Scotland is in a strong position to exploit the potential of low-carbon hydrogen, but only if the right decisions are quickly made on production locations and demand models, according to a new report.

The potential of hydrogen as a low-carbon alternative to traditional fuels has increasingly hit the headlines, but the report – 'Building an investable hydrogen value chain in Scotland' – has identified the practical obstacles to making that ambition a deliverable reality in the face of intense international competition.

Published by international law firm Addleshaw Goddard and Equitix, a leading international investor in infrastructure, the report outlines significant hurdles that need to be overcome across the value chain to establish the business case for investors to support the creation of a significant hydrogen industry here.

Suzanne Moir, Partner in the Infrastructure, Projects and Energy team at Addleshaw Goddard, said: "This report provides valuable insight from individuals on the frontline of the emerging hydrogen economy in Scotland and highlights the need for bold and decisive actions from government, industry and funders to bring the picture together.

"While discussions are ongoing regarding the promising prospects of a Scottish hydrogen industry, competition for funding, equipment, and skills continues to intensify in an emerging global industry so we must act swiftly.

"Making informed decisions regarding production locations and demand models is crucial for Scotland to maximise its potential and gain a competitive edge in the international race to build a new industry."

Last week saw 11,000 people gather in Rotterdam for the World Hydrogen Summit, while Scottish Enterprise released a series of market reports on the nascent industry. The Scottish Government also announced 32 projects were to receive a total of £7 million in funding through the Hydrogen Innovation Scheme.

Both the Scottish and UK governments have set out ambitions to scale-up the production and use of hydrogen, and the AG & Equitix report sets out the key challenges that need to be overcome, including:

  • Clarity on policy and strategy
  • Stimulating demand and aligning with production
  • Attracting investment into a new asset class
  • Visibility on financial support for projects
  • Overcoming power grid and market issues
  • Streamlining planning and consents
  • Securing skills and supply chain resources

Andrew Munro, Development Director at Equitix, added: "To establish a thriving hydrogen industry, it must garner significant support from both the public and private sectors. The ability to make investment decisions for projects will depend on having confidence in the cost and revenue models, which have not yet been established in the long term.

"The report serves as a call to action for stakeholders across Scotland to work together to establish a low-carbon hydrogen economy that could drive economic growth and reduce carbon emissions. With effective policy levers, demand visibility and support in place, industry and funders alike will have confidence to take investment decisions and build supply chains."

Solving the 'chicken and egg' problem of demand is one of the major issues facing Scotland. The distributed nature of the country's industrial base means a specific approach will be needed compared to the wider UK, creating pockets of demand to support hydrogen production facilities. Industry may even need to relocate to where the hydrogen is being produced rather than the other way around, a trend which is already being seen elsewhere in Europe.

Earlier this year, the Addleshaw Goddard Scottish Business Monitor, produced in conjunction with the Fraser of Allander Institute, asked Scottish businesses about their awareness of hydrogen for their operations. Although a number of major industrial energy users are considering hydrogen as part of their decarbonisation options, the results highlighted surprisingly low levels of awareness or interest among businesses generally. Less than 1% said they plan to adopt hydrogen as an alternative low-carbon energy source.

Half of responding businesses (50%) reported a lack of access to information as their reason for not considering hydrogen, while one in three cited a lack of clarity around regulatory regimes applying to hydrogen (33%) and storage constraints (34%).

However, more than half (55%) of firms said that if access to funding to support transitioning to hydrogen was provided, they would be more likely to consider it as an alternative to fuel.

The full report "Turning ambition into delivery: 'Building an investable hydrogen value chain in Scotland" can be accessed on the Addleshaw Goddard website.