The Scottish Government

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CHAPTER 1 - Introduction

1. The Forum for Renewable Energy Development in Scotland ( FREDS) established the Hydrogen Energy Group ( HEG) to examine and report on the potential and opportunities that hydrogen and fuel cell technology represents for Scotland in the short and long term. This report draws together the conclusions of HEG and recommends an action plan that will kick-start long-term development of an indigenous hydrogen and fuel cell industry in Scotland geared towards an integrated policy for renewable and green energy.

2. The membership of HEG is drawn from industry, academia and government agencies. Those participating are listed in Appendix 1. Their unanimously agreed vision is as follows:

To create a political, fiscal, business, educational and social environment within which hydrogen and fuel cell technologies can be developed to greatly enhance a robust and sustainable renewable energy economy in Scotland.

3. To support their work HEG commissioned IPA Energy Consultants to examine current funding mechanisms in response to a belief by the members of HEG that there are funding gaps for hydrogen and fuel cell projects due to their perceived long-term, high-risk nature. IPA's funding report is in two parts, the second of which supports HEG recommendations and outlines mechanisms designed to overcome barriers. IPA have also reported on storage technologies as an enabler for a totally renewable remote, or off-grid, energy network. High-level modelling suggests the economics of this may be approaching break even.

Aims and Objectives

4. The Scottish Executive believes that significant opportunities for Scotland exist within the development of the hydrogen and fuel cells sectors. The Forum for Renewable Energy Development in Scotland decided to establish a hydrogen sub-group to scope current activity and support within the hydrogen and fuel cell sectors and to consider how Scotland might best support, influence and develop this work.

The hydrogen sub-group has considered:

• What opportunities exist for Scotland within progress towards a hydrogen economy.

In particular, the sub-group has:

• assessed existing national and international activity within the hydrogen and fuel cells sectors;
• identified the key opportunities for hydrogen and fuel cell technologies in Scotland;
• suggested measures to overcome the barriers from moving from research to demonstration and accelerating the commercial deployment of hydrogen and fuel cell technologies;
• identified possible opportunities for Scotland within the hydrogen and fuel cell technologies supply chain;
• assessed the potential for hydrogen and fuel cell technologies to improve the supply of energy in remote areas of Scotland;
• assessed what role the Energy Intermediary Technology Institute might play in driving forward the hydrogen agenda in Scotland.

5. In addition, the group has suggested intervention measures that will overcome barriers, close funding gaps and stimulate a new world-class industry that can flourish in a global market estimated to reach $50 billion per annum by 2020.

Background and Context

6. The need for renewables, hydrogen and fuel cell technologies is clear as the problems associated with the decline of hydrocarbons become apparent. What took nature millions of years to create under the North Sea has been exploited and depleted by man in less than three decades. Even without considering the fast increasing need of the developing nations, the demand for hydrocarbon from the developed world is forecast to outstrip discovery and supply within a decade.

7. The Scottish Executive has already recognised the importance of taking action to address the central issues of energy policy, i.e. energy security, climate change and fuel poverty. The commitment to produce 40% of Scotland's energy from renewable sources by 2020 is examined in the FREDS report "Scotland's Renewable Energy Potential: Realising the 2020 Target". ¹ The target takes account of the intermittency of some renewable generation sources and the associated problems of matching consumer demand patterns with reality of renewable energy production. This results in some 6GW of installed renewable generation capacity being required to meet the 2020 target. This still leaves the issue of periods of high pressure, with little wind or waves, which suggests a continuing commitment to hydrocarbon fuelled capacity to meet back-up for peak demand.

8. Another option is to use excess production from renewable systems, during times of low consumer demand, to produce hydrogen that is stored for peak demand generation. The European Union has undertaken much work to develop a hydrogen and fuel cell platform with a vision of a hydrogen economy linked to renewables. This vision puts hydrogen and fuel cells at the core of energy storage, distribution and smoothing. This point is illustrated in Appendix 2 by an abstract from a presentation on the European Union Hydrogen and Fuel Cell Platform Joint Technology Initiative. ²

9. Biogas and biofuels are also very important renewable sources that can be utilised more effectively with the aid of fuel cell technology. Furthermore, hydrogen produced by the full range of primary renewable sources, using electrolysis of water for example, provides clean energy conversion that can substitute current hydrocarbon resources with emerging renewable resources. Scotland is particularly rich in renewable resources and hydrogen and fuel cell technology is a means by which we can harvest its full potential. This concept is analysed in detail in the IPA report 'Hydrogen Technology Systems' which is discussed in paragraph 61.

10. Investment in renewables worldwide has reached $30 billion per annum and 1.7 million people are directly employed. 160 GW of installed renewables represents 4% of global capacity and all the trends show a steeply increasing commitment by governments with large commercial and investment banks beginning to take notice. World investment in hydrogen and fuel cell technology is estimated at $4 billion in 2004, rising rapidly and impacting on both static generation and transport applications.

11. HEG is convinced that a hydrogen and fuel cell infrastructure in Scotland will happen in concert with the rest of the UK, Europe and the World. It is not a question of "if" it is a question of "when". Anyone in any doubt about this statement only needs to read the "Deployment Strategy" report published in August 2005 by the European Hydrogen and Fuel Cell Technology Platform.

12. HEG believes that hydrogen and fuel cell technology is an issue of prime importance to Scotland and warrants well-focussed public funding support to stimulate market opportunity. HEG also believes that the Scottish Executive should use the whole range of its fiscal, planning, and policy powers to leverage economic, social and environmental returns that will impact on the long-term prosperity of the nation.

The Hydrogen Energy Group's Vision

13. HEG has gathered evidence that hydrogen and fuel cell technology, and significant areas of emerging renewables technology, in Scotland are encountering serious investment barriers due to the perception that it is high risk with long-term return. Investment patterns are generally viewed as short-term profit orientated. It is therefore seen as imperative that public sector support is available to the emerging hydrogen and fuel cell industries. With strong support from national and local government, HEG believes that private sector funding will follow as opportunities become nearer to market. Other countries such as Canada, USA, Japan and Germany already have a longer-term view and are building their expertise and capability and preparing their economies for a fast evolving industrial revolution, essentially driven by
large-scale public support.

14. HEG believes that if government and industry work in partnership, to create the right policy and financial framework, then the following visions are deliverable and align with the Scottish Executive's key targets for renewable energy.

HEG believes that by 2010:

Scotland will have around 50 leading demonstration projects that encompass transport and static power generation applications. This will promote Scotland to the premier league in hydrogen and fuel cell technology in Europe. A range of actions will be required, including, the encouragement of community-led schemes, public procurement, targeted support for SME development and planning support for renewable energy downstream storage and smoothing facilities.

Research and Development activity associated with hydrogen and fuel cells will have been enhanced at Scotland's leading universities and will have created highly-qualified people, new expertise and greatly enhanced intellectual property. Education and training all the way from schools to universities, and especially at college level will have created the technologists required to implement this new energy structure. All of this will be providing feedstock for the emerging industry.

The number of people directly employed in hydrogen and fuel cell technologies will have increased from a current estimate of around 100 people to 1000. Education, research and development, and industry will be sharing this employment. Equally important will be community-led employment resulting from installation, operation and aftercare of hydrogen and fuel cell applications.

Scotland will be at the centre of UK and European Fuel Cell and Hydrogen research, development, demonstration and commercialisation activities. This will have levered substantial inward investment and funding from sources external to Scotland.

Scotland will have bid and achieved at least one European "Lighthouse" hydrogen and fuel cell project because it is the richest and most diverse source of renewable resources in Europe.

HEG believes that by 2020:

Of the 40% of energy created by renewable resources at least half will have downstream hydrogen production, storage and fuel cell facilities.

20% of Scotland's total electrical power generation will be decentralised with a significant fuel cell component.

20% of Scotland's homes will have fuel-cell-based micro-combined heat and power systems, increasing at a rate of 10MWe per year.

10% of all vehicular transport, road and rail, will be powered by fuel cells operating on renewably produced fuels.

Economic Outcomes

The number of people directly employed in hydrogen and fuel cell technologies will increase from an estimate of around 1000 people in 2010 to 10,000 in 2020. Education, R&D and industry will share some of this employment, but, as important, is the potential for community-led employment that will be the dividend from installation, operation and aftercare of hydrogen and fuel cell applications. To sustain this level of employment Scotland will have to become a net exporter of hydrogen and fuel cell skills and technology very similar to the level of expertise in the offshore oil industry that is in high demand from developing countries.

As a result of achieving the above employment goals, it is estimated that the resultant hydrogen and fuel-cell environment will contribute £500 million per annum to Scottish GVA.

15. These visions have been assembled against a background of credible achievement elsewhere in the world. Recent Canadian experience is summarised below.

Example of achievement

Canada's Fuel Cell and Hydrogen Industry: Summary of Capabilities Guide 2004/05

The 2004 sector profile shows strong growth in many key indicators for the period 2002-2003:

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