Scottish hydrogen: assessment report

ORGANISATION LIST

Green hydrogen is produced using renewable electricity and is zero carbon. Blue hydrogen is produced by reforming natural gas in conjunction with carbon capture and storage and is low carbon.

The scenarios are:

	Hydrogen Economy	Green Export	Focused Hydrogen
	Hydrogen is one of the main ways in which Scotland's energy system is decarbonised. A balanced mix of blue and green hydrogen is extensively across all sectors.	Scotland's vast renewable resources, particularly offshore wind, but also wave, tidal and onshore are used to produce green hydrogen. This serves a European export market.	Hydrogen plays a supporting role in decarbonising the energy system in sectors that are hard to decarbonise by other means. Hydrogen is produced near to where it's used.
	Production
	46 TWh	39 TWh	126 TWh	14 TWh	7 TWh
	End Use
Transport	11 TWh	22 TWh	7 TWh
Domestic and commercial heat	35 TWh	-- TWh	6 TWh
Industry and Electricity	19 TWh	11 TWh	7 TWh
Export	20 TWh	94 TWh
GVA	£16 billion		£25 billion	£5 billion
Jobs	175,000		310,000	70,000

Investment in both green and blue hydrogen production will provide strong economic benefits to Scotland and contribute to its energy transition. While blue is likely to play a transitional role, green is expected to become increasingly dominant as costs reduce.

In the short term, investment in transport, particularly public sector and fleet, will create certainty of demand to support investment in production. Meanwhile, building the evidence base to determine the role for hydrogen in the gas network should be vigorously pursued. 

Green hydrogen production and Scotland's renewable industry

Scotland's resources in onshore and offshore wind, wave and tidal are vast, hydrogen has potential to unlock more of these renewable resources and improve the competitiveness of Scottish renewables. The evidence base assessment and stakeholder engagement indicated that Scotland could be an exporter of hydrogen to energy scarce countries in Europe, such as Germany, which has declared an intent to import green hydrogen. However, this would be reliant on Scotland's ability to produce hydrogen that is cost competitive in an international market. 

In this assessment, production of green hydrogen for export and domestic use provided the greatest additionality in terms of GVA and employment, with an estimated £19 bn of value-added and nearly 220,000 jobs in 2045. The engagement and evidence base suggests that the required skills frequently align with those already present in the renewable and offshore industries. Capturing more of the green hydrogen production value chain, including electrolyser integration or even manufacturing upstream would result in greater economic benefits. 

However, Scotland has a limited pipeline of green hydrogen production projects, and there are gaps in the indigenous supply chain. Support from Government, both in terms of stimulating a market and investing in skills and supply chain, is needed.

Blue hydrogen production and Scotland's energy transition

Blue hydrogen coupled with carbon capture utilisation and storage (CCUS) offers strong opportunities for transition of the oil and gas (O&G) industry. It is likely to be lower cost than green hydrogen until costs reductions for green are realised. However, it will be a transition technology, given it is not zero carbon, and its role will likely reduce by 2045.

Many of the supply chain elements required for blue and green hydrogen production and CCUS already exist in Scotland's O&G industry, and will be employed in the delivery of Scotland's flagship blue hydrogen and CCUS project: Project Acorn.

Transport sector

Hydrogen offers significant advantages over electric vehicles (EV) in heavy fleet vehicles such as buses, heavy goods vehicles (HGVs), non-electrified trains and ferries. Use of hydrogen vehicles in these favourable modes could be encouraged in the short to medium term to drive demand certainty, and to ensure rapid decarbonisation. 

Buildings and heating

The flexibility and storage potential offered by hydrogen could be key to addressing inter-seasonal heating demand. The existing gas distribution network could be repurposed to hydrogen, potentially easing the transition from natural gas. However, the evidence base must be developed to support longer term decisions on the future for hydrogen in the gas network. If the indicators are positive, the use of hydrogen in domestic, commercial and industrial space heating could to play an important role in unlocking blue hydrogen production. 

Industry and power generation

Hydrogen is already used in industry as a feedstock, but its use could be significantly expanded. Industrial use could generate the scale of demand required to create blue hydrogen hubs in conjunction with CCUS. It is anticipated that both blue and green hydrogen could both be used in industry. Current natural gas power generation could be replaced by hydrogen generation in order to support peak electrical demand, though this is likely to play a more modest role in peaking plants given the amount of renewables in Scotland. 

Public and private sector support for hydrogen is strong, and industry is seeking to work closely with government to position Scotland to build on existing skills and natural resources and secure economic benefits from the hydrogen economy.

As part of the Hydrogen Assessment Project, a wide range of organisations were consulted on their views on the development of hydrogen in Scotland. Key emerging themes include: 

Scotland could grow a strong hydrogen economy supporting jobs and GVA growth

Value can be captured through investing in innovative technology, manufacturing and infrastructure. Production of hydrogen, particularly green, provides strong potential for GVA additionality, but there are gaps in the supply chain that must be filled to ensure Scotland maximises benefits from the transition. 

Co-ordination of efforts across industry and government

Will enable an efficient transition and ensure economic opportunities are maximised. Stakeholders suggestions included public sector investment, alignment of regulation, creation of a body co-ordinating innovation and research, and a public-private sector leadership steering group. 

Clear strategy with proposed ambitions

Stakeholders were clear in their desire for Scotland to develop a well-defined policy environment, setting out its proposed ambition for hydrogen, aligned with its workforce and natural capital. This will give a clear signal of ambition and provide industry and investor confidence.

Going beyond the pilot project stage and into commercial scale projects

To move beyond the small pilot stage and progress to larger scale commercial projects, industry requires viable business models that allow for and stimulate private sector investment. Expediting the implementation of an enduring fiscal regime will be critical to creating the pipeline of post demonstration projects. 

Maintaining flexibility

Hydrogen is still in the early stages as an energy carrier and ruling out options now would be premature, in the context of seeking net-zero 2045 solutions. 

Demand applications that are low regrets should, where possible, be moved to commercial deployment in the short term. For others, more development and demonstration are required to create an evidence base which will inform the optimal applications.

Hydrogen needs to be seen within a whole energy system context

Hydrogen will complement increasing electrification, by improving system flexibility and resilience. Some of its benefits will only be understood when looking at the wider system context. 

Speed of deployment

Is important if Scotland wants to capture more of the economic value from hydrogen activities. Scotland could become a centre for the production and export of green hydrogen and associated skills, products and services. If Scotland is slow to deploy, then there is a risk that more of those skills and manufacturing will be developed quicker elsewhere, leaving Scotland at a disadvantage.

Hydrogen has a role to play in all Scotland's regions, with its application reflecting the distribution of resources and geography specific demands. Island and rural communities, industrial clusters and urban areas are already developing solutions and expertise appropriate to their natural capital and energy needs.

Hydrogen solutions in Scotland are likely to be region specific, reflecting local resources and demands, as current Scottish demonstration and development projects show:

Island and rural communities benefit from the collocation of green hydrogen supply and demand, which can accelerate decarbonisation. High fuel costs and constrained infrastructure mean hydrogen projects are more likely to be economically viable and can realise more socio-economic benefits to those communities. 

These areas may also offer opportunities to become hubs for hydrogen export to Scotland, UK and Europe, as they link resource to production with onward distribution. The Orkney Islands are making significant progress in realising these opportunities and other regions like Shetland and the Outer Hebrides are following suit. 

Industrial clusters involve difficult to decarbonise activities, some of which are already hydrogen users, such as the Grangemouth refinery and Mossmoran chemical plant. Blue hydrogen production can have synergies with industrial decarbonisation where CCUS is already required to reach net-zero. Both CCUS and blue hydrogen draw heavily on existing O&G sector skill sets and offer strong potential for transition and diversification. Acorn CCUS in St Fergus is an anchor project that can support industrial decarbonisation, while the Acorn blue hydrogen project can support industry fuel switching and supply hydrogen into the national grid transmission system. 

Urban areas are tackling challenges of decarbonisation and improving air quality. Dense population and extensive infrastructure provide opportunities for scale economies from aggregating demand. Switching public sector transport and back to base fleet vehicles to hydrogen could create the certainty of demand that stimulates investment in hydrogen production. It may even stimulate some assembly or manufacturing, although this is likely to depend on the application scale of demand and global market development. In the longer term, conversion of urban gas networks may allow for decarbonisation of domestic and commercial heat demand. Aberdeen, recently described by the Scottish Government as a Hydrogen Model Region, has paved the way as an early adopter of hydrogen buses, with longer term ambition in wider transport and heat applications.