Written evidence submitted by Scottish Cluster and Storegga (HCC0025)

 

House of Commons Scottish Affairs Committee: Hydrogen and carbon capture in Scotland

Written evidence from Storegga, Lead Developer of the Acorn Project and the Scottish Cluster and Joint Developer of the Cromarty Hydrogen Project

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Storegga, the Acorn CCS and Hydrogen Project and the Scottish Cluster

  1. Storegga is the UK’s leading independent company entirely focused on carbon reduction and removal. It is the lead developer of the Acorn CCS and hydrogen project, which is sited in St. Fergus, Aberdeenshire, which will provide essential infrastructure to help the UK and Europe meet its net zero targets.

 

  1. The Acorn Project, “Acorn,” is a key, ‘shovel-ready’ project with existing infrastructure and oil and gas sector knowledge that can be repurposed to develop, deploy, and scale up CCS and hydrogen solutions, supporting Scotland and the UK’s decarbonisation ambitions and positioning the UK as a leader in these low carbon technologies.

 

  1. Acorn is centred upon the St Fergus gas terminal in Northeast Scotland, where the Acorn CCS infrastructure will be built. This is the first landing point for around a third of all the natural gas used across the UK (35%), enabling the Acorn Hydrogen component of this project to take this gas and reform it into clean burning hydrogen with the CO2 emissions captured, safely removed, and stored using the Acorn CCS infrastructure.

 

  1. Depending on the timing for the deployment of the CCS infrastructure, and the progress of the Tracked Cluster developments, the first Acorn Hydrogen plant can be online in 2027. Initially, Acorn Hydrogen will focus on producing CCS-enabled ‘blue’ hydrogen with a view to supporting blending (20%) with natural gas to support the transition of the UK National Transmission System (NTS) towards 100% hydrogen. It will also focus on supporting communities and industries in Scotland’s Central Belt, such as Glasgow and INEOS Grangemouth, to switch fuels to low-carbon hydrogen.

 

  1. Storegga is also examining the development of electrolytic hydrogen capacity, as part of its wider portfolio of projects, and have examined the viability of an electrolytic hydrogen hub in Cromarty Firth to supply distilleries in the region with cost-competitive hydrogen to support their decarbonisation, as part of the North of Scotland Hydrogen Programme ‘Distilleries Project’. In 2021 Storegga completed a study for ScottishPower, Port of Cromarty Firth, Glenmorangie, Whyte & Mackay and Diageo, that identified a number of sites around the Firth deemed fit to host a 35MW electrolyser facility producing up to 14 tonnes of green hydrogen per day by the end of 2024. ScottishPower and Storegga are now jointly progressing the engineering development of the Cromarty Hydrogen Project. The facility could be further expanded to meet circa 300MW of demand from across the Cromarty Region and potential export from the Region.

The Scottish Cluster

  1. The Scottish Cluster will enable Acorn to support the decarbonisation of Scotland’s industrial heartland using CCS, low-carbon hydrogen, and other decarbonisation technologies. As noted above, the use of CCS infrastructure at Acorn will be critical for the production, distribution, and use of this hydrogen. 

 

  1. Through Acorn Hydrogen, the Cluster could account for 900MW of low-carbon hydrogen production by end 2030, with more expected from wider cluster partners, ensuring the Scottish Cluster projects can make a significant contribution towards the UK’s goal of building 5GW of production capacity by 2030.

 

  1. The Cluster has a clear roadmap, ready access to key infrastructure and a series of Net Zero projects that could address up to 9 million tonnes of CO2 that currently comes from the top emitting sectors in Scotland. The Cluster also opens a very large CO2 transportation and storage solution, which is crucial to reducing industrial emissions in Scotland, the UK and Europe.

 

  1. The Scottish Cluster was selected as the ‘Reserve Cluster’ in the BEIS cluster sequencing process and continues to support the UK Government to progress its transport and storage network business model and regulatory framework. All parties are fully committed to the Cluster and would like to see both the Reserve Cluster status and the Track-2 CCS Sequencing timeline be accelerated by the UK Government.

 

Responses to the questions asked by the Committee

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

 

  1. Storegga views the UK Hydrogen Strategy and the Scottish Government’s Draft Hydrogen Action Plan as broadly compatible but diverging in three key aspects:

 

    1. First, the Scottish Government’s plan calls for 5GW of low carbon hydrogen production in Scotland by 2030 and has also set a production ambition of 25GW by 2045 – whereas the UK Government’s target for the whole of the UK is 5GW by 2030 and has not set a target for beyond then. Given production projects are already underway in other parts of the UK, these are incompatible targets.

 

    1. Second, the Draft Hydrogen Action Plan places greater emphasis on catalysing large scale electrolytic hydrogen capacity alongside CCS-enabled hydrogen. Specifically, the Plan seeks to develop eleven Regional Hydrogen Energy Hubs that achieve distributed hydrogen production better matched to regional demand and export opportunities. Two of the Regional Hydrogen Energy Hubs are centred on CCS-enabled and electrolytic-enabled hydrogen production with only the latter deployed across the remaining nine. Thus, a sizable portion of the Emerging Energy Transition Fund (EETF) (£100m) is being deployed for the electrolytic pathway, with dedicated funding (£80m) on CCS-enabled hydrogen production through the Scottish Cluster. Whilst the UK Hydrogen Strategy also clearly states the UK Government’s preference for a twin-track approach to the development and deployment of electrolytic & CCS-enabled hydrogen production their focus appears centred on the industrial clusters and CCS-enabled hydrogen production. However, the Net Zero Hydrogen Fund (£240m) generally focused on electrolytic production and the Hydrogen Business Model funding has pre-2030 operational capacity targets established for both electrolytic and CCS-enabled hydrogen production.    

 

    1. Third, the UK Hydrogen Strategy notes that the UK is focused on the export of hydrogen-related manufactured goods (fuel cells & electrolysers), expertise and skills, rather than the export of hydrogen itself. Scotland’s Draft Hydrogen Action Plan has confirmed that the Scottish Government will work with industry to produce a Hydrogen Export Plan, with a view to consider the short-term export opportunities around skills and the supply chain ahead of significant export of electrolytic hydrogen in the long-term.

 

  1. Storegga does not regard this divergence as critical, and Scotland’s clear identification and dedicated support for electrolytic and CCS-enabled production pathways is welcome. However, Storegga recommends that the UK and Scottish Government work to ensure long-term alignment with production, distribution/ transmission and use across the entire UK. Misalignment on policies, such as the low-carbon hydrogen standards, could cause issues for hydrogen’s use in the UK and the export of hydrogen from Scotland.

 

  1. With the response above in mind (11) and focusing on the principles and scope of the EETF in Scotland’s Draft Hydrogen Action Plan, Storegga recommends that Scottish and UK Governments continue to collaborate to ensure full alignment with the funding principles noted in Scotland’s plan with the final outputs arising from the August 2021 UK Government consultation process. This includes the a) Hydrogen Business Model; b) Low Carbon Hydrogen Standard; and c) Net Zero Hydrogen Fund (NZHF) and specifically, the eligibility and project assessment criteria associated with the NZHF including the Low Carbon Hydrogen Standard which specifies requirements for both electrolytic and CCS-enabled hydrogen.

 

  1. UK Government should also recognise the complimentary nature of Scotland’s natural resources – geology well-suited for CCS and significant renewable energy potential – for hydrogen production. The >10GW of onshore wind development currently planned for Scotland plus the recent ScotWind announcement of offshore leases for up to 25GW of wind power development could result in the power going to market via hydrogen or hydrogen media, i.e. ammonia, e-fuels etc. The gap in the ambitions of the UK Hydrogen Strategy with respect to Scotland is an under estimation of hydrogen production potential from Scotland.

 

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. CCS-enabled “blue” hydrogen and electrolytic “green” hydrogen both have key roles to play if the UK is to become a world leader in the hydrogen economy, thus Storegga strongly believes that focus should be on creating a single term and standard for low-carbon hydrogen.

 

  1. As mentioned above (13), Scotland has a significant renewable hydrogen opportunity through its renewable electricity potential, which could be a key contributor to developing an international hydrogen trade. The UK Government must work with devolved nations to capitalise on the benefits of Free Ports and Green Ports to allow the UK to play a key role in developing an international hydrogen trade and to attract inward investment.

 

  1. UK Government should support the development of Regional Hydrogen Hubs, of which the Scottish Government identified 11 in their Draft Hydrogen Action Plan. Only two (St Fergus and Grangemouth) would have CCS-enabled hydrogen, whereas the other 9 located all around Scotland could deploy renewable hydrogen. 9 of the 11 locations are loosely co-located with the recent ScotWind sites and wind developments that have already been consented. 

 

 

 

  1. Across the UK, Storegga believes that the UK Government must rapidly put in place policies that will maximise hydrogen production. The publication of business models which incentivise hydrogen production, using the minded to Variable Premium model, is a critical early step in 2022 and delay to this key measure could result in significantly lower confidence from investors and the public, leading to constrained access to private finance for projects and developers in Scotland and the UK.

 

  1. The UK is also home to one of the most extensive gas grids in the world, with 85% of homes and businesses connected. This decarbonisation should begin now with blending of hydrogen and natural gas, which would help Storegga’s low-carbon hydrogen production from both Acorn and Cromarty position Scotland and the UK as leaders in gas grid decarbonisation. The UK Government should include hydrogen within the Green Gas Support Scheme and amend the Gas Safety Management Regulations (GSMR) to support and enable hydrogen blending into the UK Gas Grid. Blending provides a large, stable off-taker for hydrogen, allowing production to ramp up and benefit from learning and economies of scale.

 

  1. It is Storegga’s view that both the UK and Scottish Governments should focus on the distribution supply chain and end user fuel switching required to facilitate national UK-wide adoption of a 20% blend via the NTS and GDNs and several 100% hydrogen demonstration projects by large scale industrial users. The latter should include the development of road haulage or “virtual pipeline” capability to recognise the current scale of Scotland’s geographically dispersed, off- grid liquid fossil fuel demand. We believe that the Scottish Government should catalyse this through a facilitated consortium approach to infrastructure development, working with National Grid Gas and SGN to deliver an aligned gas network blending and conversion plan.

 

  1. Policy is key in addressing these issues, as currently there is no mechanism that enables networks to invest in hydrogen infrastructure. It will be necessary to establish a regulatory regime that supports first-of-a-kind hydrogen infrastructure and creates successful commercial models to support the storage that will be required if Scotland and the UK are to lead in the use and export of hydrogen.

 

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

  1. Storegga believes that the UK Hydrogen Business Models (HBMs), a critical revenue support scheme, will make hydrogen production projects economically viable and enable investment in large-scale projects. The Variable Premium model proposed by the Government, is an evolution of the CfD model which has been very successful in scaling deployment and reducing costs of renewable generation technologies, such as offshore wind. Applying this to hydrogen will be critical in enabling production to achieve similar scale and bring cost down over the next decade.

 

  1. The Government has consulted on the proposed HBMs scheme, and Storegga continue to participate in the HBM Working Groups. Storegga see this participation in the Working Group as effective and sufficient, however, it is critical that momentum is maintained, and the finalised contractual terms and rules of the HBM are made available by mid-2022.

 

  1. Storegga is currently engaging with both the UK and Scottish Governments on the forthcoming UK HBMs and the EETF, noted in the UK Hydrogen Strategy and Draft Hydrogen Action Plan. However, both governments have provided unrealistic figures regarding the allocation of EETF and the HBMs funds for the anticipated deployed capacity of electrolytic hydrogen production and more so the anticipated deployed capacity of CCS-enabled hydrogen production across the UK’s Industrial Clusters. The HBMs, as part of the Industrial Decarbonisation and Hydrogen Revenue Support (IDHRS) scheme, will be providing £100m to award contracts of up to 250MW of electrolytic production capacity in 2023 with further allocation in 2024, as noted in the UK Net Zero Strategy.[1] Likewise, the EETF has designated £100m for electrolytic hydrogen project development and £10m for hydrogen innovation challenges.

 

  1. Both the EETF and funds noted in the UK Net Zero Strategy, as part of the HBMs, significantly underestimate the support required to deliver the UK and Scotland’s 5GW by 2030 targets. Currently, a single full chain 50MW electrolytic hydrogen project, including distribution and end-user conversion, could utilise most of the EETF or HBMs’ allocated £100m for its capital funding support and still require further HBM funding to minimise cost impact to hydrogen end users versus their existing fuel.

 

  1. For the Cromarty Hydrogen Project to come to fruition and for other electrolytic projects to be established, developed, and scaled up, Storegga recommends that both the UK and Scottish Governments should seek to examine the full cost of delivering electrolytic hydrogen production project development and deployment, ensuring that end-to-end infrastructure, distribution, and end-user costs are fully considered versus the incumbent energy source. We also recommend that both the Scottish and UK Government’s look to increasing the available funds for electrolytic hydrogen production. Failure to provide a realistic, end-to-end, approach and adequate funding could stymie further, private, investment in electrolytic hydrogen projects, north and south of the border.  

 

  1. As noted in our introduction, Storegga and several partners have examined the viability of an electrolytic hydrogen hub in the Cromarty Firth supplying distilleries in the region with hydrogen at a competitive price to help decarbonise their heating and processes in making whisky. The noted study (see introduction) proposes a phased development for this hub. Phase 1 would see the electrolyser in place by 2024 to meet local and distillery demands and to prove the technology at scale. The subsequent three build out phases would expand production to deliver a decarbonization solution for the entirety of the Cromarty Region including Inverness by working with SGN to convert their GDN to a 20% hydrogen blend ahead of full conversion to 100% hydrogen. Further build out beyond Phase 4 could enable hydrogen export to contribute towards energy demands nationally and internationally.

 

  1. Following this examination, the Cromarty Hydrogen Project is progressing its next stage of development which will include detailed engineering, community engagement and commercial development. This will prepare the project for a final investment decision, by mid-2023. The project will require the UK and Scottish Government to reassess the full cost of delivering electrolytic hydrogen production project development and deployment, as well putting the right incentive structure in place, as noted above.

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. Storegga believes that transport is a key potential end-use sector for hydrogen, with possible applications across cars, vans, buses, and heavy goods vehicles (HGVs), and in the longer term in rail, maritime and aviation.

 

  1. There is a need for distributed hydrogen production across Scotland to enable the realisation of the 25GW target set by Scottish Government by 2045 this would also include a second stage of hydrogen purification associated with the attention on CCS-enabled hydrogen to meet FCEV requirement and investment in point of use purification for gas network supplied hydrogen whether CCS-enabled or electrolytic.

 

  1. To support the scale up and adoption of nationally significant electrolytic hydrogen for transport road haul or new build dedicated electrolytic hydrogen pipelines will be requirement to enable the development of a network of refuelling stations (RFS’s) within all cities and towns across Scotland that enables HGV operators' local access to hydrogen. Alongside this a network of hydrogen storage facilities at Hydrogen Production Centres and RFS’s will be required. This may well include the potential for electrolytic hydrogen production beyond the eleven centres envisaged.

 

  1. As noted above (26-27), Storegga and several partners have examined the viability of an electrolytic hydrogen hub in the Cromarty Firth to supply distilleries (Phase 1) but will also seek to expand production to meet energy demands in various sectors, including transport, national and internationally. However, as previously stated, Storegga recommends that both the UK and Scottish Governments should seek to examine the full cost of delivering electrolytic hydrogen production project development and deployment, ensuring that end-to-end infrastructure, distribution, and end-user costs are fully considered, as current estimates of production output do not correlate to funding and the currently funds available for a full chain electrolytic hydrogen project are inadequate.

What role should the oil and gas industry play in achieving a “just transition” to blue and green hydrogen in Scotland; what training is required to build a hydrogen-ready workforce in Scotland and what is the long-term sustainability of the Scottish workforce for hydrogen power?

  1. Storegga believes that the oil and gas industry have a critical role to play in achieving an equitable energy transition to hydrogen in Scotland as noted above (4-5).

 

  1. The oil and gas industry currently supports over 300,000 jobs across the UK, the majority of which are in Scotland. Over decades, the industry has supported the development of a skilled workforce and supply chain that is experienced in producing and distributing gas to customers. This expertise can be leveraged to support the development of hydrogen solutions and the transition away from dependence on fossil fuels whilst protecting high value jobs within the sector.

 

  1. For example, experience within the sector could be used to produce CCS-enabled hydrogen, convert and maintain hydrogen pipelines and safely handle and distribute hydrogen. The oil and gas industry can therefore play a key role in ensuring a just transition to a hydrogen sector which utilises many of the same skills.

 

  1. The oil and gas industry and adjacent research bodies also have a strong track record of building on existing expertise to create innovative solutions to new challenges. For example, the industry has leveraged its knowledge of subsea exploration and maintenance of offshore machinery to enable the UK to become the world leader in offshore wind technology.

 

  1. Acorn and the Scottish Cluster are working with several organisations, including OPITO, the global safety and skills body for the energy industry, to develop a blueprint of industrial skilling and reskilling training for the low carbon economy, developing a ‘hydrogen-ready’ workforce for Scotland. OPITO will provide standards and skills competency training support to the Scottish Cluster in advance of work getting underway by 2023.

 

  1. Storegga believes that both hydrogen and CCS presents a significant opportunity to the UK, and Scotland specifically, to deliver economic value and highly skilled jobs. For example, the Scottish Cluster’s recent Economic Impact Assessment (EIA), researched and produced by Element Energy, states that the Cluster can deliver over 20,600 jobs at its peaks, and cascading supply chain benefits through the development of a cluster of decarbonisation projects, including CCS, CCS-enabled hydrogen, and direct air capture (DAC).[2]

 

  1. This EIA noted that hydrogen production and use through the Cluster, inclusive of Acorn and offtaker emitters, will support around 2,070 direct jobs and 3,300 indirect jobs per year over the 2022-2050 period.[3]

 

March 2022

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[1] HM Government, UK Net Zero Strategy, October 2021 (link), pg. 107.

[2] Scottish Cluster / Storegga, Economic impact assessment for the Scottish Cluster, July 2021 (link), pg. 5.

[3] Ibid, pg. 6.