Scotland’s capabilities in producing hydrogen products and derivatives

As part of its commitment to achieving net zero by 2045, the Scottish Government has ambitions for Scotland to become a major exporter of low-carbon hydrogen and hydrogen derivatives and products (HDPs).

Hydrogen can be produced using electrolysis, a process which involves splitting water into hydrogen and oxygen. When this process is performed using only renewable sources of electricity, the hydrogen produced is known as green hydrogen.

This study explores Scotland’s capabilities of producing green hydrogen and developing the HDP sector, identifying opportunities and barriers it may face in scaling it up. It also aims to understand the role different regions of Scotland can play in enabling the growth of these sectors.

Findings

Scotland’s abundant access to renewable energy, geographic proximity to the EU, skilled workforce and a favourable external policy landscape are major strengths that can enable growth in the hydrogen and HDP sectors. However, there are potential weaknesses and barriers too. Producing renewable electricity, a major cost source for producing green hydrogen, is currently relatively expensive in Scotland, with prices around 70% higher than the average of EU and G7 countries.

Supply chain capabilities and addressable market demand

Following a systematic comparison of the supply chain capabilities of 14 potential hydrogen hubs identified by the Scottish Government, Aberdeen ranked the highest in many metrics, followed by Cromarty and Ayrshire.

The report also assessed the addressable market demand for HDPs. Roughly 97% of all HDP demand comes from the aviation and maritime sectors and Grangemouth was estimated to have the biggest market demand for both.

Co-locating demand and supply will enable the early scaling of Scotland’s hydrogen and HDP sectors as national network infrastructure is developed. Analysis of both supply and demand found that with the presence of a large chemicals industry and a major airport, Grangemouth outperforms all other hubs. Despite relative strengths in supply chain capability, Aberdeen is not the optimal region for co-locating supply with demand opportunities.

Policy gaps

Analysis of the policy landscape in the UK, the EU and Scotland suggests a number of potential approaches to help develop the hydrogen and HDP sectors. Scotland’s abundant access to renewable energy, strong workforce capabilities and demand potential can facilitate vibrant hydrogen and HDP sectors. However, Scotland will need to address issues such as:

• the high cost of electricity generation;
• a more sophisticated planning regime that considers both site demand and supply in order to optimise co-location strategies.

Working with the UK and foreign governments to capitalise on export opportunities will allow Scotland to expand its potential market size.

Cross-hub development

Although Aberdeen and Grangemouth stand out as having relative strengths in relation to supply chain capabilities and market demand, there are strengths and capabilities across the other potential hubs. Cromarty and Ayrshire offer strong supply chain capabilities. Glasgow and Fife present significant demand opportunities. The Western Isles and Argyll and Islands may require targeted support to enhance their supply chain capabilities, while the Scottish Borders may need support in developing greater regulatory experience.

This diversity points to the importance of a cross-hub approach, in addition to co-locating demand with supply. By balancing cross-hub collaboration with localised development, Scotland can maximise the potential of its hydrogen economy, driving the sector’s long-term growth and resilience.

For further information, please read the report.

If you require the report in an alternative format, such as a Word document, please contact info@climatexchange.org.uk or 0131 651 4783.