Scotland will be one of the cheapest places to produce green hydrogen over the next two decades because of its abundance of renewable power, Peter Wells, chairman and CEO of project developer LH2 Europe, told Hydrogen Economist’s recent Financing the Hydrogen Economy event in Milan.

Several available port locations and a skilled local labour force looking to transition away from the oil and gas sector also make Scotland an attractive base for green hydrogen production, said Wells, who is developing a project in Scotland based on shipping liquid hydrogen to Germany in a specially designed tanker.

“More than 95pc of the grid (in Scotland) is already green, it's already renewable. And this makes meeting EU regulations an awful lot easier,” said Wells, a former Shell and BP upstream petroleum industry executive.

Scotland has 9GW of offshore wind power capacity licensed, some of which is already under construction. It has another 29GW of offshore wind coming up in the 2030s, Wells said.

9GW – Offshore wind capacity licensed in Scotland

“This is many, many times more than Scotland could ever consume and it's a lot more than the grid could take.  The grid would have to be severely upgraded to take that much extra power. So what's the option—the option is to make hydrogen. Plus it's two days’ sailing from Germany,” Wells said.

Because Scotland’s grid is nearly all renewable, LH2 Europe can use grid power as back up without compromising its green status. This allows it to achieve high electrolyser load factors, which reduces the required scale of the facility to meet its production targets.

Take or pay

Wells said he had already signed two long-term, take or pay offtake deals with industrial consumers, covering supply for at least ten years. The need for offtakers when developing hydrogen assets mirrors the development of the LNG sector.

“The difference is, of course... [there] was already a gas market for LNG to sit on top of. But in the case of hydrogen, there isn't a hydrogen market, it doesn't exist and it has to be created. So probably the most effort we put into has been in cultivating offtakers,” Wells said.

Aminta Hall, team lead for hydrogen, project commercialisation and partnering at German energy company Uniper, agreed that hydrogen projects would need to be underpinned by long-term offtake agreements but added that there are key differences in terms of the risks involved with hydrogen.

“There are some peculiarities with hydrogen. For instance, if you are bringing it to the demand market, which is Europe, the RED2 Directive is asking you a much higher level of question than simply the specifications of your ammonia,” she said.

“I think government inputs into funding will help to ease the worries of buyers and sellers.”

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Author: Stuart Penson