In late December, the Scottish Government released their Hydrogen Policy Statement (together with the Scottish Hydrogen Assessment). The Statement has been long heralded and eagerly awaited by industry. We have performed a deep dive analysis of the Statement to find out what it tells us about Scotland’s ambitions for hydrogen deployment, including:
A Statement of Ambition
The Statement is one of ambition, which envisages Scotland as a ‘leading Hydrogen Nation’. It is a long term plan, which looks as far ahead as 2050 (when the UK’s estimated demand for hydrogen is expected to be around 270TWh) and sets out what Scotland could do to build the hydrogen industry required to meet that demand. There is recognition that Scotland is at the early stages of commercial development and that deployment of hydrogen is a dynamic issue. With this in mind the Statement is to be reviewed as ‘dynamic’, ‘responsive’ and to be ‘regularly reviewed and refreshed’ by the Scottish Government.
The key target sectors for hydrogen deployment are industry, transport and heat. These are sectors with challenging energy demands which are both difficult to decarbonise and a priority to decarbonise. This diagram from the Scottish Hydrogen Assessment shows the contribution which each of these three sectors makes to Scotland’s carbon emissions.
The diagrams below also show stakeholder views on the potential extent of hydrogen deployment in each sector.
Industry is seen as the sector with the greatest long-term potential for hydrogen. The immediate focus set out in the Statement is to undertake careful study of each sub-sector of industry to consider the most viable way to deploy hydrogen in each sub-sector. A Scottish Net Zero Roadmap for the decarbonisation of the Scottish industrial cluster is being developed by NECCUS, the Scottish Government supported industry alliance for decarbonisation. Work on the Roadmap commenced in January, with the project expected to take 2 years to deliver (though interim results may be released sooner).
Development of a carbon capture and storage network has been identified as a critical enabler for production of low-carbon (‘blue’) hydrogen in industrial decarbonisation, with the most ambitious scenario in the Scottish Hydrogen Assessment envisaging low-carbon hydrogen production aligned with CCUS reaching 200MW by 2025 and 5GW by 2045. The industrial decarbonisation pathways analysis has also concluded that CCUS development (combined with extensive uptake of fuel switching) could pave the way to reducing emissions from industry by over 80% by 2045.
Use of hydrogen has already been successfully demonstrated in a range of transport applications. The Statement highlights a number of innovative projects which are ongoing, such as the Green Hydrogen for Glasgow project between Scottish Power Renewables, BOC/Linde and ITM Power, which will deliver a 10MW electrolyser at Scottish Power’s Whitelee Wind Farm and serve Glasgow with green commercial hydrogen fuel and the HyDIME Project in Orkney which is trialling the use of green hydrogen as fuel for commercial ferries.
The focus is now on scaling-up. The transport sector is seen as an initial area of high demand for hydrogen, for example with fuel cell markets for HGVs, buses, trains and shipping. The Scottish Government’s decarbonisation targets for transport (to remove the need for new diesel or petrol cars or vans by 2030; to decarbonise rail by 2035 and to decarbonise scheduled flights within Scotland by 2040) will also drive a change to low carbon fuel.
Current actions are focused on rail (investment in zero emission drivetrain testing and development of a hydrogen fuel cell rail vehicle) and commercial vehicles (supporting major hydrogen refuelling and duel cell vehicle demonstration projects and introducing the Zero Emissions Heavy Duty Vehicle Programme to support development of zero emission heavy duty vehicles across Scotland).
The Scottish Automotive Industry Advisory Group (IAG) is also looking to the future and analysing how to position Scotland as a global player in supply chains for zero emission mobility for heavy duty and niche vehicles, an international centre of expertise in energy and transport system integration and a global destination for innovation in sustainable zero emission mobility
Heat is included as a key sector focus for hydrogen deployment – indicating that the Scottish Government may be favouring a gas-based strategy for heat decarbonisation, rather than electricity-based (a significant change from the 2015 Heat Policy Statement which only includes one mention of hydrogen). The Scottish Government’s key focus for the heat sector is to support targeted research programmes and demonstration of hydrogen for heat solutions. They would like to see small quantities of hydrogen blended into the gas networks in the early 2020s. However, this is subject to continuing further trials to better understand the role hydrogen can play in heating our buildings. The Scottish Government has also undertaken to identify areas of high potential for hydrogen demand and also which buildings would be most suitable for hydrogen (perhaps similar to the Scotland Heat Map). Hydrogen for heat is the area where hydrogen will most closely touch on the lives of the general public – so there is also a commitment to engaging with the public to raise awareness and understanding of the use of hydrogen.
On the generation of and trade of hydrogen, the Statement envisages a role for both the renewables industry and the oil and gas industry, seeing opportunity in combining onshore and offshore wind expertise and Scotland’s offshore engineering and services experience to generate hydrogen.
Utilising offshore wind projects to create bulk green hydrogen from renewable electricity is seem as a medium to long term opportunity (building in time for Scotland’s offshore wind fleet to increase), with the near to medium term focus being creating blue hydrogen from fossil fuels with carbon capture and storage (utilising potential for CO2 storage in the North Sea legacy oil and gas infrastructure). Blue hydrogen is an important path builder for green hydrogen and will allow Scotland to ramp up hydrogen production utilising legacy oil and gas infrastructure whilst investments are made towards bringing down the cost of green hydrogen. A good example of the scale of the challenge is provided by The Acorn Hydrogen Project, which will be the first large-scale hydrogen project developed in Scotland and which is constructing a 200MW hydrogen production plant with an aim to be operational by 2025 - to reach the 5GW (5000MW) hydrogen generation by 2030 target set by the Scottish Government would be equivalent to building around 25 further Acorn projects. Carbon capture and storage infrastructure and clean hydrogen production and distribution have been identified as strategically important development opportunities which are intended to be reflected in the National Planning Framework, a draft of which is expected to be released for public consultation in autumn.
In relation to distribution, the Statement proposes setting up hydrogen production hubs which are capable of simultaneously servicing transport, heat and industry needs. We’ve taken a look below at key locations for hydrogen distribution, across both areas of industry and geographically within Scotland.
It’s important to also mention the storage potential of hydrogen, which is seen in the Statement as having a critical role to play in in the future of our energy system, particularly to provide long-duration energy storage and medium-duration energy storage which can manage the flex of wind, solar or marine generation. Also recognised is the scope for hydrogen storage to undertake grid services such as system balancing and inertia.
The below illustration from the Scottish Hydrogen Assessment provides an example of hydrogen production and trade routes:
The Statement recognises the importance of strategically locating hydrogen production hubs next to renewable generation, transport and infrastructure, legacy oil and gas sector assets or links to export markets. An example provided is the Grangemouth industrial area, which is responsible for 30% of Scottish industrial emissions, and which is earmarked as a potential future hub of low carbon hydrogen supply and demand.
Hydrogen opportunity is also identified for remote, rural and island communities. This is both for production and export – due to proximity to large scale offshore wind farms – and also for demand, with communities having the potential to create community energy systems incorporating hydrogen. The Statement highlights some really interesting island projects, such as PURE (Promoting Unst Renewable Energy), Surf’n’Turf and BIGHIT.
The below illustration from the Scottish Hydrogen Assessment indicates locations around Scotland where hydrogen activities are likely to be taken:
Reflection is also given to Scotland’s geographical position and how this can be used strategically to produce hydrogen for export. Building on Scotland’s wind and wave power resources, its proximity to and its infrastructure connectivity with the EU (particularly EU nations who are unlikely to produce enough hydrogen to meet their own needs), the aim is to produce the lowest cost hydrogen for international export and use this to build a hydrogen economy.
The first target for hydrogen production in Scotland is to generate 5GW of renewable and low carbon hydrogen by 2030 (the UK Government’s target is the same and the EU’s target is to have 6GW of renewable hydrogen electrolysers by 2024). It is recognised that this target is not a given and that there needs to be a drive to reduce production costs and to generate enough domestic demand to build a baseload on which to grow expertise and generating capacity.
The Statement designates the 20s for demonstration, R&D, establishing demand and firming up policy; the 30s for production at scale, reduction of costs, development of competitive large scale projects, developing floating hydrogen and the hydrogen export industry; and 2045 onwards for global expansion, hydrogen for shipping and an ambitious plan to build a North Sea hydrogen pipeline between Scotland and Europe.
£100 million of Scottish Government funding has been ear-marked for hydrogen development over the next five years. This funding will accompany the Hydrogen Action Plan which is to be released later this year. The focus for the funding is to support demonstration projects, in particular for deployment of hydrogen in the industry, transport and heat sectors. There is a hope that driving forward technological progress will also unlock private funds for innovation development and demonstration of fuel cells and electrolysers.
Funding also comes from other initiatives - the £62 million Energy Transition Fund currently supporting the Aberdeen Hydrogen Hub project; £6.9 million committed by the Government to the H100 Fife project being developed by SGN; £100 million towards a Green Jobs Fund to help businesses which provide sustainable or low carbon products to create jobs; £8 million within the draft Infrastructure Investment Plan for the net zero transition; £100 million from the Islands Growth Deal to target various areas including the energy transition; £34 million for the Scottish Industrial Energy Transformation Fund which can be used to support industrial applications for low-carbon hydrogen; and a funded replacement to the Energy Investment Fund (which is due to come to an end in its current form in March 2021).
The below illustration from the Scottish Hydrogen Assessment provides a summary of some of the key funding opportunities and partnerships for hydrogen:
The Scottish National Investment Bank (SNIB) will also play a key role in contributing funding to hydrogen development, with the Statement noting the £2 billion funding which the SNIB has to invest over the next 10 years. The Scottish Government has committed to working with SNIB to explore the business models necessary to grow the hydrogen economy.
The Scottish Government alone cannot develop Scotland into a ‘leading Hydrogen Nation’ and there is an expectation that, once the Scottish Government sets out the policy playing field, industry and investors will play their part. By setting out the potential of hydrogen development within Scotland and by aiming to produce a regulatory roadmap for hydrogen use in the energy system and production at scale, the Scottish Government hopes to encourage stakeholders to take part in the industry.
There is also a role to be played by Scotland’s enterprise agencies (Scottish Enterprise, South of Scotland Enterprise, Highlands and Islands Enterprise and Scotland Development International) and the Statement calls on them to support the development of a strong pipeline of hydrogen projects and to engage with supply chain, industry and academia to maximise the potential of the hydrogen industry.
As many of the regulatory and legislative levers required to build the regulatory framework are at UK Government level, the Scottish Government will need to work closely with the UK Government. In the Statement, the Scottish Government calls on the UK Government to: align policies to ensure that market mechanisms are developed in tandem; expand the scope of the Green Gas Levy; amend gas regulations to allow greater blending of hydrogen; continue support for demonstration of hydrogen for heat; step up support for further renewable electricity generation and the production of green hydrogen; engage on future carbon pricing arrangements for industry (which are seen as having potential to provide the price signal required for industry investment in switching to hydrogen); and provide clarity on the regulatory framework to support deployment of CCUS infrastructure. The devil is in the detail here and clarity on the regulatory regime is key to developing hydrogen business models. Our Law Now ‘UK CCUS – Ready, Set, Capture?’ provides an analysis of the UK Government’s response to the Carbon capture, usage and storage (CCUS): business models consultations and provides further insights in this area.
The last stakeholder given a key mention in the Statement is the international community, including the European Union. The Scottish Government’s ambition is for Scotland to be a Hydrogen Nation, exporting green hydrogen to Europe, but we must recognise that Europe has its own plans for hydrogen development. The European Union published its hydrogen strategy in June 2020, Germany has committed €9 billion to its hydrogen strategy and France has committed €7 billion to its hydrogen strategy. International collaboration is required to develop the hydrogen economy and the Statement proposes international collaboration with other nations seeking to invest in hydrogen production.
To fulfil the goal of being a key hydrogen exporter, Scotland will need to monitor closely the demand requirements of other nations as well as their regulatory requirements for hydrogen. To achieve this, the Statement envisages the Scottish Government supporting both domestic and international collaborative projects to leverage global export opportunities for services, skills and manufacturing. There is also an intention to use Scotland’s position as European Co-Chair of the Under2 Coalition (a network of more than 200 Governments set up to drive climate action across the world) to discuss hydrogen development on an international scale.
Continued Government engagement, with both the Scottish Government and the UK Government, is crucial to hydrogen deployment. The Statement rightly sets ambitious targets, but to meet those targets industry needs more clarity on how to achieve them. A stable regulatory regime must come quickly and clearly to allow hydrogen deployment to ramp up at pace.
The next key document to look out for in the Scottish Government’s hydrogen strategy is the Hydrogen Action Plan, which the Statement notes will be published some time in 2021. The Hydrogen Action Plan will set out more details on how the policy positions described in the Statement will be taken forward. We look forward with interest to the release of the Hydrogen Action Plan.
If you are interested in further reading on hydrogen, our CMS Expert Guide to Hydrogen takes an in depth look at the development of hydrogen projects across the world, considering the market prospects and opportunities which are key for clients seeking to enter or expand in this sector, what challenges need to be overcome in order to reach national and international goals and how the national and international specific legislation and regulations in each jurisdiction facilities the growing hydrogen sector.