There are always alternatives to economic surrender

by | 17 Nov 2023

It's not just that the 'hydrogen deal' arranged by the Scottish Government is bad, it's that almost any alternative approach would have been better.

Last weekend the Scottish Government announced that it had cut a ‘deal’ in which a Norwegian state-owned company would turn the electricity generation we gave them the rights to for virtually nothing into hydrogen which it will export directly to Germany via a pipeline. To say that this deal robs Scotland of its energy wealth is the least of it. So what is the alternative?

Before I set out an absolute smorgasbord of better ways to have handled this, let me make sure you understand how bad this deal is. Equinor owns every square inch of both the infrastructure and the government-granted rights which make all of this possible. Scotland handed this over virtually for nothing.

So every penny generated in profit from this scheme goes to Equinor and from there either to the Norwegian taxpayer or to the country’s national wealth fund. The other big beneficiary is Germany which gets access to lots and lots of Green Hydrogen.

And basically the only other winner in this is the UK Government which will pick up the corporation tax on Equinor’s profits. Building this facility is a specialist enterprise and it’s not clear that the work will go to Scottish companies. After it is built, the number of jobs in an electrolysis plant (which produces hydrogen from water using electricity) is not likely to be high.

Scotland gets no jobs, no profit and no tax. What exactly do we get? Well there seems to be no conditionality attached to this ‘deal’ whatsoever so the answer could easily be ‘nothing’ – there are no supply chain guarantees or any other ‘public benefit’ pressures on anyone involved.

In fact if they built an at-sea electrolysis plant then to all intents and purposes we might as well just handed over the North Sea to Norway. Sort of pathetic sounding isn’t it? Hurray us, eh?

So was this worst-possible ‘deal’ the only possible deal? Let’s do this in layers, but first let’s just set the context. If you make five bad decisions in a row and at the end you have no option but to make another bad decision, that doesn’t turn it into a good decision. Anyone whose defence is ‘the Scottish Government had no choice’ should just append ‘given that it has totally screwed all of this up over the last decade‘.

And yet this wasn’t the only option. As I’ve already alluded to above, at the very least it could have attached conditionality to granting permission. And at the very least end of that it could have imposed the same conditions on supply chain jobs that they did on the ScotWind auction. Those are pretty useless and are unlikely to lead to much economic gain for Scotland, but there is a chance of at least some benefit.

Of course the Scottish Government could have added stronger conditionality and compelled substantial supply chain job creation. It could also have added conditionality on long-term employment at the facility and on public benefit payments as is done with wind farms. It seems to have done none of this.

There are a whole host of ways that this could have been turned into a joint enterprise. Ironically that’s exactly how the Norwegians developed their own oil industry

But those are only crumbs. The ownership and control of this whole project basically takes any potential development gain out of Scotland. Let me unpack that. Electrolysing water to make hydrogen is a well-known technology, but as I pointed out during the article on the Scottish battery research lab I wrote about a couple of months ago, the art is in the detail of the engineering.

The sheer physics of electrolysis puts severe physical limits on how much more efficiently hydrogen can be made but in everything from electrode research to the condensation process, there are potential IP gains. Equally, this will generate something just as important – an experienced workforce. It is not clear any of this will spill over into Scotland and it seems unlikely.

So this could have been attached to a wider hydrogen strategy – but Scotland’s hydrogen strategy remains utterly mired in its real purpose which is greenwashing the oil and gas industry by pretending that Carbon Capture and Storage works (it doesn’t). This is just a giveaway with no strategic planning.

Even that would have been weak. There are a whole host of ways that this could have been turned into a joint enterprise. Ironically that’s exactly how the Norwegians developed their own oil industry (by bringing in others but by insisting that Norway was allowed to learn from them on a path towards self sufficiency, which it achieved in little more than a decade).

The Scottish Government could have demanded some share in the project. It could have pushed a collaboration with an existing Scottish company. It could have even set up a mutual or some other form of Scottish involvement in this project. It did none of this.

But let’s just stop mucking around and get to the real point here. When the Scottish Government announced a National Energy Company before it had stopped to work out what exactly it was announcing, its justification for pulling out was a restriction in the Scotland Act on the government owning energy generation.

This, we were told solemnly and with the patronising tone of those who have badly messed up but want to gaslight you about it always use, was the grown-up business of government and those of us who wanted a public energy company should therefore grow up. That this is precisely what they announced themselves didn’t intrude on this line of thinking.

Nor did the reality that we have repeatedly explained a host of work-arounds for this. So on my schedule for next year I had some work to show that even if the Scottish Government insists on taking a reading of the Scotland Act seemingly designed to prevent development and won’t look at work-arounds, there is no prohibition to it running electricity through water or buying batteries.

It’s like someone said ‘let’s sell our telly on Ebay’ and Angus Robertson intervened and said ‘no! Let’s hand it out on the street to the first person who looks important’

I was going to argue that if the Scottish Government insists on being obtuse about energy generation, it is absolutely possible to build a National Energy Company initially focussed on energy storage.

At the moment Scotland ‘dumps’ loads of electricity into the ground when it is generating more than the UK is using (generally at night). A deal could have been cut to end constraint payments (for dumping) and instead use the electricity either for shorter term battery storage (selling back to the grid the next day or shortly after) or to power publicly-owned electrolysis plants for longer-term energy storage.

There is no prohibition of the Scottish Government selling electricity to the grid. There is no prohibition of using electricity to produce hydrogen. Even if an absolutely stupid approach was taken by all involved and it was argued that turning hydrogen back into electricity was considered ‘generation’, a National Energy Company could have partnered with an existing electricity generator, selling them the hydrogen.

Or of course the hydrogen could be used for something else altogether – ‘green steel’ manufacture or zero-carbon fertiliser. There are a number of uses for hydrogen and electricity generation isn’t all that high on the priority list other than for storage purposes. (Using hydrogen for heating shouldn’t even be on the list at all).

Let me put that another way; it is really difficult to think of any way the Scottish Government could have got less out of this ‘deal’ for Scotland. It’s like someone said ‘let’s sell our telly on Ebay’ and Angus Robertson intervened and said ‘no! Let’s hand it out on the street to the first person who looks important’ and everyone else said ‘brilliant Angus – you’ll get your photo taken and everything.’

On and on and on this goes. Time after time after time the Scottish Government, immensely influenced as it is by powerful political lobbying and constantly asking corporate consultancies to write public policy, basically gives away Scotland’s future in return for self-serving photo opportunities.

I have long, long since stopped expecting this government to get its act together on an industrial strategy. But please don’t tell me there were no options. We are not being screwed over because we have no choice but because we are choosing to screw ourselves over.

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