Road to COP 26: reimagining energy: Scotland v Eastern European perspectives on hydrogen projects

CEE, UK

Hydrogen

Many countries across Europe and beyond have set targets for reducing carbon emissions with the UK enacting the net-zero target into law just over two years ago. As a result, governments are looking for ways to reduce emissions from the sectors which produce the most pollution including transport, heating and heavy industry.

Hydrogen can be used to decarbonise the highly polluting sectors mentioned above and has been billed as the best alternative to fossil fuels for a number of decades. The majority of hydrogen is produced from fossil fuels, using steam methane reformation from natural gas without capturing and storing any of the resulting carbon emissions. Processing of clean hydrogen is a more expensive option. Clean hydrogen is considered to be either green hydrogen, produced by electrolysis of water powered by renewable electricity, or blue hydrogen, produced by steam methane reforming or autothermal reforming with carbon capture, utilisation and storage. The cost factor, developing technologies and the current lack of legislative frameworks means that the clean hydrogen economy has been prevented from developing. As the world looks towards a net-zero future, there is a definite requirement for alternative low carbon methods of producing hydrogen if reduced carbon emissions targets are to be met.

Can enough clean hydrogen be made using renewable electricity at a price that works commercially, or from natural gas using carbon capture and storage technology to sufficiently reduce emissions across industries?

This article looks at the progress which is being made to address the challenges the hydrogen sector faces with two perspectives: firstly, focusing on Scotland in light of the COP26 climate change summit taking place in Glasgow (“COP26”) and then looking the other edge of Europe by considering developments in Ukraine (which has been traditionally so reliant on natural gas from Russia) and Romania (as an example of a country in Eastern Europe seeking to reforms its energy markets to pivot to more renewable sources).

Scotland – Home of hydrogen?

Scotland has potential to produce more green hydrogen from its offshore wind resource than it can use and so like Australia, Scotland is also seeking to position itself as an exporter of clean hydrogen. The potential exists for Scotland to become a major producer and exporter of clean hydrogen in the next decade due to its location, renewable energy potential, established oil and gas industry, existing infrastructure, commitment to net-zero and its proximity to countries which are unlikely to be able to decarbonise wholly through their own wind and solar renewable energy supply. The Scottish Hydrogen Assessment, which was published in December 2020, estimates that 126 TWh of clean hydrogen could be produced in Scotland, with 94 TWh exported to the European market annually by 2045.

SGN are building a world-first hydrogen network in Levenmouth. The project will be the first of its kind to employ a direct supply of clean power to produce hydrogen for domestic heating. The project has been approved by Ofgem and SGN plans to begin construction this year. It expects the project to be fully operational in a timeline of five years. The project has the potential to be extended to provide fuel for domestic heating to 1000 homes and to provide hydrogen for transport and industry.

In October 2020, Aberdeen was selected as the home for the world’s first offshore floating facility to produce green hydrogen. The pioneering Dolphyn project will sit 15km off the coast and will harness the power of hydrogen using floating wind turbines. The developer, Environmental Resources Management, recently moved away from its first stage concept, a small 2MW prototype and is now planning to start with a full-scale 10MW unit to get to commercial deployment more quickly. The firm has projections of creating a network of hydrogen wind farms that could replace 50% of UK gas demand by 2065.

Peel NRE has recently submitted a planning application to West Dunbartonshire Council for the UK’s second waste plastic to hydrogen facility at Rothesay Dock on the north bank of the River Clyde which will take plastics which are destined for landfill, incineration or export overseas, and use them to create a local source of sustainable hydrogen. The hydrogen will be used as a clean fuel for buses, cars and HGVs, with plans for a linked hydrogen refuelling station on the site.

Progress has also been made in the transport sector. Scotland’s first hydrogen powered train is being developed by a consortium of engineering and technology firms and will be demonstrated at COP26.

The world’s first fleet of double decker hydrogen buses, run by First Bus, officially launched into service in Aberdeen in January this year. The zero-emission buses run on fuel made from wind and water and are a major step towards achieving net-zero.

We are also beginning to see Scottish wind and solar farms in development being future proofed to allow for the development of hydrogen plants powered by the clean energy produced by the renewables facilities.

Ukraine – On the European eastern border

Although hydrogen technology is at an early stage of development in Ukraine, the potential for hydrogen to enhance the economy is beginning to be recognised and there is a significant and growing interest in this technology.

Interest in hydrogen projects has become even more relevant in light of the application of an EU Carbon tax on Ukrainian carbon-intense industries, which could become a significant barrier for Ukrainian exports (e.g. steel, cement and fertilizer production) into the EU. Hence, the decarbonisation of these industries remains a top priority. In connection with this, there are significant plans for development of a Ukrainian hydrogen economy and market players are discussing ambitious plans to develop hydrogen transportation and production opportunities (see Picture 1 below):

 Road to COP 26 image 01
Picture 1. Hydrogen transportation and production opportunities. Source: Operator of Ukrainian GTS

Ukraine's potential for hydrogen production is significant. It is estimated that approximately 505,133 million cubic meters of green hydrogen could be produced in Ukraine annually, although greater development is still required. There is not yet a demand in Ukraine for these volumes of hydrogen, so production is mainly being considered for export to the EU since the EU Hydrogen Strategy cited Ukraine's high potential for low carbon hydrogen.  Instead of Ukraine relying on its energy from other countries, this could offer a future where Ukraine is exporting fuel for other countries to use. Furthermore, Hydrogen Europe has envisaged a roadmap for the creation of hydrogen electrolysers in Ukraine with a capacity for 9,800 MW of which approximately 2,500 MW will be used for domestic ammonia production and 7,300 MW for export capacity.

Furthermore, on 23 September 2021, Operator of the Ukrainian GTS, EUSTREAM, NET4GAS and OGE announced the “Central European Hydrogen Corridor” joint initiative aimed at developing a hydrogen “highway” in Central Europe for the transport of hydrogen from future hydrogen production areas in Ukraine via Slovakia and the Czech Republic to large hydrogen demand areas in Germany and the EU (see Picture 2 below).

Road to COP 26 image 02
Picture 2. Map of the Central European Hydrogen corridor. Source: Operator of the Ukrainian GTS)

Romania – Hydrogen as part of a wider energy mix

One of the key aims of Romania’s National Recovery and Resilience Plan (“NRRP”), approved by the EC in September 2021, is to decarbonise the Romanian energy sector. This will involve amending the existing legislative and regulatory framework to introduce measures to support and facilitate the deployment of renewable hydrogen. In particular, the reform shall develop a National Hydrogen Strategy and a Strategy Action Plan, due to be published by 31 March 2023. The strategy will set out measures to achieve the future national and European targets for the production, storage, transport and use of renewable hydrogen by 2030.

As part of NRRP, the distribution infrastructure of renewable gases will be considered (using natural gas in combination with green hydrogen as a transitional measure), as well as green hydrogen production capacities and/or its use for electricity storage.

At present, hydrogen is used mainly in Romania’s chemical industry, specifically in refineries and for ammonia production. There are currently 13 industrial producers of hydrogen (all from fossil fuels), and the hydrogen market comprises of two main types of players: captive producers, which produce hydrogen for their direct customers or their own use; and by-product hydrogen resulting from chemical processes, the chlor-alkali industry. The aim in Romania is therefore to focus on these chemical activities for its decarbonisation efforts while recognising that hydrogen will need to fit into the wider legislative framework and changes to it. For example as part of the wider legislative changes, hydrogen projects may soon be eligible for support under the Contract for Difference mechanism. This is currently being developed by the Ministry of Energy (“ME”) as a viable option for implementing a support scheme for the development of the new low-carbon generation sector in Romania.

Round Up

Rarely a day goes by when hydrogen policy or development is not hitting the headlines but the hydrogen industry is where the wind industry was two or three decades ago when it comes to establishing hydrogen markets. The wind industry got there and hydrogen is a crucial tool for the energy systems around the world as they decarbonise vital power generation, as well as heavy industry, heat, transport, and other sectors.

The establishment of clean hydrogen markets around the world will present significant opportunities and will help develop critical infrastructure, sustainable jobs and in-demand skills. These are crucial ingredients for a clean hydrogen market but the success of clean hydrogen industries around the world will depend on a number of factors including availability of public sector subsidies and private sector funding. It is up to governments to help create the necessary infrastructure for hydrogen economies and progress is already being made in that respect. And it is up to us, citizens, to choose what sort of energy mix we require of our governments and societies as part of the net zero future.

CMS has produced a series of Law Now articles focussing on hydrogen including our Law Now on the Scottish Government’s Hydrogen Policy Statement which was published earlier this year The Future of Renewables in Scotland: The Scottish Government’s Hydrogen Policy Statement (cms-lawnow.com) and our recent Law Now on the Hydrogen Strategy for the UK Hy time for hydrogen – key takeaways from the UK’s hydrogen strategy (cms-lawnow.com).

Our Road to COP26 Reimagined series looks ahead and anticipates the issues and opportunities that climate change presents across a number of sectors and areas that impact our clients.

At CMS, we put our clients’ world at the heart of what we do. For this reason, we have a team of lawyers from across the firm from a range of different expertise areas who are actively engaging with the issues and opportunities that climate change presents. Our aim is to help our clients to navigate this rapidly evolving legal and commercial landscape whilst also providing the interested with more information about this growing area via this Insight section.

Our world reimagined, to put sustainability at the heart of everything we do.

This Law-Now is part of our Road to COP26 series. We will be analysing and reporting on the implications of these events for the agenda at COP – look out for further updates on our legal insight on our climate change and sustainability pages.