Written Evidence submitted by ScottishPower (HCC0018)

Scottish Affairs Select Committee

Call for Evidence: Hydrogen & CCUS

Introduction

  1. ScottishPower is a major energy company with renewable generation, retail supply and network interests; we are a leading developer of wind power in the UK, and part of the Iberdrola Group, the world’s leading renewables developer. We now generate 100% green electricity and our parent company, Iberdrola, is a global leader in tackling climate change, with a commitment to reaching carbon neutrality by 2050.
  2. We believe that green electrolytic hydrogen, produced using 100% renewable electricity, will have a critical role to play in decarbonising those parts of the economy that will be difficult to electrify, such as heavy industry and heavy transport, and we aim to work collaboratively to find solutions in these areas. Hydrogen can be more effectively used in these niche applications and is currently an inefficient and expensive technology for decarbonising heat and light vehicles.
  3. Areas like domestic heating already have zero carbon alternatives such as electric heat pumps that are ready to be deployed today, with significantly greater efficiency. For example, using a heat pump to heat a home is in the order of 4 to 7 times more efficient than a hydrogen boiler. Whilst the capital cost of a hydrogen boiler may be lower than a heat pump, the overall system costs of producing the hydrogen through an electrolyser and transporting it are significant. There are also a range of technical challenges in distributing hydrogen to homes that need to be addressed.
  4. In transport, battery electric is the most efficient and most cost-effective decarbonisation option for lighter vehicles. The choice between battery electric and hydrogen-fuelled electric vehicles becomes less clear as the vehicles get heavier and is dependent on factors such as operational models, distance travelled and local infrastructure. In some cases, the choice between battery electric and hydrogen electric is likely to be finely balanced.
  5. At the end of 2020, we launched a Green Hydrogen Business Division and are working with these ‘hard to decarbonise’ sectors, across the UK and Ireland, to help them in taking forward opportunities to decarbonise through the use of zero-carbon, ‘green’ hydrogen produced using renewable generation. To this end, we are developing a network of green hydrogen production projects, all powered by 100% renewable energy. This includes a project at our onshore windfarm at Whitelee near Glasgow, where the focus is on providing hydrogen for heavy transport, and at Cromarty Firth near Inverness where the intention is to provide hydrogen for use in distilleries. More broadly, Iberdrola recently commissioned a facility in Barcelona to provide hydrogen for the city’s bus fleet and is working on a project to decarbonise fertiliser production in Puertollano, Spain.

(1)    To what extent are the ambitions of the UK Hydrogen Strategy, published August 2021, adequate for Scotland?

  1. We broadly support the approach outlined in the Hydrogen Strategy and the twin-track approach to hydrogen production technologies. We would, though, encourage the UK Government to consider adopting a more ambitious target than 5GW of hydrogen production capacity by 2030, particularly given Scotland’s wealth of renewable energy resources and potential for green hydrogen production both for domestic use and export. We believe that a target of between 5GW and 10GW of electrolytic hydrogen would be compatible with the Scottish Government’s Net Zero ambitions - industry is ready to delivery on an ambition of this scale with the right support. As recognised by the Climate Change Committee, zero carbon green hydrogen is essential for meeting Net Zero goals. Higher ambition in the medium term is likely to lead to more cost reduction in the longer term and bring about a more competitive and thriving green hydrogen sector sooner, which will enable the Net Zero goals to be met cost-effectively.
  2. We would also stress the need to aim for a joined up and consistent approach between the UK Government and the Scottish Government. For example, both the UK Government and the Scottish Government have a target for 5GW of hydrogen production capacity by 2030, which is clearly incoherent.

(2)    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?

  1. We consider that the UK Government’s focus should be on support to bring down the costs of green hydrogen production and to help users switch to hydrogen technologies where they are the best decarbonisation options.
  2. Innovation, underpinned with research, will be important to grow and develop the hydrogen industry, and we support schemes such as the UK Government’s Net Zero Innovation Portfolio and the various schemes within this which promote innovation in the sector.  Of course, the Scottish Government has its own innovation schemes, such as its Emerging Energy Technologies Fund, and it will be important to consider the interactions with UK Government innovation funds so as to maximise the value and impact of the funding.
  3. In our view, there is currently a mismatch between funding for the demand-side and for production with the majority of funding schemes focussed on hydrogen production. We believe that by supporting projects where production and end usage are matched from the outset, the projects will be viable and credible with funding support benefiting both supply and demand. It is possible that funding for projects that focus solely on production without clear benefits to demand partners and users, will result in suboptimal deployment of capital and projects without the anticipated benefits in carbon reduction and economic growth.

(3)    Which market mechanism should be used to incentivise investment in producing low-cost green hydrogen?

  1. At present low carbon forms of hydrogen production are relatively expensive and require government support to facilitate cost reduction through deployment. The UK government has clearly recognised this, and we agree that the mechanisms being developed to support hydrogen production, namely the Net Zero Hydrogen Fund and the BEIS Hydrogen Business Model, are the right overall approach. These mechanisms build on the Renewable Transport Fuel Obligation, which is an existing mechanism that already provides support for the production of electrolytic hydrogen used in transport.
  2. It will be important, however, that the detailed design of these mechanisms provides a framework whereby electrolytic hydrogen can compete on a level playing field with other forms of hydrogen production. For example, in the BEIS Hydrogen Business Model, it is critical that the risks of gas price volatility are fully reflected in the strike prices of the natural gas reforming (with CCUS) hydrogen projects so that a robust comparison (potentially through auctioning) can be made with the strike prices of other hydrogen projects. It will also be important that the design of the support mechanisms avoids unnecessary complexity, which could provide a barrier to uptake, and that the amount of support available, and the timetable for future allocation rounds is clearly set out as far in advance as possible.
  3. We would also highlight the pressing need for transparency and clarity around the carbon emissions (including any upstream greenhouse gas emissions) associated with the different hydrogen production technologies that are accessing these support mechanisms. With this is in mind, we believe that there should be a standard for zero carbon hydrogen as well as one for low carbon hydrogen. Having such a label for ‘zero carbon hydrogen’ will be important in terms of providing due transparency and clarity around the carbon emissions associated with any hydrogen production technology. Over time such a ‘zero carbon’ hydrogen label could also be useful when designing the systems for auctioning contracts as it will provide a clear differentiator between the different hydrogen production methods.
  4. Moreover, in our view, the central objective of hydrogen production should be to bring about carbon emissions reductions sooner than would otherwise have happened and to make a positive contribution towards meeting the UK’s Net Zero emissions target. When combined with new, additional renewables (or curtailed renewable generation), electrolytic hydrogen production has zero carbon emissions associated with it directly and it is a technology option that is available now. Therefore, to benefit from government support, any electrolytic hydrogen production facility, whether using grid electricity or on-site electricity, should be required to demonstrate that it is powered by new, additional renewables (or curtailed renewable generation) and thus resulting in real carbon savings.

(4)    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?

  1. Our focus is on a ‘hub and spoke’ model, where hydrogen production is co-located with renewable energy generation and the hydrogen is then distributed directly to customers or hydrogen refuelling stations either by trailer or by pipeline, as required. By doing this, we can benefit from economies of scale in hydrogen production and renewable energy generation whilst limiting electricity network costs. In this model, there is a limited need for centralised government-supported infrastructure. For example, we do not consider that an evidence-based case has been made for repurposing of existing national grid pipelines for hydrogen use, transportation and storage.
  2. As mentioned in our response to Question 2, we consider that the government’s focus should be on support to bring down the costs of green hydrogen production and to help users switch to hydrogen technologies where they are the best decarbonisation options.

(5)    What role should the oil and gas industry play in achieving a “just transition” to blue and green hydrogen in Scotland?

  1. The oil and gas industry will have an important role to play in achieving a just transition given the wealth of skills and knowledge which can be transferred to the green hydrogen sector. There is significant amount of transferable skills across the workforces, from safety, process design, engineering, and technical operations to environmental, legal, planning, finance, and commercial skills.  Therefore, we believe that the green hydrogen sector is well-placed to seamlessly develop green careers for those in existing oil and gas employment.
  2. It will be important, however, that there is a level playing field for all companies developing low carbon hydrogen projects in Scotland.

(6)    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?

  1. There is a clear need to develop the skills required for the hydrogen economy in Scotland. We believe this need could be partly addressed by incorporating hydrogen-related training into new and existing course content at existing training centres and academic institutions, hence our work with the Hydrogen Skills Partnership. This Partnership comprises (an initial grouping only); ScottishPower, Arcola Energy, ITM Power, Skills Development Scotland, Energy Transition Zone, NESCOL, Aberdeen University and Robert Gordon University, as well as support from the Hydrogen Accelerator. This is intended to bring together many more organisations, public and private, in coordinating valuable skills and training programmes as well as direct training for the supply chain companies and individuals. 
  2. In relation to a Just Transition, we believe that ensuring a distributed model of green hydrogen availability across Scotland will promote widespread employment opportunities and will ensure that no communities are left behind. To facilitate this, it may be appropriate to support regional hydrogen deployment beyond initial market-led business cases.
  3. We consider that the UK Government and the Scottish Government should work with industry and partners to establish the skills to underpin our energy transition. The Hydrogen Skills Partnership builds on real projects from the outset and works with the private sector to deliver real jobs in the near term. This feeds into all skill and age levels, as well as training or retraining the current supply chain into green careers and transitioning from fossil fuel reliance.

 

 

ScottishPower

 

March 2022