Part 3 – The Renewable Hydrogen Export Opportunity
Scotland’s draft Hydrogen Action Plan outlined our potential to become a leading producer and exporter of low-cost renewable hydrogen to partner nations in Europe. Since its publication in November 2021, geopolitical events have triggered growing global momentum around the development of international hydrogen markets, with countries across Europe increasing the scale and the pace of their hydrogen production and import targets.
In light of this accelerated European ambition and demand, this chapter sets out the current estimate of the scale of the export opportunity, Scotland’s competitive advantage and the initial actions we will take at home and abroad to support Scottish companies to participate in and benefit from the development of the international hydrogen market.
3.1 Scotland’s ambition
Our ambition is for Scotland to be a leading producer and exporter of hydrogen and hydrogen derivatives for use in the UK and in Europe, with the first hydrogen delivered from Scotland to mainland Europe in the mid-2020s.
The opportunity for Scotland within the developing global hydrogen market is significant. Increasing European demand for alternative energy sources and chemical feed stocks, to reduce dependency on fossil fuels, means that the supply of renewable hydrogen will play a major role not just in the energy transition but in enabling security of supply across Europe through diversification of fuels and supply sources.
The European Union has recently set a target to import 10m tonnes (Mt) of hydrogen by 2030, with recent reports indicating that global hydrogen demand could reach 115 Mt by 2030.
Hydrogen produced in Scotland could play a significant role in supplying these growing, local and overseas markets. Our 5 GW by 2030 renewable and low-carbon hydrogen ambition can be translated as approximately 0.45 Mt of hydrogen produced annually for both domestic and international use. What’s more, the Scottish Hydrogen Assessment, completed in 2020, estimated that by 2045 approximately 3.3 Mt (126 TWh) of renewable hydrogen could be produced in Scotland with approximately 2.5 Mt (94 TWh) exported to the UK and other European markets annually.
However, the opportunity for Scottish businesses extends beyond the trade of hydrogen or hydrogen-derived products and includes the opportunities to increase trade in goods and services across the hydrogen supply chain. Our analysis indicates that the development of a renewable hydrogen sector in Scotland, with a strong focus on export, could support up to 300,000 jobs and contribute up to £25bn to Scotland’s GVA by 2045.
The European Commission has estimated that Europe’s capacity to manufacture electrolysers will have to increase tenfold in only three years – from 1.75 GW now, to 17.5 GW by 2025. This represents both a challenge and an opportunity for supply chains. The Scottish Government’s Assessment of Electrolysers report (2022) indicated that there is strong potential for Scottish companies to supply key elements to the electrolyser market – such as process equipment, electrical components and others.
The Scot2Ger study, completed in early 2022, reinforced Scotland’s capability to supply renewable hydrogen and derivatives to Germany as early as 2025. It also demonstrated the feasibility of building the full supply chain, paving the way for further exploration of hydrogen export from Scotland.
3.1.1 Scotland’s natural advantage and technical expertise
Scotland’s extensive renewable resources, proximity to centres of demand, supportive government policy environment, academic strengths, and over sixty years of transferable experience and skills from established sectors, such as oil and gas, mean we are primed to be a major player on the global export market.
Extensive renewable resources
Scotland’s geographical advantage, with vast wind, wave and tidal resources, provides a huge potential for the early deployment of large-scale hydrogen production, firmly positioning Scotland at the forefront of a growing global industry. We already have 13.5 GW of renewable capacity in place as well as increasing onshore wind capacity in development.
ScotWind is the world’s largest commercial round for floating offshore wind and puts Scotland at the forefront of offshore wind development globally with potential to deliver 27.6 GW of offshore wind power. 14 out of 20 of the successful ScotWind projects plan to use floating technology, nearly 18 GW of total capacity from the leasing round – which also presents potential for hydrogen production.
Proximity to centres of demand
Scotland, due to its close geographic proximity to growing centres of hydrogen demand in Europe, being only 700km and 750km from the coastlines of the Netherlands and Germany respectively, benefits from lower transport costs and durations than many other potential hydrogen exporting nations, with shipping taking as little as two days.
This proximity, and existing infrastructure connectivity to Europe, offers the potential to not only export hydrogen by ship, but also to establish new pipelines or to repurpose existing pipeline infrastructure to facilitate the transport of hydrogen from Scotland to Europe.
Pipelines are the cheapest option for the transportation of large volumes of hydrogen across long distances. However, it is likely that multiple options, including marine vessel transportation of liquid hydrogen, green ammonia and methanol, and Liquid Organic Hydrogen carrier (LOHC), could all be used for export at different scales depending on off-taker requirements.
Scotland’s port facilities and existing energy infrastructure, along our extensive coastline and on our islands, offer the potential to develop multiple large-scale hydrogen hubs with export routes through ports, terminals, and pipelines. Due to their coastal, and often rural nature, many of these sites have abundant access to water, have land available for development and are near future gigawatt-scale offshore wind developments and potential new pipelines.
In the North Sea, the repurposing of existing oil and gas assets that are approaching end-of-life and decommissioning can support the cost-efficient scale-up of the hydrogen economy in Scotland. This offers the potential for oil terminals and ports to be expanded or redeveloped to support the ship-based export of hydrogen and the option to re-purpose existing natural gas pipelines for the transport of hydrogen.
Industry expertise, skills and supply chain
With over 60 years of expertise in offshore engineering and oil and gas, Scotland has unrivalled expertise in developing energy infrastructure.
Scotland also benefits from a high-quality academic knowledge base, as well as a highly skilled workforce, with over 65,000 people currently working in our energy sector and a large talent pool with expertise in:
- Gas storage and distribution;
- Safety planning, regulation, and enforcement for hazardous gases;
- Handling of high-pressure gases;
- Offshore and subsea engineering;
- Design and production engineering;
- Manufacture of storage vessels, compressors, balance of plant; and
- Plant maintenance.
Stable and supportive political environment
There is a clear and supportive policy framework and political environment in Scotland, the commitment to ensuring a supportive regulatory framework, and supportive UK and Scottish investment programmes through:
- Scotland’s Emerging Energy Technologies Fund;
- The UK Net Zero Hydrogen Fund; and
- The UK Hydrogen Business Model.
Track record of supporting and advancing hydrogen and energy technologies
Scotland has a proven track record of supporting and advancing innovation in hydrogen and other energy technologies, with several pioneering world-first renewables projects, including:
- The world’s first deep-water wind project;
- The world’s first off-grid renewable energy system;
- The world’s first floating wind farm; and
- The world’s first tidal-powered hydrogen electrolyser.
3.2 Unlocking the Economic Opportunity
Against the backdrop of growing demand and Scotland’s natural advantage, the Scottish Government has an international vision for our hydrogen economy. It is our ambition for Scotland to become a net exporter of hydrogen and hydrogen derivatives, supplying UK and EU markets by the mid-2020’s. We will also harness the export opportunities across hydrogen supply chains, to further support job creation and economic growth. By internationalising our hydrogen economy in this way, we will attract inward investment to ensure Scotland’s hydrogen sector has the capital and infrastructure to scale at pace and meet both domestic and international demand.
To realise this vision, the Scottish Government will develop a Hydrogen Sector Export Plan (HSEP), which will be published in 2023. The HSEP will outline how the Scottish Government will use its trade and investment levers to support the development of an international market for Scotland’s hydrogen sector, enabling businesses to capitalise on the export opportunities linked to hydrogen. There are several factors that will be critical to realising Scotland’s export ambitions and the HSEP will provide clarity on the actions the Scottish Government will take in these areas, to enable our exports to grow. They include:
• Identifying Scotland’s international competitive advantage and target markets;
• Identifying and addressing key market access barriers;
• How we will work with the UK Government;
• How we will build relationships with international export partners; and
• Export support for Scotland’s hydrogen businesses.
Between now and the publication of the HSEP, the Scottish Government will continue to develop clear positions on the points above. The actions we will take to do this, as well as the progress we’ve made thus far, are outlined below.
3.2.1 Building our evidence base
It is crucial we have a strong evidence base in place to inform how we deploy our trade and investment levers, to maximise the impact of the policy decisions and actions that we will set out in the HSEP. We will build our understanding in two key areas ahead of publication.
1. Scotland’s international competitive advantage and priority export markets – In line with our existing approach to export prioritisation, outlined in A Trading Nation, the Scottish Government will identify where Scottish hydrogen and hydrogen derivatives, as well as goods and services across hydrogen supply chains will be able to compete with international competitors. As part of this process, we will additionally confirm which export markets will be a priority.
2. Identifying market access barriers – In line with commitments set out in Scotland’s Vision for Trade, we will identify measures or procedures that restrict the trade of hydrogen, hydrogen derivatives and goods and services across hydrogen supply chains.
Actions we will take:
Building on the Hydrogen Investment Proposition, ‘Think Scotland, Think Hydrogen’ published in September 2022 and to ensure our HSEP takes an evidence-based approach we will continue to gather data, market intelligence and insights to develop our understanding in these areas. We will take the following actions:
- Sector engagement – As a priority we will engage with the sector, including through the establishment of an export-focused industry-government forum, allowing the Scottish Government to gather critical industry feedback relating to exports.
- International network – We will use our extensive international network, including Scottish Development International’s network of market specialists, our international hubs, GlobalScots and Scotland Europa and Trade Envoys, to gather crucial market intelligence.
- Research and analysis – We will continue to gather data to inform our understanding of Scotland’s international competitive advantage, priority export markets and market access barriers, engaging with academics, think tanks and consultants where relevant.
- Market access barriers – We will use our international network and other resources such as the UK Digital Market Access Service to collect information and monitor the primary market access barriers facing the hydrogen sector, with a focus on regulatory barriers.
Progress to date:
- Scot2Ger feasibility study – At COP26 in Glasgow, the Scot2Ger feasibility study was announced. The resulting report confirmed Scotland’s capability to become an exporter of renewable hydrogen and derivatives to Germany. Supply chain opportunities were also explored and identified.
- Net Zero Technology Centre (NZTC) Transportation study – The first phase of the Marine Transport of Liquid Organic Hydrogen Carriers (LOHC) project, led by the NZTC, concluded that LOHC is a viable means of transporting hydrogen in the short to medium term, in large quantities. We will continue to work with the NZTC and a consortium of partners in phase two of the project, which will carry out a feasibility assessment for a pilot trial for the shipment of LOHC from Scotland to the northern European mainland.
- ClimateXChange cost of hydrogen production study – We commissioned a study to assess the cost of producing renewable hydrogen in Scotland. The study examined each part of the hydrogen supply chain to identify current costs and barriers. It identified that the cost of producing renewable hydrogen in Scotland is expected to at least halve between 2022 and 2045 for production pathways directly connected to wind farms, with electricity costs acting as the biggest driver of hydrogen cost reductions from 2030 onwards. We will be conducting follow-up research in early 2023 to expand the scope of the original study.
- Scotland’s Industry Directories – Scottish Industry Directories, maps the businesses operating across Scotland’s hydrogen sector. The Enterprise Agencies are undertaking significant work to update this directory, making it much more comprehensive.
3.2.2 Working with the UK Government
Informed by our evidence base, the Scottish Government will engage closely with the UK Government to ensure Scotland’s export interests are embedded into their policy plans. In their 2022 Sector Development Action Plan, the UK Government set out the actions it will take to position the UK as a future exporter of low-carbon hydrogen. These actions include ongoing opportunities assessment through a Global Market Intelligence Tracker, promoting UK hydrogen exports in international trade agreements and the development of a set of recommendations to enhance UK hydrogen sector competitiveness.
Actions we will take:
These actions will impact Scotland’s capability to access critical export markets and this will be explored further in the HSEP. To inform this we will take the following actions:
- Trade negotiations and policies – Work with the UK Government to ensure the UK’s trade negotiations and policies support the development of a global hydrogen market.
- Regulatory landscape – Collaborate with the UK Government to ensure the UK’s standards, regulations and certification schemes support the needs of Scotland’s hydrogen sector and are strategically aligned with Scotland’s priority export partners.
- International Regulatory Cooperation (IRC) – Where mechanisms for cooperation are reserved, we will ask the UK Government to prioritise cooperation with like-minded trading partners, including the European Commission, to facilitate the smooth international trade of hydrogen.
- Trade promotion – We additionally ask that the UK Government work with the Scottish Government, including our overseas offices and SDI, to promote Scottish hydrogen, hydrogen derivatives and goods and services across supply chains within priority export markets.
Progress to date:
We have already been actively collaborating with the UK Government on several key challenges:
- Regulations and certification schemes – The regulatory regime for hydrogen in Scotland, the UK, and the EU is still evolving and is likely to change at pace in the coming years. We are working closely with the UK Government to ensure the development of regulations and certification schemes create an enabling environment for exporting hydrogen from Scotland and reduce any potential for market access barriers, including divergence between EU and UK regulations.
3.2.3 Building relationships with international export partners
It is essential that Scotland builds strong working relationships with key export partners, to identify opportunities, share knowledge and best practice, progress our export aspirations and address market access barriers. Informed by our evidence base, the HSEP will outline how we will utilise and progress our relationships with international partners to support our export aspirations and Scottish businesses.
Actions we will take:
We will take the following actions to build and cement existing partnerships and progress identified challenges:
- Under2 Coalition Hydrogen Taskforce – Scotland is co-leading the Green Hydrogen Taskforce with the South Australia State Government, as part of the Under2 Coalition’s Net Zero Future Policy Forum. This project will facilitate dialogue between governments on achieving a global renewable hydrogen market.
- International network – Continue to participate actively in international hydrogen cooperation fora, such as Hydrogen Europe, the Vanguard Initiative, European Regions Research and Innovation Network, and others. These enable stakeholders across regions to share lessons, join up innovation assets and identify joint project and funding opportunities.
- Memoranda of Understanding (MOUs) – We will progress the MOUs we have signed with partners in Northern Europe to enable us to build on potential renewable hydrogen trade links and engage on the development of our domestic hydrogen sectors and the global hydrogen economy.
- International Regulatory Cooperation (IRC) – In line with the Vision for Trade, we are seeking opportunities for IRC with like-minded trading partners to support Scottish exports of hydrogen, including opportunities for Scottish expertise to inform the development of international hydrogen related regulations and standards. Where international regulatory barriers are identified, we will utilise mechanisms for IRC within our competence to help reduce trade barriers.
Progress to date:
- Under2 Coalition Hydrogen Taskforce – We have developed a draft prospectus that outlines the work the taskforce will carry out over the next year to develop a global market for renewable hydrogen and are working on recruiting additional members to the group.
- MOUs – We have signed a number of agreements with partner governments in Northern Europe on hydrogen, committing to working together in developing the skills, supply chains and technical requirements that will underpin our hydrogen economies. Since signing a memorandum of understanding (MOU) to cooperate on renewable hydrogen and hydrogen technologies with Hamburg in December 2021, we have signed an MOU with North-Rhine Westphalia in March 2022 and a Letter of Intent with Bavaria in May 2022.
- International network – The Scottish Hydrogen Investment Proposition was published in September 2022 and has been accompanied by a comprehensive engagement programme, led by Scottish Development International (SDI), which has included hosting overseas delegations from locations such as Germany, India, Oman and UAE, as well as delivering trade events in key overseas markets. Through the GlobalScot network, opportunities for collaboration are being explored in Germany, France and the Netherlands.
3.2.4 Export support for Scotland’s hydrogen businesses
The Scottish Government already has a robust approach to supporting our exporters to grow their exports into critical markets in support of the Scottish economy.
SDI provides a wide range of support for new and existing exporters that is signposted on the Scottish Enterprise Exports & International Markets site. This includes:
- Access to international market research and guides on specific market and sector opportunities;
- Support to start exporting through the Preparing to Export programme;
- A range of export training, webinars and events; and
- Expert advice through the GlobalScot network and Chambers of Commerce across Scotland.
This support is already available to support Scotland’s emerging hydrogen export opportunity and is embedded into the Team Scotland approach taken by our Enterprise Agencies to ensure that Scotland is strongly positioned to capitalise on the economic opportunity presented by hydrogen.
As part of the development of a full HSEP in 2023, we will provide details of the export support available to companies on a sub-sector basis and in terms of international markets as these mature. This will build on the increasing scale and capacity of hydrogen businesses and the Scottish supply chain as it develops domestically and will ensure that internationalisation and the opportunity to export are a fundamental element of their growth.
Actions we will take:
We will continue to progress our existing plans in this area and ensure that our evidence base informs how we deploy our support:
- Building on the work outlined above, we will develop a Hydrogen Sector Export Plan in 2023, that will demonstrate the support being made available to export from Scotland to critical international markets, based on Scotland’s competitiveness.
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