Written evidence submitted by Shetland Island Council (HCC0010)

Terms of reference: Hydrogen and carbon capture in Scotland

The Committee calls for evidence to be submitted on the following issues: 

• To what extent are the ambitions of the UK Hydrogen Strategy, published August 2021, adequate for Scotland?
• We feel that the ambitions in the UK Hydrogen Strategy could be pushed further but really the main challenge is to meet the targets already set. We know from the carbon budget the amount of carbon which must be saved, and we know from the future energy scenarios the different routes which can be taken.  The next stage is to map out where the potential lies within the United Kingdom and support these areas to work together, good communication with collaboration is the only way we can meet the target of net zero by 2050. We must drive towards a long-term transformation of our energy system.
• A recent atlas of Carbon and Hydrogen Hubs for United States Decarbonisation, bring together data and identifies areas of the United States that offer the capacity to help accelerate emissions reductions and carbon removal through focused coordination, deployment and policy.  A similar exercise for the UK would highlight the key areas for hydrogen generation, the main areas for use along with the infrastructure for transmission, distribution and storage. Link to the atlas here GPI's Carbon and Hydrogen Hubs Atlas (betterenergy.org). 
• Requirement for the strategy to look even more on where does the demand lie, both within Scotland and internationally. The key factor in Scotland would be knowing who the customers are and how would H2 be blended into the Scottish Gas Network (SGN).
• The Hydrogen strategy could also consider standardisation within the industry as this will be vital to avoid stranded assets and ensure funds are invested efficiently.  This would reduce risk and help reduce financing costs.
• ScotGer -is a good initiative but needs a more structured approach with more funding available to make progress. The strategy also needs more of a focus on the European Ports will be potential import points for Scottish hydrogen.
• The unique selling points for Shetland include our huge renewable energy generation potential.  An extensive supply chain with expertise in both the marine and oil and gas sectors which has been developed over the past 50 years.  Shetland benefits from the established energy infrastructure centred on the Sullom Voe industrial area with the pipeline connections to the mainland and offshore oil and gas facilities, along with the port and harbour facilities at Sullom Voe, Lerwick and the many other ports and harbours around the isles.  In addition, there is extensive experience of marine spatial planning, with Shetland Islands Council and Shetland UHI employing multidisciplinary teams with a range of experience developed across commercial, research and statutory planning projects. 
• What should be the focus of UK Government investment to ensure that Scottish industry, supported by Scottish research, is able to become a world leader in green hydrogen for domestic use and export?
• The focus for UK Government investment should be in developing hydrogen hubs, as sites across both Scotland and the UK each have their unique advantages and each hydrogen hub should be encouraged to communicate and collaborate.  
• The Scottish Government in conjunction with stakeholders are currently evaluating most advantageous locations for hydrogen electrolysis to reduce electricity constraints, which is due in spring 2022.  The UK Government should take information such as this into account when considering the strategic importance of each site.
• Enterprise agencies in Scotland have commissioned work to develop detailed plans and analysis of site requirements for early renewable and low-carbon hydrogen production plants and hubs in Scotland providing a detailed set of future requirements.  The deep analysis report is due to be published in Spring 2022.
• A lot of investment is required in Scottish ports to ensure Scotland has export capabilities to European markets and further afield. Investing in these ports will create new opportunities, including offshore wind support, which will in turn support the production of green hydrogen.
• Schemes to support training and reskilling of oil and gas workers will ensure Scotland has the knowledge required to fully benefit from the opportunities as well as enabling a “Just Transition”.
• Focus should also be put on maximising the co-benefits or by-products of hydrogen production such as waste heat to maximise the efficiency of these plants.  The Ministry of Foreign Affairs of Denmark have recently published a report produced by Ramboll on Heat Recovery from Hydrogen Production.  The synergies between district heating and the future production of low carbon hydrogen in the UK.  https://storbritannien.um.dk/en/the-trade-council/projects/district-heating/heat-recovery-from-hydrogen-production .  The report highlights a potential system efficiency increase of electrolyser plants of 14-32% by recovering waste heat.  It also estimates that by 2050 the quantity of waste heat arising as a by-product of hydrogen production could be between 31-144TWh (based on the UKs Hydrogen Strategy projection of 250-460 TWh of hydrogen production by 2050, and assuming a production efficiency of 80% and a heat of loss of 10-25% of input energy).
• Which market mechanism should be used to incentivise investment in producing low-cost green hydrogen?
• A range of mechanisms will be required to incentivise the production of low-cost green hydrogen, along with a review of existing mechanisms.  Green hydrogen production is electricity use and must therefore be considered as part of the wider energy system.  In addition, as energy use, renewable energy generation potential and energy transmission capabilities vary across the UK and a one size fits all solution is likely to be unworkable and unfair. 
• Any market mechanism developed should consider the unique selling points of different locations within the UK and consider how best to support that location within a wider national framework.  The cornerstone to any onshore or offshore renewable energy development will be their route to market, whether that is as electricity, hydrogen or another derivative fuel.
• Green hydrogen production requires a huge quantity of renewable power. Wind energy in the north of Scotland is the highest in the UK and is therefore the ideal location for green hydrogen production, however the charges renewable generators suffer in these areas massively impact project viability. This must change to ensure the UK and Scotland can fully reach their production potential in green hydrogen. TNUoS charges must be in line with the rest of the UK, as it puts these areas at an unfair disadvantage to enter the renewables market. 
• The approach to market mechanisms should also be considered as it would appear the UK government approaches H2 & CCS projects by evaluating them using a competitive process and helping fund the winners. The Scottish government use a different approach by providing funding which then needs to be match-funded by industry. To achieve UK & Scottish H2 and CCS targets we believe there is a need for both governments to assess if these approaches will deliver projects in a timely fashion and then to consider what further support is necessary.
• In addition to market mechanisms, regulatory exemptions should also be investigated.  Such exemptions could make the shared eco system for hydrogen production and renewable generation more attractive.  This would align with the regulatory sandboxes and innovation hubs referred to in the Build Back Better: Our Plan for Growth 2021. An example would be if local generation and demand was to be matched then developers and customers would only have to pay for the local transmission assets that they are using.  The alternative could be extensive private wire developments and a disjointed energy system. 
• In Shetland we would support market mechanisms to:
• Transition and develop our existing industries through training and skills development
• Develop our existing facilities to allow them to diversify to support renewable energy generation both on and offshore along with hydrogen production, distribution and export.
• Support hydrogen storage, distribution and use within the local Shetland market because Shetland is reliant on the import of high cost fossil fuels and, as a result, has some of the highest levels of fuel poverty in the country.  In the future we would seek to reduce this significantly.
• Develop the infrastructure to export hydrogen and hydrogen derivative fuels.   
• Enable curtailed wind to be used for green hydrogen production with discounted rates.
• Facilitate CO2 import to Shetland (prior to export to offshore oil and gas facilities). 
• Align community benefit agreements with offshore wind comparable to that of onshore wind.  Shetland, Orkney and the Western Isles are currently working together to set out what they would like to see happen, with the help of external consultants. This includes investigating whether community benefit can be paid in the form of electricity donation to the local community, enabling more affordable energy to those areas which suffer from high fuel poverty rates.
• Provide strike prices for the renewable energy generation and the hydrogen production, or a single strike price which covers both.
• What infrastructure, and investment in infrastructure, is needed for green hydrogen to be easily available for heavy transport and buses across the whole of Scotland?
• The local Neptune Project, funded by the UK Clean Maritime Demonstration Competition led by Strathclyde University involving industry is addressing the longer-term marine demand for hydrogen, or hydrogen derivative fuels, in the Shetland region, which will be significant.  This study has wider implications for marine transport in Scotland. 
• Digital twins and other planning tools will be key to establishing what infrastructure and investment is required for green hydrogen use as this will be balanced with hydrogen derivative fuels, electrification and other sustainable fuels.
• In Shetland there is currently no generation or use of hydrogen and investment will be required to develop the refuelling, distribution and use infrastructure over the next 10 years as technology develops and demand grows.
• Investigating optimal methods of small scale hydrogen transport for rural areas, such as mobile hydrogen refuelling stations.
• Infrastructure will also be required to make use of the waste heat produced in the hydrogen generation process.
• What role should the oil and gas industry play in achieving a “just transition” to blue and green hydrogen in Scotland?
• The Oil and gas industry will play a range of roles in achieving a ‘just transition’ as the industry has a wealth of experience, throughout the energy supply chain.  As part of the mapping exercise mentioned above, the oil and gas experience and infrastructure must be a factor in highlighting the key locations for hydrogen production, distribution and use along with CCUS.  One of the ORION Project’s objectives is for CO2 to be transported to Shetland and injected offshore in mature oilfields, through re-use of pipeline infrastructure.
• The offshore oil and gas sector are now seriously looking at synthetic clean fuels to run infrastructure and equipment instead of natural gas and diesel.  This is due to the seemingly high cost and complexity of electrification from shore.  Involving the oil and gas sector’s energy experience could lead to a reduction in the cost of hydrogen through involvement in hydrogen production and distribution systems, and raising demand for hydrogen use in the remaining UK oil and gas operations. 
• In addition to the oil and gas industry, the fishing and aquaculture industries should also be considered when looking to achieve a “just transition” to blue and green hydrogen.  Offshore wind, as a source of energy for green hydrogen production will have an impact on fishing activities around Shetland and thorough consultation should be undertaken to identify the most suitable sites for offshore wind with adequate compensation for lost fishing opportunities.  We would suggest that issues and solutions around compensation for displacement can be guided by the principles and practice onshore.
• The fishing and marine sectors also have a wealth of skills and knowledge which would be of great value to the offshore wind and hydrogen generator sectors particularly as they move further offshore and into the higher energy environments.
• We can also learn from what has happened in the past, to consider the priorities for each hydrogen hub and how different hubs could potentially interact.  Considering both advantages and disadvantages and what has been learnt with hindsight.  Shetlands oil and gas experience was very mixed; 
• Most upstream opportunities bypassed the islands being serviced from UK or international sources although the port of Lerwick did participate in some forward staging for project activity. Some oil rig supply services were run out of Shetland for a time but they gradually repositioned to Aberdeen and Peterhead. 
• A proportion of midstream activity was achieved around SVT and the Port of Sullom Voe for the oil which was landed on Shetland through the Brent, Ninian and Clair pipelines and at Shetland gas Plant. Much Oil & Gas however bypassed Shetland, either offshore loaded or exported through other pipeline systems to the UK mainland. 
• No downstream activity developed in Shetland as all products which were landed were exported near to their raw state for refining and use elsewhere.
• It is possible that geographical proximity will create a natural commercial advantage for the Shetland supply chain but again that is not certain, it was only a partial factor in Oil & Gas. Also, any proximity advantage will only be realised if the services offered in Shetland are capable of offering the scale and quality required at a reasonably competitive price point.
• In June 2021 the Net Zero Technology Centre initiated a Techno Economic study into how a Shetland Energy Hub and the North East of Scotland could play their part in the energy transition.  The low carbon energy potential of the North East of Scotland and Shetland is compelling.  To realise this potential requires strategic thinking and investment into activities that support clean energy development and deliver long-term sustainable economic growth to the regions. 
• What training is required to build a hydrogen-ready workforce in Scotland? What is the long-term sustainability of the Scottish workforce for hydrogen power?
• The ORION project is working with HIE and SDS to develop a framework to help Shetland companies develop skills and capability and this is also required throughout Scotland.

The Committee values diversity and seeks to ensure this where possible. We encourage members of underrepresented groups to submit written evidence.

Deadline for submissions

The Committee calls for evidence to be submitted by Tuesday 1 March. 

February 2022