Scottish Government Hydrogen Policy Statement

Chapter 3. Economic Opportunity

Policy Priorities: Economic Opportunity

We will collaborate with industry, academia and government to ensure opportunities in the development of a hydrogen economy in Scotland are maximised.

Both renewable and low-carbon hydrogen will play an important role in our energy transition to net zero and are key components of the green recovery.

We support the development of commercial scale hydrogen production in Scotland, including:

• increased production of green hydrogen from existing surplus and dedicated renewable electricity generation;
• large scale low-carbon hydrogen from the reformation of natural gas aligned with CCS systems.

We also support the production of large scale green hydrogen for export both from existing surplus renewable and dedicated renewable electricity generation as well as low-carbon hydrogen from the reformation of natural gas aligned with CCS systems.

We recognise that innovation and Scotland's knowledge and people capital, alongside our skills and system integration knowledge and expertise, are also important and could hold export potential in their own right alongside a growing supply chain.

We will create a supportive policy environment to enable cross-cutting opportunities offered by hydrogen production and use, including sector coupling and hydrogen fuel cell deployment.

We will also explore the potential to produce hydrogen from bioenergy resources in combination with CCS to deliver negative emissions. Through this process we will pay careful attention to the ability of Scotland to grow or import bioenergy resources, making use of the expertise and evidence developed by the Bioenergy expert advisory group that we have announced in the update to our Climate Change Plan.

The development of a hydrogen economy is a substantial economic opportunity for Scotland.

From our hydrogen assessment, it is clear that hydrogen is not just an energy and emissions reduction opportunity, but it can have an important role in developing a sustainable economy in Scotland.

We know that a huge amount of both renewable and low-carbon hydrogen will be required to decarbonise our energy use as we move to 2045. We also know that we must work together with industry to ensure we secure maximum economic benefit from increasing hydrogen capacity and deployment in order to deliver a sustainable and just energy transition.

The Hydrogen Assessment points to ways in which this might be achieved. It sets out a range of scenarios, modelled to illustrate how Scotland could develop a future hydrogen economy.The scenarios help to frame and contextualise the uses of hydrogen in our energy system and the opportunities for Scotland as a key exporter of large scale green hydrogen to the rest of the UK and Europe, which the report concludes could result in new industrial opportunities of a significant scale. See Figure A.

The report also identifies that the key driver of the hydrogen economy would likely be in the production of the renewable and low-carbon hydrogen itself (with other opportunities such as hydrogen for mobility etc. able to benefit from production capacity).

The gross impacts by 2045 across the three scenarios range from 70,000 to more than 300,000 jobs protected or created and GVA impacts of between £5 billion and £25 billion.

The three illustrative scenarios are designed to represent three possible future end states and as such allow the effect of different assumptions on the resulting GVA and jobs to be explored.

The most ambitious scenario with the largest estimated gross impacts is in establishing Scotland as a major exporter of green hydrogen to Europe by 2045, with significant opportunities from unlocking Scotland's vast offshore wind potential, but would be dependent on Scotland producing green hydrogen that is competitively priced in a European market.

Achieving the upper range of these scenarios will require a huge amount of effort and investment, both public and private. It will also require an aligned combination of reserved and devolved legislative and regulatory action to be developed to support hydrogen production and the enduring hydrogen economy. This will include the right levels of support, from the right design of market mechanisms and innovation support, skills and knowledge building, and the successful removal of barriers to deployment. The requirement to develop export markets for hydrogen as a key feature of the Scottish Government's hydrogen policy direction is explored further in Chapter 8: Hydrogen in Transport.

Sector Coupling

Hydrogen can be produced from surplus renewable electricity and utilised as a homogenous commodity across a variety of sectors such as transport, heat and industry, thereby joining up sectors which have traditionally remained separate parts of the energy system.

The Green Hydrogen for Glasgow project which aims to construct an "end-to-end" green hydrogen refuelling network in Scotland is a collaborative project led by a partnership including: Scottish Power Renewables, BOC/Linde and ITM Power. The project will develop a 10 MW electrolyser at Scottish Power's Whitelee Wind Farm near Glasgow to service the city and surrounding region with green, commercial hydrogen fuel within two years.

This particular project illustrates sector coupling between the electricity sector, hydrogen and gas technology leaders and the commercial transport sector working together to deliver key hydrogen infrastructure.

Other strengths for Scotland, beyond that of developing our export ambitions include our ability to move swiftly, connect opportunities across sectors, build on our academic expertise, and nurture expertise in areas where we have demonstrated strength, for example in the offshore oil and gas sector.

The extensive potential for renewable energy generation, the presence of major subsurface CO2 storage sites and the availability of existing offshore pipeline infrastructure in the North Sea combine to offer a unique opportunity to develop a Scottish economy where renewables, hydrogen and CCS coexist and complement each other.

The emergence of a global hydrogen economy coincides with the tapering off of oil and gas production. The Scottish Government's continued support for oil and gas sector businesses operating in the North Sea is now conditional upon contributing to a sustainable, secure and inclusive energy transition. This presents transition opportunities for the oil and gas sector, particularly in establishing a hydrogen sector in Scotland.

The oil and gas sector continues to play an important role in our energy mix, in helping to ensure a secure energy supply; providing feedstock to support the petrochemical and fertilizer industries; and as a raw material providing finished products in fuel, plastic, industrial, chemical, and pharmaceutical industries.

The sector will help to design the diverse energy system we need for the future, including options such as hydrogen production and developing floating wind and marine energy, with many businesses already diversifying into these areas. Scotland's vast renewable resources, legacy oil and gas infrastructure, combined with its energy skills and supply chain focused on energy transition are critical to establishing a prominent role for Scotland in the emerging global hydrogen market.

Many companies who operate in the oil and gas sector already have direct involvement in developing and supporting the rapid growth in low carbon solutions, including development of hydrogen.

The creation of the OGTC Net Zero Solution Centre will look to rapidly accelerate technologies that will help not just to decarbonise operations and enable the gas sector to deliver the world's first net zero hydrocarbon basin. It will also look to draw across the range of companies operating across the energy sector, support the creation of an integrated offshore energy system, partnering with companies and R&D organisations on technology development projects including a direct focus on hydrogen production which has a significant international export opportunity.

The oil and gas and renewables sectors have well established supply chains which are positioned to benefit from the development of hydrogen domestically in Scotland and within international export markets. However, gaps remain in the supply chain for both green and blue production that will need to be filled in order to ensure that Scotland gets the most out of a transition to hydrogen. Opportunities for supply chain development in Scotland, such as fuel cell manufacture, are highlighted in the Hydrogen Assessment. The lack of an electrolyser manufacturer in Scotland is highlighted as a key issue. This is explored further in Chapter 4: Hydrogen Supply Chain.

Case Study – The Hydrogen Coast

The Hydrogen Coast is a cluster of projects that are delivering innovative hydrogen solutions along the east coast of Scotland. It is bringing together hydrogen projects to demonstrate full transition to the hydrogen economy, encompassing sector coupling for both blue and green hydrogen options.

The programme is being led by Scottish Gas Networks (SGN), National Grid and Pale Blue Dot along with the partners of the hydrogen projects that are already underway across the east coast of Scotland:

Acorn Hydrogen and Acorn CCS – A blue hydrogen production plant producing hydrogen from natural gas landed at St Fergus, coupled with a CCS facility that will capture the CO2 from hydrogen production, as well as other sources, and transport it for storage in the North Sea.

HyStorPor – Investigating the requirements for the geological storage of hydrogen. This work will support the development of hydrogen storage for Acorn Hydrogen and other Hydrogen Coast projects.

Aberdeen Vision Project – Using hydrogen from the Acorn Hydrogen project to support decarbonisation of the national and Aberdeenshire gas transmission systems. Phase 1 proposes all gas leaving St Fergus would be injected with 2% hydrogen by volume into the gas National Transmission Network. Phase 2 aims to inject up to 20% by volume hydrogen into the gas supply for Aberdeen and the Aberdeenshire region. Phase 3 aims to operate the low pressure gas distribution network on 100% hydrogen.

H100 Fife – SGN are developing the first 100% hydrogen domestic network, in Fife. This project, to which we have committed £6.9 million in funding, is building an evidence base for domestic hydrogen use and will facilitate larger trials such as that proposed in the Phase 3 of the Aberdeen Vision Project.

Aberdeen Hydrogen Bus Project – A fleet of fifteen new double decker buses in Aberdeen powered by green hydrogen, with Scottish Government funding support.

The Hydrogen Hub, Aberdeen - Aims to secure a resilient and cost effective supply of green hydrogen, initially for a fleet of road vehicles, in support of the Hydrogen Bus Project and other fleet vehicles. Subsequent project phases are looking to supply marine and rail customers with green hydrogen.

Dolphyn ERM – Project using deepwater floating offshore wind assets to produce hydrogen at sea and then pipe it to shore using existing oil and gas infrastructure, supplying additional hydrogen to the Hydrogen Coast projects. Currently in detailed engineering and consents phase, the 2MW prototype facility could be operational by summer 2024. A 10MW full scale pre-commercial facility is planned to follow by 2027, with full scale commercialisation shortly afterwards