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CHAPTER 5 - Recommendations
Recommendations and Proposals
69. The development of the hydrogen and fuel cell sector cannot fall to any one organisation in Scotland. It will require a co-ordinated approach by both government and industry.
70. HEG believes the following action should be taken to improve the short- and long-term funding environment and many of the mechanisms already in place.
Short-term recommendations
71. HEG have concluded that by implementing the following four recommendations over the next 3 - 5 years a strong bedrock will be provided for the hydrogen and fuel cell sectors to grow. HEG estimate the four recommendations will require funding of £2.5 million per annum.
72. These recommendations were previously presented in HEG's interim report to FREDS in May 2005. However, the consultation work carried out by IPA has enhanced and developed them further.
73. No direct financial apportionment for each of the recommendations has been defined. HEG feels that they should not be prescriptive at this early stage but should rely on the mechanisms outlined in chapter 6 to prioritise applications which broadly support all four recommendations given that the bids received meet the required criteria. However, each of the recommendations are directly aligned to the vision articulated by HEG in paragraph 13.
Recommendation One - Support for Further Demonstration Projects Involving Hydrogen Use in Remote or Off-Grid Communities in Scotland.
74. Scotland's renewable resource will perform a pivotal role in the development of the Scottish energy economy and should play a major role in any demonstration projects involving hydrogen and fuel cells.
75. The PURE project has provided a model of how communities can lever renewable investments to create jobs and renewed economic activity. Scaling-up and extending such experience will be important if Scotland is to become a world leader in deploying these technologies. HEG suggest that dedicated public funds should be made available to support the development of off-grid demonstration schemes in Scotland.
76. As funding for first and second generation demonstration projects is only likely to be required in the short term (3- to 5-year horizon), HEG recommend that public funding is provided via a dedicated grant-based scheme. HEG suggest that the tender process for obtaining funding should be competitive and that there should be a series of calls for proposals that ensure an incremental range of projects rather than multiples of the same project model in different geographical locations.
77. Further funding may also be required for subsequent demonstration schemes, however, the requirements, and hence funding mechanism, of these schemes may be somewhat different. Securing a European "Lighthouse" project under this measure might be possible.
HEG considers that this recommendation could support up to 10 demonstration projects per annum over a period of 3 years.
Recommendation Two - Projects are funded to support unique Scottish technology which involves fuel cell design or production.
78. Additional public support directly aimed at the development of indigenous hydrogen and fuel cell technology would increase funding opportunities; however, "match" funding will still be required to complement the public support. IPA investigated how other EU countries implement support mechanisms for hydrogen and fuel cell industries and achieve leverage from other sources.
79. Of the EU countries the German public sector seems to be the most successful in providing funding through both national and regional initiatives - in aggregate total public financing is said to approach €100 million a year.
80. Experience shows that a well-funded and directed public programme, with specific aims and objectives, provides considerable incentives for commercial organisations to become more active in developing and demonstrating technologies in the region. This, in turn, supports innovative SMEs, stimulates the creation of new SMEs, encourages spin-out of novel and advanced technologies from universities and spin-in from advanced technologies from other countries through inward investment.
81. A key aspect of the development of hydrogen and fuel cell technologies in other EU countries, is the significant contribution being made by large industrial, engineering and chemical firms as well as utilities, not to mention the auto industries in Germany, France and Spain.
82. In order for Scotland, and the UK, to make a significant contribution to the hydrogen and fuel cell market, and to share in the economic benefits that result, it will be important for the UK's manufacturing and engineering base to collaborate and co-invest with government.
HEG considers that targeted public sector support that encourages greater industrial involvement will enhance the creation and application of indigenous intellectual property resulting in sponsorship of at least five new fuel cell developments per annum.
Recommendation Three - Projects are funded to enable applications of hydrogen technologies and fuel cells, which are currently at the research or development stage, to be demonstrated commercially and value engineered for future market entry.
83. It is vital that hydrogen and fuel cell technologies are demonstrated in real world situations. Demand for such demonstrations is an important factor in bringing on new technologies, both from the public sector and community-based groups as well as private enterprises.
84. It is also likely that larger organisations would provide funding for trials of their own technologies and so it will be important to create an environment that will be favourable to developing these technologies in Scotland.
85. In order ensure the availability of matched funding for any public sector grants, it will be important to create a market pull for the products of the technology under development. This can be addressed to ensure a market for the end product. Types of mechanism which could be used include:
- Mandatory/Voluntary Procurement Schemes for Public Sector organisations. Government policy could support and (be supported to) promote hydrogen and fuel cell applications in central and local government organisations for applications such as space heating, embedded generation and emergency power supply systems. This may be mandatory or voluntary procurement of the necessary technology.
- Auctions/Tenders - This would be likely to be initiated from publicly-funded organisations and would help create a demand for "new" technologies. The current SBRI scheme (Small Business Research and Innovation) scheme adopted by Ministry of Defence and the Research Councils could be embraced by the Scottish Executive with positive discrimination towards Hydrogen and Fuel Cell technologies.
- Voluntary Schemes on businesses. The Energy Savings Trust and the Carbon Trust can both have a positive impact on the adoption of new energy technologies by business and commerce.
- Capital Grants - an extension of the Scottish Community and Householder Renewables Initiative ( SCHRI) to encourage the take up of hydrogen and fuel cell technologies in communities and households. To date, the Warm Deal programme run by the Scottish Executive has installed over 60,000 central heating systems for pensioners. HEG firmly believe that hydrogen and fuel cell technologies could contribute to these fuel poverty policies.
- Influencing instruments such as education and training, information provision, and social recognition schemes.
86. It is not for any one individual organisation to further develop Scottish-based technologies, but a number of different stakeholders (both public and private) need to work together to create a demand for such projects and support them financially. HEG fully endorses and supports the work of the Scottish Hydrogen & Fuel Cell Association ( SHFCA), which was set up in 2004 to represent the hydrogen and fuel sectors in Scotland, embracing commercial, industrial and academic activities. Current membership of SHFCA is detailed in Appendix 5.
87. In supporting these projects Scotland should commit to medium - and long-term goals to both attract organisations to develop their technologies in Scotland and also provide investors with the confidence to invest in Scottish based technologies. SHFCA must be repositioned and adequately resourced to become an effective instrument of economic development in hydrogen and fuel cells.
HEG consider that a wide-ranging and long-term series of programmes and activities must be developed to promote hydrogen and fuel cell awareness and use. The socio-economic impact of these future platform technologies and their integration in to a new sustainable clean energy infrastructure will require considerable effort and support from every sector of our community, as opposed to individual project support, to implement this recommendation.
Recommendation Four - An Inter-University Research Centre be Established in Scotland to Create Fuel Cell and Hydrogen-Based Intellectual Property for Future Exploitation within Scotland.
88. The hydrogen and fuel cell community is well established through its industry association, SHFCA, which provides focus for the development of the industries in Scotland.
89. In view of the considerable strengths in Scotland in different aspects of hydrogen and fuel cell research, combined with our industrial capabilities and our renewable energy potential, it is important to provide a Scottish collaborative research centre in Renewable Hydrogen and Fuel Cell Technology to complement SHFCA's industry development role.
90. Critical mass is becoming ever-more important in securing strategic research and development funding, especially in the European context. If Scotland is to maintain and grow its current level of excellence in this important area of energy technology, it is essential to support high-level interdisciplinary collaborative activities. Bringing together fundamental science with systems engineering would provide a unique focused collaboration able to compete with international Research Centres. This would provide high-level support for industrial and SME development activities, enhance university-driven commercialisation and attract inward investment.
91. It is recognised that Scotland has several leading research institutes involved in hydrogen and fuel cell development. The focus of this Renewable Hydrogen and Fuel Cell Technology Centre would be on research to produce, store and transport hydrogen, to stabilise dynamic renewables, to utilise biomass in fuel cells, to provide hydrogen and fuel cell tertiary education and training and to explain and promote these new technologies to schools, society and decision-makers. Funding would be utilised to strengthen the complement of Senior Researchers, to establish world-leading facilities, for research training and for outreach activities to companies and society.
92. The Scottish Higher Education Funding Council ( SHEFC) provides financial support for teaching, research and associated activities in Scottish higher education institutions. A number of centres have already been funded by the SHEFC with the aim of developing Scotland's research base. It is therefore accepted that to ensure open competition and transparency any new centre as described above would be developed in collaboration with the SHEFC.
Medium- to Long-Term Proposals
93. HEG recommends that an approach similar to that employed to develop and provide market support for renewable energy be instigated to develop and provide medium- and long-term support for the hydrogen and fuel cell sectors. These recommendations are as follows:
Fuel Cell Obligation
94. Renewable energy has been supported in the UK since 1990 through the Renewables Obligations ( NFFO in England, Wales and Northern Ireland, and SRO in Scotland). This offered fixed-price, long-term (15-year) generation contracts to renewable developers, and were specific to stated renewable technologies, e.g. wind, landfill gas, biomass, etc. This
"kick-started" the renewables sector. This support then changed to a market led obligation on electricity suppliers under the existing Renewables Obligation and issue of Renewable Obligation Certificates ( ROCs).
95. Hydrogen and fuel cells are now at the stage of early renewable energy technologies in the late 1980s: they require to be demonstrated in scale in practical industrial/commercial applications. To this end it is recommended that an " SRO-like" obligation for the early entry of hydrogen and fuel cell technologies is created, allowing a prescriptive, competitive tendering process offering fixed-price, long-term contracts for the supply of grid electricity from fuel cell units. This would be enacted under the existing Electricity Act in a similar fashion to the previous SRO/ NFFO process. Ultimately, this process would migrate to direct competition of fuel cell technologies in the electricity market.
Multiple Renewables Obligation Certificates for Renewable Hydrogen
96. The use of hydrogen produced from primary renewable driven electrolysis, to generate electricity via a grid connected fuel cell, should be allowed to claim multiple ROCs until a "threshold" level is reached in terms of a) either a generating capacity limit of grid connected fuel cell units or b) an energy supplied limit is reached.
97. This would stimulate the early adoption and field testing/demonstration of such systems or units. The "2005/6 Review of the Renewables Obligation Statutory Consultation Document" of October 2005, prevented the "multiple counting" of ROCs being claimed from the generation of electricity from hydrogen (e.g. via a fuel cell) where the hydrogen in question has been manufactured from renewable sources.
98. Some of the industry representatives from HEG wish to note their disagreement to this and recommend that multiple ROCs should be permitted for renewably produced hydrogen.
Fuel Cell 'Powershift' Programme
99. The use of fuel cells in vehicles should continue to be supported via a "Powershift" mechanism, administered by Energy Savings Trust. Further, the use of renewably produced hydrogen as a vehicle fuel should be zero rated until a capacity limit is reached then duty introduced (at a growing rate but still ultimately with a lower rate than hydrocarbon fuels).
Hydrogen within a Renewable Transport Fuel Obligation
100. In the 2004 Pre-Budget Report the UK Government announced that it would look at the possibility of a Renewable Transport Fuel Obligation ( RTFO), along the lines of the Renewables Obligation which exists in the power generation sector. The RTFO would require 5% of all UK fuel sold on UK forecourts to come from a renewable source by 2010. This equates to an annual market for renewables fuels of some 200 million litres (44 million gallons). It is recommended that renewably produced hydrogen be named as a qualifying renewable fuel under an RTFO mechanism.
101. An RTFO would enable the transport sector to play a more active part in carbon emissions reductions. The Government study behind the RTFO finds that an RTFO could be introduced by April 2008. The benefits in 2010 would be around 1 million tonnes of carbon per annum at 5% of all road fuel sales from the transport sector - between 2 and 3% of transport emissions.
102. According to figures from the Scottish Executive "Scottish Renewable Resource Study 2001" 4 there is vast potential renewable electrical energy available at a generation cost below 5p/kWh.
103. Hence, Scotland has significant potential to use its indigenous renewable resource to produce hydrogen as a vehicle fuel, and to address the significant market (200 million litres of diesel equivalent or 660 million Nm 3 Hydrogen).
104. HEG also recommend that appropriate support is given to renewably produced hydrogen (such as an initial zero fuel duty rate proposed earlier) and to developing fuel cell technology for transport applications. This would include a separate Scottish-funded programme (via Scottish Executive or Scottish Enterprise) to develop: electrolyser technology (hydrogen production); hydrogen storage (building on existing ITI Energy success); refuelling techniques and equipment (from oil and gas connection expertise); fuel cell development and electric vehicle technology/integration.
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