Chapter 4. Hydrogen – Scotland's Supply Chain and Skills
Policy Priorities: Hydrogen Supply Chain
We will complete a detailed review of our supply chain capability in order to identify strengths and weaknesses, opportunities and barriers to the transition to and growth of a hydrogen economy in Scotland.
We will work with our enterprise agencies to develop a programme of activity to support supply chain development, growth and transition in order to establish a stable and sustained hydrogen economy in Scotland.
We will build Scottish capability in the emerging hydrogen sector, supporting companies to grow and diversify across the whole hydrogen supply chain, but with a specific focus on manufacturing component parts required throughout the hydrogen value chain.
We will work with our existing supply chain to support access to funding and projects that will grow expertise, knowledge and revenue through the 2020s as the hydrogen economy matures.
We will work with innovative and emerging companies in Scotland to develop next generation technologies and components that help to reduce costs in a global hydrogen value chain and plug gaps in our supply chain.
By drawing on existing skills and capability we will play to our strengths and work to attract other companies to set up in Scotland. Where required, we will also work to attract inward investment in hydrogen supply chain with a particular focus on production, supply and manufacturing.
We will support collaborative projects that actively engage Scotland's supply chain both domestically and internationally through demonstrators and commercial projects that can support supply chain transition and growth and leverage global export opportunities in terms of services, skills and manufacturing.
Building Supply Chain Capability
The expertise gained through over 45 years of experience of oil and gas sector operations in Scottish waters and an abundance of offshore wind skills means that Scotland should be well positioned to capitalise on the opportunities that the production of large scale hydrogen presents.
As we transition to a net zero economy, it will be increasingly important that these skills can be seamlessly transferred to our growing hydrogen sector – retaining, and growing the economic value of a new hydrogen production industry.
Capturing the Hydrogen Value Chain
While Scotland has a natural advantage in green hydrogen production, given the huge potential offshore and onshore wind resource, there are gaps in the supply chain which need to be explored and resolved.
The Scottish Offshore Wind to Green Hydrogen Opportunity Assessment, supported by the Scottish Government, identified over 100 companies in Scotland that are already involved or have an interest to be involved in green hydrogen production. The study also identified a number of strengths and weaknesses in Scotland's supply chain.
The current strengths of the Scottish hydrogen supply chain are in the areas of project development, installation, operations and maintenance and sector support where these capabilities can be transferred from Scottish companies with experience in similar industries. Scotland also possesses a wide range of engineering design and academic research capabilities that could be brought to bear.
However, gaps in the Scottish supply chain are predominantly in supply areas bespoke to the design, manufacture and maintenance of hydrogen generation plant. These would be high value added activities as would be the specialist extended supply chains that go with them.
To address these supply chain gaps we will support new and innovative indigenous companies as they develop next generation technologies as well as inward investment of manufacturing to Scotland which could not only generate direct jobs and value but may also lead to the establishment of a sustainable, long term local supply chain and stimulate wider supply chain opportunities.
Large Scale Production – (large scale investment)
Significant scale of investment is required to realise the green hydrogen production potential afforded by Scotland's vast renewable generation resources. Access to capital is critical to supporting energy investment.
The Just Transition Commission's report on green recovery (July 2020) states that leveraging private investment to help meet the cost of the transition to net zero is an 'absolute necessity'.
We will work with industry, the investment community, and the Scottish National Investment Bank and Scottish Futures Trust to fully explore the business models necessary to grow our hydrogen economy as well as innovations in finance to leverage and secure low cost investment opportunities to advance the hydrogen economy as part of the wider energy system thinking. The Scottish National Investment Bank is the UK's first mission-led development bank which is being capitalised by the Scottish Government with £2 billion over ten years.
Hydrogen supply chain in Scotland
The Scottish Hydrogen Assessment considered skills and capabilities in Scotland associated with our existing supply chain, including the renewable energy industry and the offshore oil and gas industry.
The supply chain capabilities are centred around development, construction including civil and electrical contractors, and operations. Scotland's oil and gas sector also has transferrable skills in the supply and service of process engineering kit.
While Scotland may have a limited indigenous manufacturing supply chain for provision of key plant like electrolysers, it has existing and transferrable skills within the renewable and energy sectors, including a strong existing renewables sector with many onshore and offshore wind developers with locations and active projects within Scotland.
Companies are building capabilities to support the development of electrolysis projects. European Marine Energy Centre (EMEC) first procured a hydrogen electrolyser in 2015 and have since gone on to expand their portfolio of hydrogen projects. A number of small to medium enterprises (SMEs) in Scotland specialise in areas of the electrolyser supply chain. Examples include: the Pure Energy Centre, an electrolyser integrator or assembler located on Orkney and; Logan Energy a system integrator and operator based in Edinburgh.
Scotland's oil and gas sector also has transferrable skills in the supply and service of process engineering kit. Many of the supply chain elements required for the production of low-carbon hydrogen exist already in Scotland's oil and gas industry. SMR/ATR plants are typically bespoke and built at the installation site, with many of the components, such as pressure vessels, pipework and supporting steelwork, being items which could be manufactured in Scotland.
There is limited potential for the development of core intellectual property (IP) around SMR/ATR and Carbon Capture, Utilisation and Storage (CCUS) although the integration of these two elements for low-carbon hydrogen production may offer opportunities. These are high value added activities but at present much of this IP is being captured outside Scotland.
The extent to which Scotland is able to generate IP in this area will also determine the extent to which this sector could offer export potential in the same way that Scotland exports oil and gas expertise, recognising that there are strong incumbent players.
Further value added opportunities may exist in liquid fuels production. Hydrogen will mainly be used in gaseous or liquid form but in export scenarios hydrogen may be transported and ultimately used as ammonia, methanol or any number of synthetic hydrocarbons from methane to jet fuel.
If these fuels and energy carriers become established, then they are generally most economically co-produced in the same location as hydrogen. Scotland may therefore be in a position to add further value to the hydrogen being produced by synthesising these fuels and chemicals.
The skills assessment from the hydrogen assessment work points to the presence of relevant skills in Scotland which could be exploited to realise this additional economic opportunity.
The development of training and skills associated with the deployment of solutions in the hydrogen sector will be considered as part of our Climate Emergency Skills Action Plan. We will support reskilling and retraining skilled workers so that they can access the new, good quality jobs that become available. This is fundamental to delivering a just transition and ensuring people are able to access and benefit from the opportunities such as good, green jobs.
We are also investing in green jobs and skills as part of the green recovery including: £100m in a Green Jobs Fund to help businesses which provide sustainable and/or low carbon products and services to develop, grow and create jobs; £60m Young Person's Guarantee including increased opportunities for 'green' apprenticeships across public sector bodies; and, £25m National Transition Training Fund including focus on provision of green skills. The private sector has an integral role to play in the developing the hydrogen sector by joining Government in investing in the skills, the training and the infrastructure that will develop as local supply chains emerge.
In addition, the Scottish Government is a member of the Energy Skills Alliance (ESA), established in 2019 to develop an integrated skills strategy to create a net zero energy industry. The ESA is working to produce a clear forecast of energy skills in the short term, deliver an integrated energy apprenticeship scheme and develop a roadmap for aligning training and standards. The alignment of training and standards across energy sectors will be a key enabler in allowing renewables sectors to benefit from and utilise the skills and expertise of the oil and gas industry by removing the need for the workforce to obtain additional certification in order to transfer between sectors.