout in London Objectives Explore next steps required for London to become a leading city for H 2 transport. Build consensus among key stakeholders and plan next steps that are consistent with London s Hydrogen Action Plan Programme of activities Jan. Mar. May July Sept Nov. Jan. Mar. Literature review Modelling: geographic & techno-economic Reporting TDG meetings (17/05, 20/08, 08/10, 27/11, 17/02) 104

105 A first draft of the strategy was issued in early 2014, allowing time for refinement & wider engagement to finalise the document Hydrogen transport rollout action plan for London programme Jan. Mar. May July Sept Nov. Jan. Reporting Next steps strategy first draft (end of Feb. 2014), and final version (May 2014) Engagement / alignment phase Defining details of implementation Delivery (from 2015) Expand & quantify vision for H 2 transport in London (make case for rollout) Ensure alignment with TfL s ULEV strategy and national rollout plans (UK H 2 Mobility) Develop details of implementation ahead of delivery phase (from 2015) 105

106 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix Strategy development process Geographic modelling additional results Economic modelling input assumptions & additional results Benefits calculation methodology Hydrogen production 106

107 Motorways in and around Greater London A1(M) M1 M11 M25 M40 M25 M4 M3 M20 M25 107

108 London filling stations and M25 service stations London Filling stations and motorway service stations Welcome Break Welcome Break There are approximately 670 petrol stations within the 33 London boroughs. MOTO MOTO There are six motorway service stations in close proximity to London. Stations are equally and evenly spread throughout London. Extra MSA Road Chef Very few stations (<5) are located within the inner ring road. London petrol station Motorway service station Source: Element Energy 108

109 Medium coverage (13 HRS network) A 13 HRS network Population Density (people / km 2 ) 0,000 1,000 1,001 3,000 3,001 5,000 5,001 8,000 8,

110 Population density of South East England highlights a significant density outside the inner London ring road Population Density of South East England Population density expressed as inhabitants of all ages per km 2. Luton Oxford Southend-on-Sea Gillingham The majority of SE England s population is within the M25. Reading Population Density (people / km 2 ) 0,000 1,000 1,001 3,000 3,001 5,000 5,001 8,000 8,001+ Portsmouth Brighton There are small pockets of population density directly to the east and south west of London. Source: Element Energy 110

111 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix Strategy development process Geographic modelling additional results Economic modelling input assumptions & additional results Benefits calculation methodology Hydrogen production 111

112 Fuel Cell Electric Taxis input assumptions for TCO analysis There are approximately 23,000 black cabs in London. The Mayor of London is seeking to implement an ultra low emission zone in central London from 2020 (1). Plans are underway to develop zero emission taxis as part of this strategy (including electric taxis). TCO Element ICET FCET Notes Purchase price (inc. VAT) 36,000 (2) 55,000 Cost target validated by IE. Euro 6 standards are due to come into effect from 2014/15 potential impact on ICEV taxi capex Fuel consumption 8.4 l/100km 1.2 kgh 2 /100km ICEV figure based on 33.6mpg. FC efficiency to be validated by Cenex. Mileage 70,000 km/yr 70,000 km/yr Licensed Taxi Drivers Association Other costs (maintenance, insurance, garaging etc.) 4,000/yr 4,000/yr Assumption that these costs are comparable. Lifetime 15 years 4 years Assume zero RV after 4 years for FCET and 60% for the ICET. (3) First year VED VED values from Annual VED 475/yr 0/yr Assumption that FCETs are exempt from VED. (1) (2) / (3) 112

113 Fuel Cell Electric Buses input assumptions for TCO analysis Fuel Cell Buses are seen as a component of the solution towards meeting the Mayor of London's emissions targets (1). RV1 in London As of 2013 there are eight FCEBs deployed and servicing public transport routes in London. TCO Element ICEB FCEB Notes Purchase price (exc. VAT) 150,000 (2) 650,000 FCEB price taken from Urban Buses: Alternative Powertrains for Europe. Fuel consumption 37 l/100km (3) 8 kgh 2 /100km Lower bound of current FCEB performance values (4). Mileage 65,000 km/yr 65,000 km/yr Average daily distance per bus ~180km. Other costs (maintenance, insurance, etc.) 13,000/yr 22,000/yr Lifetime 12 years 12 years Assume zero RV after 12 years for ICE and FC buses. Annual VED 500/yr 0/yr VED rates for ICE buses from Assumption that FC buses are exempt from VED. (1) (2) (3) (4) (5) 113

114 Hydrogen ICE Light Commercial Vehicles input assumptions for TCO analysis Hydrogen ICE LGV made by Revolve Technologies Revolve Technologies based in the UK has developed a converted Ford Transit Vehicle which is powered by a hydrogen ICE (1). Although the efficiency of these vehicles is inferior to FC vehicles these are included in the modelling as they are market ready. TCO Element ICE LCV H 2 ICE LCV Notes Purchase price (ex. VAT) 19,000 (2) Fuel consumption 10 l/100km (3) Low: 23,000 Central: 28,000 High: 33, kgh 2 /100km + 2 l/100km Scenario based approach as prices are unknown. Revolve public statements (1). Mileage 15,000 km/yr 15,000 km/yr Based on DfT statistics (4). Other costs (maintenance, insurance, etc.) 3,000/yr 3,000/yr Assumption that these costs are comparable. Lifetime 12 years 12 years Assume zero RV after 12 years for both vehicle types. Annual VED 220/yr 220/yr VED rates for from (1) (2) (3) (4) 114

115 Fuel Cell Electric Light Commercial Vehicles input assumptions for TCO analysis HyKangoo: under development by SymbioFC, France Light Commercial Vehicles account for approximately 10% of vehicle traffic along the major roads in London (1). SymbioFCell is currently developing a FC LGV (2). TCO Element ICE LCV FC-LCV Notes Purchase price (ex. VAT) 16,000 (3) 30,000 Launch price of the FC-LCV is not yet known. 30k is an estimated target value. Fuel consumption 6.7 l/100km (4) 1.2 kgh 2 /100km Comparable fuel efficiency to FCET assumed. Mileage 15,000 km/yr 15,000 km/yr Based on DfT statistics (5). Other costs (maintenance, insurance, etc.) 3,000/yr 3,000/yr Assumption that these costs are comparable. Lifetime 12 years 12 years Assume zero RV after 12 years for both vehicle types. Annual VED 125/yr 0/yr VED rates for from (1) (2) (3) (4) (5) (6) 115

116 Indicative costs of building new HRS and upgrading HRS have been used in the techno-economic modelling Three indicative HRS sizes are considered in the economic modelling: 100, 500, and 1,000 kg/day. For modelling purposes we assume an HRS can be upgraded by one size (e.g. 100 kg/day to a 500 kg/day station). The upgrade cost for a station in year is the cost difference between the two station sizes multiplied by a factor of 1.2 to account for additional costs (e.g. additional transport, labour, civil engineering costs etc.). HRS capacity HRS capex* Upgrade Cost* 100kg/day 550k 780k 500kg/day 1.2m 960k 1,000kg/day 2.0m - HRS capex is the total installed cost of a station. We assume reductions in the HRS capex over time. These reductions are explained on the following slides. For each station size an allowance of 10% of HRS capex is made for annual fixed opex. This covers routine maintenance of the station, spare parts etc. Note: the costs used in this analysis are indicative and may vary depending on the HRS supplier, but were deemed reasonable assumptions (by members of the Transport Delivery Group) for the purpose of evaluating alternative rollout strategy options. *Costs in year

117 Indicative electrolyser costs and sizes have been used in the techno economic modelling Electrolyser sizing (for HRS with on-site production) is based on a matching approach (i.e. the electrolyser production capacity matches the HRS capacity (kg/day)). The cost and efficiency assumptions used for the electrolysers are given below Electrolyser capacity Electrolyser capex HRS and electrolyser Efficiency 100kg/day* 750k 1.30m 55 kwh/kgh 2 500kg/day** 1.75m 2.95m 55 kwh/kgh 2 1,000kg/day** 3.50m 5.50m 55 kwh/kgh 2 For modelling purposes we assume that electrolyser capacity is increased when the HRS is upgraded (a reasonable assumption given the modular nature of electrolysers). The cost of upgrading an electrolyser is taken as the capex differential between the two sizes. This is in addition to the HRS upgrading capex which is 1.2 times the HRS capex differential (see previous slide). For each station size an allowance of 5% of HRS capex and electrolyser capex is made for annual fixed opex. This covers routine maintenance of the station and electrolyser. Note: the costs used in this analysis are indicative and may vary depending on the electrolyser supplier, but were deemed reasonable assumptions (by members of the Transport Delivery Group) for the purpose of evaluating alternative rollout strategy options. Similar to the HRS capex we assume cost reductions in electrolyser equipment over time (see below). * ** 117

118 Cost reductions for HRS and electrolysers are based on expected market growth rates and technology learning rates Expected learning rates for HRS and water electrolysis technology are reported in the study A Portfolio of Power-Trains for Europe as 3% and 7% respectively. Learning rate is defined as the percent cost reduction with every doubling of accumulated installed capacity. These learning rates have been combined with an analysis of the expected HRS market growth from for lead markets* to estimate cost reductions in the capex of HRS and electrolysers. Total number of HRS in lead markets (stock) ~5x doubling of accumulated capacity from ,065 1,220 1,390 1,606 1, Sources *Lead markets defined as: Germany, Japan, California, Nordic countries, UK. 118

119 The base case cost for hydrogen is linked to the natural gas price for delivery and electricity price for electrolysis Natural Gas Price Projections* Central p / kwh Source: DECC Updated Energy & Emissions Projections - September 2013 Electricity Price Projections* p / kwh Central Source: Based on historic trends in electricity prices available to the manufacturing industry.* Base Case Hydrogen Retail Price (exc. VAT) / kg / kgh₂ * 119

120 million / year million / year Results: scenario A1 a basic early network with capacity expansion through building new HRS before upgrading This core scenario has a NFN up to 2019 of 6.9m for six initial HRS built by the end of New refuelling capacity is only required post The NPV over the period is 11.1m, i.e. revenues in the 2020s are not sufficient to offset the early losses A1 - Rollout Strategy and Utilisation 100% 100 kg/day 500 kg/day 1,000 kg/day Utilisation NPV to end of life (2035) is + 6.5m, based on continued use of the network at c.80% utilisation % Utilisation Zone Annual Cash Flow Breakdown, m / year initial HRS 2015 Capex 2017 Fixed Opex Network Economics A1: Basic Network, build new HRS Variable Opex Revenue Annual Cash Flow Breakdown, m / year, Early Years 1,5 1,0 0,5 0,0-0,5-1,0-1,5-2,0-2,5-3,0-3,5-4,0-4,5 NFN 2019 = 6.9m 1,85 0, ,07 3,70 0,36 0, ,14 0,08 0, ,24 0,38 0,56 0,36 0,36 0,36 0,13 0,21 0,

121 million / year million / year Results: scenario A2 a basic early network with capacity expansion by upgrading before building new HRS The NFN for this scenario is the same as A1 ( 6.9m) as the same number of HRS are built before The NPV ( ) is 10.6m, and NPV ( ) is + 7.0m. The higher NPV relative to scenario A1 is due to the higher profitability of larger stations upgrading rather than building more small stations enhances the economics A2 - Rollout Strategy and Utilisation 100% 100 kg/day 500 kg/day 1,000 kg/day Utilisation % Utilisation Zone Annual Cash Flow Breakdown, m / year initial HRS 2015 Capex 2017 Fixed Opex Network Economics A2: Basic Network, upgrade first Variable Opex Revenue Annual Cash Flow Breakdown, m / year, Early Years 1,5 1,0 0,5 0,0-0,5-1,0-1,5-2,0-2,5-3,0-3,5-4,0-4,5 NFN 2019 = 6.9m 1,85 0, ,07 3,70 0,36 0, ,14 0,36 0, ,24 0,13 0, ,38 0,36 0, ,56 0,36 0,

122 million / year million / year Results: scenario B1 a medium early coverage network with capacity expansion through building new HRS before upgrading For a medium early network the NFN up to 2019 is 13.6m. Although relatively large compared to 6.9m in scenario A1, this figure is comparable to the investment in an initial network of public charge points to support EV uptake in London once already funded stations are taken into account.* B1 - Rollout Strategy and Utilisation 100% 100 kg/day 500 kg/day 1,000 kg/day Utilisation The NPV values are 14.3m ( ), and + 3.2m ( ) % Utilisation Zone Network Economics B1: Medium Network, build new HRS Annual Cash Flow Breakdown, m / year initial HRS Capex Variable Opex Fixed Opex Revenue Annual Cash Flow Breakdown, m / year, Early Years 2 1 NFN 2019 = 13.6m 0 0,07 0,14 0,24 0,38 0,71-1 0,13 0,71 1,85 0,21-2 0,12 3,70 5, ,04 0, ,08 0, ,56 0,71 0, * Around 1,400 EV charge points have been installed in London as part of the Source London network. At a typical capex of 10k per charge point, this equates to a capital investment of 14m. 122

123 million / year million / year Results: scenario B2 a medium early coverage network with capacity expansion by upgrading before building new HRS The NFN for this scenario to 2019 ( 13.6m) is unchanged from scenario B1 as the early networks are identical. The NPV values are 13.9m ( ), and + 3.6m ( ). A comparison with the previous scenario, B1, highlights that upgrading stations first results in a slight increase in the overall NPV B2 - Rollout Strategy and Utilisation 100% 100 kg/day 500 kg/day 1,000 kg/day Utilisation % Utilisation Zone Annual Cash Flow Breakdown, m / year initial HRS 2015 Capex 2017 Fixed Opex Network Economics B2: Medium Network, upgrade first Variable Opex Revenue Annual Cash Flow Breakdown, m / year, Early Years ,85 0, NFN 2019 = 13.6m 0,07 3,70 0,04 0, ,14 5,27 0,08 0, ,24 0,13 0, ,38 0,71 0, ,56 0,71 0,

124 million / year million / year Results: scenario C high early coverage network which expands capacity in the 2020s by upgrading as hydrogen demand grows With 20 HRS deployed by 2017, this scenario leads to a NFN to 2019 of 20.3m. This includes the capex and opex (to 2019) of a network of 20 HRS across London (minus revenues from hydrogen sales). With a higher proportion of investment in the early years (when H 2 demand is low), this scenario has the lowest NPV values: 17.2m ( ), and + 0.4m ( ) C - Rollout Strategy and Utilisation 100% 100 kg/day 500 kg/day 1,000 kg/day Utilisation % Utilisation Zone Annual Cash Flow Breakdown, m / year Network Economics C: High Coverage Network Annual Cash Flow Breakdown, m / year, Early Years 20 initial HRS 1 NFN 2019 = 20.3m Capex Fixed Opex Variable Opex Revenue ,85 0, ,07 3,70 0,04 0, ,14 5,27 0,08 0, ,24 5,68 1,06 0, ,38 1,06 0, ,56 1,06 0,

125 p / kwh Excluding cost reductions in equipment capex and higher electricity prices have been explored as additional sensitivities Electricity price sensitivity Electrolysers are able to offer balancing services to the grid during times of low demand. The impact of these services have been omitted from the main analysis of this report as it is outside the scope of the study. As a simplifying assumption we assume electrolysers can access relatively low cost electricity (projections based on tariffs available to large energy users) starting at <7p/kWh in To explore the importance of using this low electricity tariff on hydrogen production we consider a scenario where electrolysers use the electricity prices outlined in the DECC fuel price projections for the services industry starting at 11p/kWh in Equipment capex cost reductions sensitivity The base case scenario includes cost reductions in the capex of electrolyser and HRS equipment. These reductions have been calculated by combining the expected global market growth projections and technology learning rates. The reductions in equipment capex used in the base case are presented to the right. We explore the impact of altering this assumption by presenting the results for a scenario excluding these cost reductions (i.e. capex in 2015 is equal to capex in 2025 for both HRS and electrolysers). 100 % 50 0 Electricity price projections Base Case DECC Services Central Equipment capex relative to 2015 values (base case) -16% -38% HRS Capex Electrolyser Capex 125

126 Additional sensitivity I: relatively low electricity prices are required for a positive NPV when using on-site production Economic KPIs using Base Case Electricity Prices Economic KPIs using DECC Central Electricity Prices NFN to 2019 NPV (2014 to 2025) NPV (2014 to 2035) NFN to 2019 NPV (2014 to 2025) NPV (2014 to 2035) Medium, upgrade (B2) 13.6m 13.9m + 3.6m Medium, upgrade (B2) 13.8m 20.7m 16.3m High coverage (C) 20.3m 17.2m + 0.4m High coverage (C) 20.5m 24.0m 19.6m The results above correspond to networks with an equal mix of HRS using delivered hydrogen and HRS with on-site production via water electrolysis (WE). The only change between the two sets of results is the assumed electricity price, which has a significant impact on the cost of producing hydrogen via WE. The selling price of hydrogen is not varied between the two scenarios. Base case electricity prices start at c.7p/kwh in 2015, which is a relatively low price (typically only available to large industrial consumers). The DECC Central scenario projection starts with a price of 11p/kWh in The impact of electricity prices is significant over the lifetime of a network as the NPV from 2015 to 2035 for both networks decreases by approximately 20m in the case of higher prices. Conclusion The overall business case for an HRS network using WE is highly sensitive to electricity prices. Steps therefore need to be taken to secure low cost electricity for these types of stations. * 126

127 Additional sensitivity II: cost reductions in HRS and electrolyser technology are required to provide a positive NPV Economic KPIs including capex cost reductions (Base Case) Economic KPIs excluding capex cost reductions NFN to 2019 NPV (2014 to 2025) NPV (2014 to 2035) NFN to 2019 NPV (2014 to 2025) NPV (2014 to 2035) Medium, upgrade (B2) 13.6m 13.9m + 3.6m Medium, upgrade (B2) 14.6m 20.1m 4.2m High coverage (C) 20.3m 17.2m + 0.4m High coverage (C) 22.7m 23.8m 8.0m The base case includes capex reductions for new stations installed in the future (c.16% reduction in HRS capex and 38% reduction in WE capex by 2025 relative to 2015). This sensitivity shows the impact of failing to achieve these forecast cost reductions. Excluding cost reductions raises the net financing need to 2019 by 0.8m for a Medium network, and 2.4m for the High coverage network. The NPV from 2015 to 2035 also decreases by approximately 8m for both networks. Conclusion Reductions in equipment capex will be required to provide an attractive business case for a hydrogen refuelling network. This suggests a need for continued R&D, refinement to designs, and cost engineering from HRS providers to reduce the capital costs of stations. 127

128 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix Strategy development process Geographic modelling additional results Economic modelling input assumptions & additional results Benefits calculation methodology Hydrogen production 128

129 The reduction in carbon emissions and the air quality benefits associated with hydrogen transport have been quantified Unlike ICEVs, FCEVs do not emit NO x and particulate matter (PM 10 ) at their point of use. Our methodology for estimating the abatement of these emissions due to uptake of hydrogen-fuelled vehicles is set out below. Reduction in NO x and PM 10 emissions per year (tno x / year, tpm 10 / year) To quantify the abatement of NO x and PM 10 we consider a counterfactual fleet of ICE vehicles consisting of identical numbers and types of vehicles and calculate the quantity of NO x and PM 10 emissions. As FCEVs do not emit NO x and PM 10 at their point of use we assume that the total emissions of the counterfactual fleet is the amount abated by replacing those vehicles with FCEVs. ICE NOx emissions (gnox per km) x mileage of ICE (km per year) ICE PM 10 emissions (gpm 10 per km) x mileage of ICE (km per year) Summed across each ICE type to calculate the total abatement in tnox and tpm 10 emissions per year A simplifying assumption has been taken that all new registrations will follow the Euro VI emissions standards set to be introduced for passenger cars in September These are listed below alongside the mileage assumptions for each vehicle type. Vehicle Mileages Vehicle type Mileage (km / year) Passenger cars 12,300 Taxis 70,000 ICE-LCVs (small and medium) 20,000 Euro VI Standards Vehicle Type gno x / km gpm 10 / km Passenger cars LCV N 1 Class III >1,765kg

130 DEFRA guidance has been followed to calculate the air quality benefit from offsetting harmful emissions in London The cost of damage to public health from harmful tailpipe emissions is one way of estimating the value of the air quality benefit from abating these emissions. As part of their air quality appraisal, DEFRA, provide guidance for the damage costs of NO x and PM 10 emissions. The DEFRA damage costs account for the impact of exposure to air pollution on health. This includes: chronic mortality effects loss of life years due to air pollution morbidity effects changes in the number of hospital admissions for respiratory or cardiovascular illness Damage costs per tonne of PM 10 are provided for Inner and Outer London. We use an area weighted average to calculate a London average. The Central damage costs provided by DEFRA have been used to calculate the air quality benefit. Pollutant Damage cost* ǂ PM ,000 per tpm 10 NO x 1,054 per tno x Air Quality Benefit ( / year) To calculate the air quality benefit per annum the damage cost per tonne of each pollutant is applied to the total quantity of NOx and PM 10 emitted by the fleet of ICE vehicles: Air Quality Benefit per annum per year Total emmisions of NOx (tonnes per year) x NOx damage cost per tonne = + Total emmisions of PM 10 (tonnes per year) x PM 10 damage cost ( per tonne) * ǂ DEFRA provide 2008 prices which have been inflated to 2014 prices for the purpose of this analysis. 130

131 The quantity of carbon emissions abated by FCEVs depends on the carbon intensity of the hydrogen production process Unlike ICEVs, FCEV do not emit CO 2 at their point of use (i.e. water is the only tailpipe by-product). However, some hydrogen production methods produce CO 2 emissions resulting in overall well to wheel CO 2 emissions for FCEVs. The CO 2 emissions assumptions used in this analysis are given in the following table. H 2 production process kgco 2 / kgh 2 Source Steam Methane Reforming 9.46 Electrolysis using grid electricity in 2014 Electrolysis using renewable electricity Encyclopaedia of energy engineering and technology, Volumes 2-3, Barney L. Capehart Renewable electricity from sources such as solar and wind is assumed to have a carbon intensity of 0 gco 2 /kwh. The base case assumption is that all hydrogen produced via on-site electrolysis uses renewable electricity. This may be achieved by sourcing electricity on a green tariff, for example. Carbon Emissions Reduction (tco 2 / year) The CO 2 abatement from a fleet of fuel cell vehicles is calculated by subtracting the emissions of the FCEV fleet from the emissions of a counterfactual ICE fleet* based on their respective fuel economies, mileages, and fuel CO 2 intensities: Overall CO 2 abatement = ICE point of use CO 2 emissions FCEV well to wheel CO 2 emissions ICE mileage km per year x ICE emissions (kgco 2 per km) FCEV Fuel Consumption kgh 2 per year x Hydrogen Carbon Intensity (kgco 2 per kgh 2 ) * The simplifying assumption that all ICE vehicles use DERV has been taken. 131

132 gco 2 /km Tightening European emissions standards will result in a reduction average fleet emissions for ICEVs Current European legislation has set limits on the average fleet emissions for new passenger vehicle and light commercial vehicle (LCV) registrations in 2015 and As part of the carbon abatement analysis the following assumptions have been taken for LCVs and passenger vehicles: Emissions of ICEVs are in line with the target fleet average emissions (gco 2 /km). FCEVs will not contribute to the average OEM fleet emissions as their sales will be few in number during the early years. Interim targets between 2015 and 2021 are calculated by linear interpolation. Note: the 2020 limit for passenger vehicles is calculated by assuming 95% of new passenger vehicle registrations will comply with the 2021 standard, the remaining 5%, the interim target set in As there are no emission limits confirmed beyond 2021, projections beyond this date are based on a flat-line approach. CO 2 emissions of ICE taxis are based on the current model (TX4) to The actual impact of the policy for all new taxis to be zero emission capable from 2018 remains uncertain. For the purpose of this analysis we assume this has the effect of making average new taxi emissions broadly in line with those of ICE passenger cars. The emissions used for counterfactual vehicles in this analysis are set out below Average counterfactual fleet emissions limits for new registrations (by vehicle type) Taxis LCVs Passenger cars (1) (2) (3) 132

133 Overview Summary Introduction Geographic modelling Hydrogen-fuelled vehicles Refuelling network analysis Benefits Policy analysis Action plan and next steps Appendix Strategy development process Geographic modelling additional results Economic modelling input assumptions & additional results Benefits calculation methodology Hydrogen production 133

134 Hydrogen provides the opportunity to decarbonise transport the pathway in terms of H 2 production is beyond the scope of this work Hydrogen production introduction The focus of this strategy is to define actions required to deliver an initial HRS network and secure the demand for hydrogen-fuelled vehicles in London. Hydrogen production options require further consideration but are not central to this rollout strategy. Hydrogen production is best considered at the national level; options for meeting expected demand and ensuring decarbonisation objectives are met are being investigated through UK H 2 Mobility. Production technologies considered in UK H 2 Mobility UK H 2 Mobility considered eleven H 2 production technologies in its first phase, covering hydrocarbon reformation, water electrolysis, and gasification. A mix of production sources including by-product H 2, water electrolysis and steam methane reforming was judged to provide an appropriate balance between cost and carbon intensity (lower carbon production technologies tend to have higher costs). The following slide gives an overview of the principal hydrogen production technologies currently available. Hydrogen production mix evolution over time providing decreasing CO 2 emissions Source: UK H 2 Mobility Phase 1 report, Figure 14, p.20 (April 2013) 134

135 Electroyltic processes Thermal processes Hydrogen can be produced from a variety of primary feedstocks via a range of alternative processes Energy supply Hydrogen production Transmission and distribution Dispensing Natural gas Petroleum / bioliquid fuel Reforming Coal Biomass Partial oxidation (gasification) Nuclear fuel Water Electricity Thermochemical / other advanced process Centralised electrolysis Water Electrolysis Distributed electrolysis One further broad category uses light energy as the primary input (e.g. photoelectrochemical hydrogen production, biological hydrogen production). These types of process are not yet commercially available. Diagram based on Figure 3 of An Overview of Hydrogen Production and Storage Systems, Lipman (2011). 135