The public pension plan that manages the retirement savings of 715,000 British Columbians has bought into a natural gas transmission network that is touting a risky scheme to use hydrogen for home heating, despite persistent concerns about the cost, safety, and climate impact of the plan.
The January 31 announcement by the B.C. Investment Management Corporation (BCI) and Sydney, Australia-based Macquarie Asset Management, which together hold 60% of the £9.6-billion, 7,600-kilometre gas network in Britain, has set off a flurry of criticism from analysts who question the use of hydrogen as a heating fuel and the practicality of converting entire gas networks to safely carry a notoriously volatile, hard-to-handle molecule.
“If the price you paid was driven by hydrogen for space heating, then this will end up as one for the history books—and not in a good way,” wrote Bloomberg New Energy Finance founder Michael Liebreich, in an early February LinkedIn post aimed at Will Price, the Macquarie managing director acting as a spokesperson for the deal.
“Unless, of course, it’s a cynical bet that the UK’s Net Zero 2050 plan will be delayed or derailed (with the help of lashings of lobbying), and the asset can be milked indefinitely,” Liebreich added. “But only a cynic would think it could be that, and luckily I’m not a cynic.”
A Hydrogen ‘Backbone’
Under the terms of the deal, Macquarie and BCI now own a 60% share of a new company, National Gas, which takes over the gas transmission network previously owned and operated by the UK’s biggest electrical utility, National Grid. With more than seven million domestic, industrial, and commercial accounts, National Gas’ gas metering division “will invest in innovation to futureproof the UK, including by repurposing existing assets working in collaboration with the UK government and industry partners to deliver a hydrogen ‘backbone’ for Britain,” the two partners said in a release after the deal closed.
“Through connecting industrial clusters around the country and leveraging the UK’s world-leading offshore wind industry for hydrogen production, we will provide a base of infrastructure that will decarbonize power generation and heavy industry, boost domestic energy resilience with hydrogen storage, and underpin millions of future green jobs.”
“Accelerating the decarbonization of the UK’s energy mix is crucial to deliver the UK’s net zero ambitions,” Price said in the release. “Hydrogen and other green gases offer the quickest and cheapest path to decarbonize home heating and key industrial processes, as well as strengthening the UK’s energy system through seasonal energy storage. National Gas has ambitious plans, and we are delighted to be supporting the business in this journey.”
“BCI strongly supports National Gas’ innovative decarbonization strategy, which involves transitioning away from fossil fuels while still offering a secure, safe, and reliable network at least cost to consumers,” added BCI Executive VP Lincoln Webb. “Our investment in National Gas is a testament to our support of the UK’s commitment to net zero carbon emissions by 2050.”
“Glad it’s not my money,” Liebreich replied in a tweet two days later.
“Here’s a fun story I was told by an ex-National Grid employee,” added Richard Lowes, senior associate at the Regulatory Assistance Project, a global non-government organization with offices in Belgium, China, Germany, and the United States. “It was when the National Grid board learnt that hydrogen for heating would require area by area conversions that the decision was (finally) made to sell their [Great Britain] gas distribution infrastructure.”
Too Difficult, Too Expensive
Paul Martin, a consultant with Toronto-based Spitfire Research, said the case for widespread reliance on hydrogen starts out from a provable fact—but then it goes wrong. The argument is that, “well, electrification is going to be difficult and expensive,” he said. “And, yeah, it is. That’s clearly true. So the question is whether switching the natural gas grid to hydrogen is a cheaper way to go about heating homes. The answer is no, it isn’t, and it will never be.”
The root of the problem, Martin explained, is that hydrogen is too small and volatile a molecule to be safely or effectively transmitted, distributed, or used with existing gas pipelines, turbines, boilers, cooktops, or burner jets. So when utilities pitch the option, they’re likely talking about 20% blends of hydrogen added to standard fossil gas, leading to at best a 7% reduction in greenhouse gas emissions.
Even if the product is green hydrogen from solar panels or wind turbines—as opposed to the “blue” variety that depends on carbon capture and storage technology to reduce emissions—it will still be more expensive and deliver less energy value than using the electricity directly, Martin continued.
“If you deploy those energy production assets efficiently by means of heat pumps and the electrical distribution grid, you get a multiplier, because you’re using electricity to pump heat from a cold place to a warm place and getting three units of energy for every unit you put in,” he said. “If you go with hydrogen, a fractional energy return for every unit of energy invested is the best you’re ever going to get.”
So “every time you involve hydrogen,” he added, “you get not small losses, but large, substantial losses.”
Far more serious for consumers is the risk of cracked, leaky gas pipes and exploding homes.
The chemical processing industry, where Martin said he worked for decades, has developed complex systems to safely handle hydrogen. But he said those systems wouldn’t work in gas utilities serving residential or commercial users—not without going through the costly process of replacing an extensive existing infrastructure. Adding new liners to existing pipe won’t stop the tiny hydrogen molecules from leaking through the metal—and he said hydrogen is 100 times more potent a greenhouse gas than carbon dioxide over a 10-year span.
“On the whole hydrogen is much, much less safe in a commercial or consumer-type situation,” he said. “In industry, we do things like gas detection and making all the devices incapable of generating amounts of energy that would ignite a gas mixture,” he said. In a home, that would mean protecting every light fixture, power outlet, and electronic device against sparks—and opening homes to the outdoors, with large enough vents to defeat any effort at energy efficiency.
Home occupants, and quite possibly their nearest neighbours, would be in mortal danger if any of those systems failed, because hydrogen is much more explosive than the methane that is the main component of fossil gas.
“The explosive range is much wider, the ignition range an order of magnitude lower, the flame speed is eight times as high as it is for methane, so you have much higher overpressures in the event of a leak, and that’s what blows the walls and windows out and knocks down the building,” Martin said. And likely takes out the buildings next door.
Does BCI Understand the Risk?
Martin said it’s hard to tell whether an investor like BCI has fully assessed the risks. “I know there’s a big move in B.C. for the same thing, the gas industry wants to rescue itself, and this is a worldwide trend,” he said. And “fear of missing out is a big part of this. You hear all the hyperbole, with tens of billions of dollars apparently being spent on building hydrogen infrastructure,” and “who doesn’t want a piece of that? So there’s a gold rush in the States, and they may be saying hydrogen must be the future because everyone’s talking about it.”
Echoing Liebreich’s effort to not be cynical, the other possibility is what Martin called the “greater fool theory,” the idea that “you jump onto a rising trend whether you believe in it or not, and just make sure you bail before everyone else realizes that a natural gas network has no value under decarbonization.”
The Regulatory Assistance Project’s Richard Lowes had a similar interpretation.
“I don’t know how long these pension funds want to hold onto things for,” he said. “They might think it looks quite good for the next five years, then in five years’ time they can get out.”
But even though the gas transmission network won’t disappear overnight, “it can’t grow,” Lowes added. “It’s going to stay where it is until the government or the market does something [to reduce emissions], or it’s going to decline. So if I were one of their shareholders or board members, I would definitely see a big risk that they’ll contract. If they’re not thinking that, something is off.”
BCI’s director of external stakeholder engagement, Olga Petrycki, referred The Energy Mix to two news releases on the purchase and sale but said she would “politely decline the opportunity” to answer specific questions. Macquarie’s Will Price did not reply to a request for comment for this story.
But if pension funds still don’t understand the risks they’re incurring with an investment like BCI’s, they should, said Adam Scott, executive director of Toronto-based Shift Action for Pension Wealth & Planet Health. “We’ve been warning pension funds about this risk for some time,” he said, and in many different ways.
“These sorts of deals should go through people with expertise in the subject matter,” Scott added, but “we don’t think the funds have enough climate expertise on staff to effectively do their due diligence. So it’s possible that they just don’t know that hydrogen isn’t a credible solution for home heating.”