Written evidence submitted by Wood plc (HCC0011)

 

Hydrogen and carbon capture in Scotland

 

Introduction

 

Wood is a global engineering and consulting company, publicly listed in the UK and proudly headquartered in Scotland. Over the last five years, we have taken deliberate steps to reposition our business, broadening out from our heritage in oilfield services to become a leading solutions provider across the wider energy sector.

 

Our growth strategy is centred around energy transition and industrial decarbonisation, meaning we are very well aligned with the UK government’s ten-point plan, net-zero ambitions and the levelling-up agenda. At Wood, we see hydrogen and CCUS as market opportunities that support each of these priorities.

 

As a company, we have an excellent track record in hydrogen and CCUS – we are not simply positioning or building capability, we’re already delivering and earning significant revenue in both areas:

 

 

Increasing momentum around clean hydrogen is translating into increased activity in the market. In 2021, Wood penned more than 60 contracts in this space, and we can see over $0.5bn worth of potential hydrogen awards coming to market in the medium term.   

 

 

In summary, we are very optimistic about the opportunities that the development of a hydrogen economy, and the wider decarbonisation imperative, will present for Scotland. Both hydrogen and CCS will play a key role in accelerating the energy transition and will form a backbone of the integrated energy systems of the future.

 

Once established, we believe the technologies have the potential to make an equivalent contribution to Scotland’s economy as the oil and gas industry has done over the last 40 years. In the near term, there will be overlap as the transition to a low-carbon future won’t happen overnight. This provides business, industry, policymakers and academia with some time to prepare, but the level of collaboration required to capitalise on the opportunity means coordinated thinking needs to happen now.

 

(402 words)

 

  1. Reflections on the UK hydrogen strategy and what it means for Scotland

 

In August 2021, the UK government launched the nation’s first ever hydrogen strategy which set out a vision and approach to create a thriving sector that could deliver 5GW of low-carbon hydrogen by 2030.

At the same time, it also issued a series of industry consultations to solicit feedback on the policies and to crystalise some of the additional detail required to implement the goals set out in the document.

 

The consultations focused on topics that will be fundamental to the success of the strategy including the business models that will help stimulate private investment, how capital from the Net Zero Hydrogen Fund should be allocated to build early momentum, and technical detail on a low-carbon hydrogen standard. On that basis, the ability to assess how appropriate the strategy is for both Scotland and the UK, will partially depend on the outcomes of these consultation reviews.

 

In the meantime, it is possible to make high-level reflection on the strategy as it currently stands:

 

  1. Overall, the direction of travel is very positive – the strategy sets out a viable roadmap to achieving the government’s target of 5GW of low carbon hydrogen production capacity by 2030. This will create a platform on which to accelerate production and set more ambitious targets post 2030.

 

We also welcome the ‘twin-track’ approach being pursued around blue and green hydrogen and the formation of the Industrial Decarbonisation and Hydrogen Revenue Support (IDHRS) scheme which will help to fund new hydrogen and industrial carbon capture business models.

 

  1. The targets are pragmatic and achievable and will help build confidence around delivery, but when you aggregate the individual production targets being set by Scotland, Wales and Northern Ireland, an argument could be made that 5GW by 2030 is cautious and that a larger target would be appropriate.

 

This is particularly true for Scotland in the case of green hydrogen – the country boasts enviable renewable energy resources (onshore wind, offshore wind and tidal) and with a mature energy supply chain that’s already at the vanguard of the energy transition, the targets should be bold and ambitious to seize the opportunity and secure investment in ‘shovel-ready’ UK projects.

 

  1. Another build we would offer is around the importance of stimulating the demand side of the market in parallel with production. This can be achieved with the right policy measures -Scotland is already delivering pathfinder projects in this space including SGN’s ‘hydrogen to homes’ H2H pilot schemes that Wood is working on and some of the early progress in cities like Aberdeen and Glasgow where public transport already includes hydrogen buses (or will soon).

 

  1. A final observation on the strategy is that it is almost exclusively focused on production for domestic use – by contrast, Scotland’s Hydrogen Action Plan has a strong focus on production for export given the massive excess of renewable power in the country. As ScotWind projects come online this will build further momentum in green hydrogen production.

 

While meeting domestic needs is certainly welcome, the hydrogen export opportunity (technology and gas) is something the UK should also be considering as part of DIT’s ‘Made in the UK – Sold to the World’ campaign. Given the UK has a larger trading network, this could open up lucrative opportunities that would benefit the wider Union including Scotland.

 

(560 words)

 

  1. UK government-led R&D investment in Scotland around green hydrogen

 

There’s no doubt that additional R&D investment will be required if Scotland and the wider United Kingdom are to capitalise on the tremendous opportunities that green hydrogen offers the economy.

 

That said, R&D is not just about creating market leading technologies but about scaling up markets at the same time. On that basis, we believe initial investment should be focused on areas that help to stimulate the market and drive down costs.

 

We offer four observations:

 

  1. Accelerated investment in ammonia cracking – given that Scotland rightly has ambitions to produce and export large quantities of hydrogen and ammonia is likely to be the vector of choice when it comes to moving hydrogen around, R&D spend that helps Scotland to build out its capability in the cracking of ammonia would help the country cement a leadership role in the future of export of locally produced clean hydrogen.

 

We know from our work with Scottish Enterprise, Scottish Power and others on the ‘Scot 2 Ger’ project that the demand exists in both European markets and further afield to procure low-carbon hydrogen and/or ammonia produced in Scotland.

 

  1. Prioritise green hydrogen funding within the Net-Zero Hydrogen Fund – there is a global race to bring down the costs of green hydrogen so any R&D capital available through the Net-Zero Hydrogen Fund should be focused on smaller schemes (which are likely to be green) which could be squeezed out of larger Contracts for Difference (CfD) processes due to competitive forces.

 

We also welcome the Emerging Energy Technologies Fund from Scottish Government which should play an importing role in accelerating technology development and commercialisation.

 

Helping UK-based electrolyser manufacturers will be particularly important in driving down costs and increasing efficiencies. While projects may start small, they will grow quickly particularly in Scotland. For the wider nation, the ability to support a diversity of smaller projects will ensure that we identify those which are best placed to thrive and grow organically, and those that may require continued support through the volume adjusted CfD mechanism.

 

  1. Accelerate trials around hydrogen villages – given Scotland has set clear goals to produce green hydrogen at pace, there’s a compelling argument to invest in a series of hydrogen villages in the communities close to where the hydrogen is being produced. These could provide a wealth of evidence that can then be used to shape a UK-wide policy around hydrogen villages and towns.

 

(409 words)

 

  1. Incentivising investment in the production of low-cost green hydrogen

 

This topic was a big focus area in a consultation document issued alongside the launch of the hydrogen strategy last August. A range of views were shared by industry on the optimum business models to support hydrogen production so it will be important to see what comes out of that review.

 

Wood responded to this consultation and offered three broad reflections:

 

  1. Contracts for Difference (CfD) – deploying a CfD mechanism to support hydrogen production makes sense as this approach is already well understood by industry and investors. It has been used successfully to support growth in the UK’s renewables sectors like offshore wind. CfDs offer investors the clarity and certainty they need, and this familiarity will likely help to build early momentum in hydrogen investment.


We welcome plans to retain separate pots of funding support for green and blue hydrogen. Given their differing price profile and stage of development, it is important that both are brought forward together with equal urgency.

 

  1. Strike price challenge - while CfDs make sense as the primary mechanism, one issue we flagged as a real concern in the consultation was the initial ‘minded to’ approach to use natural gas as the reference point/strike price for both blue and green hydrogen production projects.

 

With green hydrogen projects there are two important variables to consider; a significant input cost (the renewable power you’re buying to drive the electrolysis process) and then the revenue you will secure from selling the hydrogen produced. If these are indexed against different markets, then it becomes more complicated to assess the commercial case and could make it more difficult to secure FID on a project. This may become a problem when, in the future, natural gas prices will have less influence on power prices therefore causing a disconnect between costs and revenues.

 

  1. Demand side stimulus – as outlined earlier, we see a need to stimulate hydrogen demand in parallel with production. It’s difficult to offer price transparency when there’s not yet an established market in place so driving market demand will be key to building the economic case that will unlock accelerated investment in new green hydrogen projects.

 

(367 words)

 

  1. Using green hydrogen to decarbonise heavy transport and buses across Scotland

 

Scotland is already at the forefront of hydrogen solutions including some schemes linked to zero emissions mobility.  For example, in Aberdeen, hydrogen powered double decker buses have launched, the city council is working with BP to build the first scalable green hydrogen facility and Wood and SGN have partnered to develop a roadmap that could potentially see Aberdeen become the first city to be powered entirely by hydrogen by the end of the decade. 

 

These early pathfinder projects are working well, although they have tended to be smaller, localised and in the ‘easier to address’ space, rather than in the harder-to-abate heavy transport systems. 

 

For example, the UKs largest electrolyser is to be built close to the UK’s largest onshore windfarm, Whitelee near Glasgow.  This will provide carbon-free transport for communities across Glasgow as well as be used in niche industrial applications which are close to the point of production.

 

However, to scale the industry and roll out a similar approach across the whole of Scotland, the importance of getting started on major projects cannot be understated. This requires significant investment in building out a national hydrogen delivery infrastructure including:

 

  1. Modifying and repurposing existing gas infrastructure so that hydrogen can be safely blended and transported in existing pipelines.

 

  1. Creating dedicated hydrogen pipelines.

 

  1. Building out tube trailers to move hydrogen along Scotland’s road network.

 

Gas distribution and energy companies such as SGN, SSE and the Energy Networks Association (ENA) are already active in the preparatory work in this area, but they need support.  While developing the production capacity and associated infrastructure is achievable, it will need the Government and industry to work together to move large scale production projects from planning to delivery. (297 words)

 

  1. The opportunity for Scotland’s oil and gas industry in low-carbon hydrogen

 

The oil and gas industry is clear on the need to change and through the formation of the North Sea Transition Deal, it now has a roadmap to drive this transformation. 

 

The central challenge for the industry is that it must not only maintain energy security today but also help lead efforts to decarbonise energy systems and build out low-carbon alternatives including renewables and hydrogen. 

 

This process is underway, and more and more companies are making ambitious commitments.  The industry knows both sides of the coin and can provide insight on the implications of the energy transition on operations and business models, the realistic timescale of a ‘just transition’ and how they can contribute to accelerate the pace of change. 

 

The skills required for carbon capture utilisation and storage (CCUS), needed to produce blue hydrogen, are already core business for the oil and gas sector. The industry can also prioritise investment in infrastructure to enable electrification to meet demand and support the production of green hydrogen.

 

In the future, energy systems will be far more integrated.  It’s entirely possible that floating wind could be used to produce green hydrogen offshore which is then transported using existing oil and gas infrastructure.  At every stage of this type of project, there’s an opportunity to apply core oil and gas expertise in subsea, pipeline integrity and process technology.  The recent ScotWind leasing round was very positive in terms of creating opportunities in floating wind for the existing oil and gas workforce to transition to a green job. 

 

The future belongs to the integrators.  The complexity of combining interdependent factors, the challenges of scalability and questions around co-benefits and resilience are key.  The industry must develop a skills strategy that means the energy industry continues to be an attractive career path for new talent concerned with climate change and ESG principles.  The stakes are high, but the prize is great.  Scotland’s oil and gas industry has a tremendous opportunity to harness its fiercely talented workforce to lead the world in the low-carbon hydrogen revolution. (352 words)

 

  1. Developing the skills to support a world-class hydrogen workforce

 

The hydrogen economy presents a tremendous opportunity for Scotland’s energy workforce where skills and technical experience from more traditional energy projects are clearly highly transferable. It will, however, require the creation of a more flexible, agile and diverse workforce and we need to build capacity and train for a cross-industry and multidisciplinary skill set.

 

This requires a new national framework for skills, workforce development and training and accreditation, aligned with higher education, to leverage corporate expertise and become a huge enabler for positive change in our country.

 

Work is already underway in this area.  In Aberdeen, a number of partners including The Robert Gordon University, University of Aberdeen, North East Scotland College and Skills Development Scotland are joining forces to create a National Energy Skills Accelerator (NESA) which will be homed at the Energy Transition Zone.  The new initiative aims to maximise the positive impacts emerging from the growth of green hydrogen by analysing the opportunities of the energy transition and preparing the workforce with new skills and capabilities through training. 

 

The global and not-for-profit skills body for the energy industry, OPITO, has also confirmed its intention to identify commonalities between existing energy skills training and assessments to support global standards for hydrogen, carbon capture usage and storage (CCUS) and floating offshore wind.

 

The transition will involve some retraining and learning new skills but it’s far from a daunting prospect. As an example, SGN are retraining fitters and technicians on how to manage hydrogen systems - it is a trickier gas to handle but the core principles remain similar.

 

Both the oil and gas and hydrogen sectors rely on engineering skills and process and chemical engineering disciplines are particularly relevant to hydrogen-based energy systems.  Universities and technical colleges will need a sharp focus on these skills as well as an emphasis and education around innovation and flexibility to apply these skills to different environments and an appetite to drive real change in the industry. 

 

Academia may also introduce more specific courses for those looking to upskill or specialise in the energy transition.  Wood’s Chief Strategy Officer, Martyn Link, was the external validator for the new Sustainability and Energy Transitions MBA at the Robert Gordon University (RGU), and it is likely more leading universities will look to introduce specific courses in this field.  Wood has also joined forces with RGU to collaborate and tackle key challenges facing the transitioning energy sector with a mix of new initiatives, research, skills development and cross academic and industry discourse.

 

A continued integrated approach is required with employers, training providers and government working together to ensure the engineering workforce has the skills for today and for energy jobs in the future. (456 words)

 

February 2022