I. Introduction: the Scottish Government’s Draft Hydrogen Action Plan
On the 10th of November 2021, the Scottish Government published its Draft Hydrogen Action Plan (the “Plan”), as a companion document to its December 2020 Hydrogen Policy Statement.
The Plan sets out the Scottish Government’s detailed proposals for the Hydrogen industry in Scotland across the next five years. The aim is for Scotland to have capacity to produce 5GW of Hydrogen by 2030 and 25GW of Hydrogen by 2045. This blog sets out the key takeaways from the Plan.
Scotland’s goal is to achieve net zero greenhouse gas emissions by 2045, with a 75% reduction against the 1990 baseline by 2030. Acknowledging the urgent need for change, the Scottish Government states that to reach these climate change targets, it will need to move at an unprecedented pace.
The Scottish Government is keen to ensure that those employed in existing (hydrocarbon) sectors will be reskilled and offered opportunities in the renewable sector and that renewable energy is affordably priced. The Scottish Hydrogen sector will play an important role in supporting this transition and the Plan commits the Scottish Government to assessing how to create a long term ‘skills guarantee’ for workers in carbon-intensive sectors. The Plan also highlights Scotland’s potential to become a low-cost producer of Hydrogen in Europe. The Scottish Government will set out in more detail its approach in its 2022 Energy Strategy and Just Transition Plan.
The Plan commits £100m to the Scottish Hydrogen industry over the next five years as part of the Scottish Government’s £180m Emerging Energy Technologies Fund (“EETF”). This money will fund FEED studies for large-scale renewable Hydrogen production projects with a view to making full investment decisions later in the decade.
The Scottish Government wants to use the £100m fund as a means to accelerate as many projects as possible from pilot stage to large scale commercial and has hypothecated £10m to prioritise innovation and research through the creation of the Scottish Hydrogen Innovation Fund, which will be launched early in 2022.
The remaining £80m of the EETF will fund the development of carbon capture, utilization and storage technologies – suggesting that the Scottish Government views blue Hydrogen as an important element of its Hydrogen revolution.
The Plan sets out detailed action points until the end of 2026. By 2026, the Scottish Government expects large scale Hydrogen production infrastructure to be in place, with links to large-scale CS and onshore and offshore wind developments.
The Plan also sets out the proposed ‘Hydrogen Economy Route Map’ to 2045. Scotland aims to operate on 100% renewable electricity by 2035, with Hydrogen exports to the rest of the UK and Europe being increased at around the same time. In the 2040s, the Scottish Government aims to have capacity to produce 25 GW of Hydrogen and to be established as an enduring and reliable exporter of Hydrogen to Europe.
D. Underlying Themes
Strategic Scotland – the Plan stresses Scotland’s ideal position – due to its location, infrastructure, skilled workforce and natural resources – to grow its Hydrogen industry and become a world-leader in the Hydrogen sector.
Private Sector Diversification – the Plan notes the opportunity that Hydrogen offers for existing energy companies not only to diversify their offer, but also to reduce their carbon emissions.
Regional Approach – the Plan reinforces the importance of Scotland’s key regional hubs, in particular Orkney and Shetland, for potential growth in the Hydrogen industry. Aberdeen City is already deemed to be a Hydrogen hub in this regard, and the aim is for the initial public investment in these hubs to facilitate more significant private investment.
Collaboration – the Plan sets out a collaborative approach to developing Scottish Hydrogen for export, particularly with Germany and other Northern European nations.
E. Relationship between Hydrogen and other renewable energy sources
Although the Plan is not explicit on this point, it acknowledges that initial low-carbon Hydrogen infrastructure will pave the way for establishing the transportation and storage infrastructure to support a green Hydrogen economy in Scotland.
The Plan acknowledges that a strong renewables sector is essential to the development of Hydrogen projects. The Plan notes the importance of the onshore wind sector in supporting small and large renewable Hydrogen projects, but acknowledges the sector requires further investment.
The offshore wind sector is more advanced. Successful bidders in the July 2021 leasing round will be announced in early 2022 and August 2021’s leasing round had the specific objective of constructing offshore wind farms to decarbonise oil and gas infrastructure operations, support oil and gas-field decommissioning, and to use excess generation to create Hydrogen.
F. Key Goals
The Plan set out six key goals:
- Drive Scotland’s Hydrogen production capability to meet an ambition of 5GW of renewable and low-carbon Hydrogen by 2030 and 25GW by 2045.
- Address current barriers to the uptake of green and low-carbon Hydrogen, including high production costs.
- Support the growth of Regional Hydrogen Energy Hubs.
- Encourage demand for Hydrogen by supporting Hydrogen use and developing supply chain capability and export potential.
- Secure broad economic benefit from public sector and private sector support for development of regional Hydrogen production and use.
- Encourage the development of a strong Hydrogen sector in Scotland which supports a just transition to net zero.
II. Action Plan
The Plan sets out six key challenges to be overcome during the next five years.
A. Scaling up Hydrogen production in Scotland
To unlock Scotland’s potential to meet its ambitious targets for Hydrogen production, barriers such as regulation, planning laws or infrastructure constraints will need to be addressed. The Plan therefore commits the Scottish Government to a review of existing legislation, regulation and standards, to identify and remove potential barriers to the growth of the Hydrogen industry.
In order to improve understanding of the likely role to be played by Hydrogen in the domestic and global markets, the Scottish Government aims to establish the expected cost-trajectory for renewable Hydrogen up to 2045.
The Scottish Government will work with its counterpart in Whitehall to establish a UK Hydrogen Standard, and until this is established, the Scottish Government will only grant funding to Hydrogen projects with capture rates of at least 90%. Funding will not be awarded to new Hydrogen sites where CO2 emissions are unabated.
B. Facilitating the development of a domestic market
To facilitate the growth of the domestic Scottish Hydrogen market, economies of scale and technological progress are key. Transport and industry are seen as the sectors with the likely highest Hydrogen demand.
The Scottish Government will invite energy-intensive manufacturers to apply for grants under the Scottish Industrial Energy Transformation Fund to support deeper decarbonisation projects. New industrial developments with unabated carbon emissions will not be eligible for Scottish Government funding schemes. In the transport sector, the Scottish Government will establish a consortium for implementation of the Plan.
In the heating sector, the Scottish Government will support SGN (formerly known as Scotia Gas Networks), in converting elements of its network to Hydrogen, but only where doing so is consistent with keeping options open and limiting consumer costs.
Finally, the Scottish Government notes the urgency of amendments to existing UK-wide regulations to support the role of Hydrogen in the gas grid, to support Hydrogen blending and to maximize the volumes of renewable Hydrogen available in the energy system as quickly as possible.
C. Maximising the benefits of integrating Hydrogen into the Scottish energy system
The Plan notes that converting renewable energy into Hydrogen provides new routes to market and may well change the investment proposition for new and existing renewables investors.
The Scottish Government believes that a key way to maximize the benefits of Hydrogen integration is to work with the UK government, Ofgem and the energy network sector to ensure that regulation rewards Hydrogen projects appropriately. A key action point is the establishment of a Hydrogen transportation and distribution infrastructure to support Scotland’s Hydrogen export ambitions.
D. Enabling the growth and transition of Scotland’s supply chain and workforce
The Plan places significant value on the existence of a skilled workforce within Scotland with expertise in the energy sector and its corresponding supporting infrastructure. Emphasis is placed in the Plan on investment in skills, including upskilling and reskilling workers into the Hydrogen sector. The Hydrogen Business Development service will aim to facilitate collaboration between industry and academic research.
E. Establishing and strengthening international partnerships and markets
The Plan notes Scotland’s potential to produce quantities of Hydrogen far in excess of its own domestic needs, and thus the potential of export and the importance of securing global supply chains. The Enterprise Agencies will, in particular, support the Scot2Ger project, aiming to deliver renewable Hydrogen produced in Scotland to German consumers by 2024. The Plan notes the importance of ensuring there are no legislative or regulatory hurdles to the international export of Hydrogen from Scotland, nor barriers to international inward investment in the Scottish Hydrogen industry.
The Scottish Development International outreach programme will actively engage with 280 international companies identified as potential targets for Foreign Direct Investment in the Scottish Hydrogen industry. Key collaborations on renewable Hydrogen development will be sought with Germany, Belgium, the Netherlands, Denmark, Canada, Australia, Japan and France.
F. Strengthening innovation and research
The Plan notes the funding set aside to create the Scottish Hydrogen Innovation Fund. A new Scottish Hydrogen Innovation Network will facilitate increased collaboration between Scotland’s Hydrogen innovation assets and avoid duplication of research. The Scottish Government will support Scottish participation in applications for EU funding through the Clean Hydrogen for Europe Partnership and will launch a £150k research call to support collaboration between academics and applied research institutes in Scotland and Germany.
Covington has a well-established and growing Hydrogen practice and our mixed policy, regulatory and legal teams are well-placed to help and advise clients moving into this increasingly important sector. We would welcome the chance to discuss these opportunities with you.