Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

Executive Summary Doosan Babcock Investment in the Scottish Energy Strategy As a UK based energy engineering services specialist operating across the Thermal, Oil and Gas, Nuclear and Distributed Energy sectors, Doosan Babcock takes a strong interest in the proposed Scottish Energy Strategy. Employing over 4,000 professional and blue collar staff and with manufacturing capacity based in Scotland, Doosan Babcock has felt the impact of the evolution of the energy sector. The whole systems approach taken in the Scottish Government’s Draft Energy Strategy document is welcomed to allow Scotland, and Scottish businesses, to move ahead and become global leaders in driving the interaction that is necessary between the heat, transport and power elements of the energy system in a modern low carbon environment.

Distributed Energy, Low Carbon, Whole System Approach  Doosan Babcock applaud Scotland’s progress in decarbonisation of the electricity grid  We recognise the upcoming challenges in the decarbonisation of heat and transport - Scotland has the opportunity, capability and drive to take a leading global role in this activity  The Scottish Government should produce, as soon as possible, a detailed sector road map, setting out the process for decarbonising heat (electrification and the role of hydrogen), in order that there is a clear path and timeline to achieving the targets laid out in the draft strategy (similar comments also apply to electricity and transport)  Support from Government and certainty in policy / timelines will allow Scottish business to invest, recruit and be set up to deliver the technologies and people required in delivering the carbon reduction targets  Poor air quality in our urban areas, and the resultant negative health impacts, should be addressed in the Scottish Energy Strategy

The role of Fuel Cell in a Distributed, Whole Energy System Approach  Doosan Babcock believes in the role of hydrogen fuel cells in the future, decarbonised energy system  Hydrogen must play a role decarbonising heat and transport and to support the intermittency of renewables  Stationary fuel cells represents a ‘no risk’ investment being the most efficient and reliable option to generate electricity and / or CHP locally using natural gas and/or biogas with the option to retrofit for hydrogen fuel  In addition to the decarbonisation benefits, a stationary fuel cell is the ideal dependable generation for urban locations due to its negligible NOx and particulates emissions  To derive competitive advantage, Scotland needs to assess the strategic opportunity presented by fuel cells and consider reflecting their benefits as it develops policy initiatives. UK energy policy makers have not appropriately considered the benefits of fuel cells and we propose that Scotland should take the policy lead in this respect  Initial policy support in Scotland and corresponding fuel cell deployment would not only deliver benefits for the Scottish energy system but also, through economies of scale, render fuel cells cost effective creating significant manufacturing and export opportunities for Scottish business in an evolving global fuel cell market

The Role of Thermal Generation  Being a large employer in the sector, Doosan Babcock has felt the impact of thermal plant closure in Scotland. We recognise the need for the energy mix, and our business, to evolve into a low carbon, whole system approach in the future

The Role of Nuclear Generation  Doosan Babcock is a large employer in the Nuclear sector with significant presence at the existing operational plant (Torness and Hunterston) and is active in the decommissioning of life expired plants  We encourage continued life extension of the existing plant to support decarbonisation of the electricity mix  Doosan Babcock sees significant opportunity in nuclear new build, and recognises the current Scottish Government policy in this respect. With the ongoing UK government support for a new generation of SMR’s

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

(Small Modular Reactors) perhaps it is the time now to have a fresh independent look at what role this technology could play in Scotland’s energy system

The Role of North Sea Oil and Gas  As a significant employer in the Scottish Oil and Gas sector, Doosan Babcock applaud the drive for continued recovery of our natural resource for Scotland to receive the positive economic impact it brings  As highlighted above, we believe fuel cell technology represents a clean and efficient way to generate heat and electricity from our natural gas before transitioning to zero emission hydrogen

The Role of CCS  We are somewhat sceptical of the need for a large CCS infrastructure to capture Scotland’s industrial CO2 emissions. We believe that this could end up a stranded asset if a review of the 2050 industrial landscape is not enacted before any CCS implementation decision.  We recognise that hydrogen production technology is an integral part of the Strategy. We believe that a renewables based hydrogen production system is more aligned with Scotland’s energy aspirations; ultimately hydrogen production scale and economics may drive the requirement for a CCS infrastructure

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

Response to questions

1. What are your views on the priorities presented in Chapter 3 for energy supply over the coming decades? In answering, please consider whether the priorities are the right ones for delivering our vision.

1.1 Continuing to Support the Recovery of North Sea Oil and Gas as a Highly-Regulated Source of Hydrocarbon fuels As a significant employer in the Scottish oil and gas sector, Doosan Babcock supports the drive for continued recovery of our natural resource for Scotland to receive the positive economic impact it brings. Considering the very aggressive carbon reduction targets, and the necessary transition from fossil fuels, it is necessary to recognise how we can make most efficient and clean use of our resource.

1.2 Supporting the Demonstration and Commercialization of Carbon Capture and Storage and CO2 Utilization Introduction Over the past ten years, Doosan Babcock have invested over £35m in the development and proving of carbon capture technology, culminating in the design and construction of the then largest carbon capture plant (capable of capturing 100te/day, equivalent to around 5MWe, or 0.25% of plant total output at full load) at Ferrybridge. With the decline of new build coal plant across the UK, and the unavailability of any Government support to enable technology demonstration at any reasonable industrial / utility scale, the Ferrybridge plant was decommissioned in 2014. In the interim period, Doosan Babcock redeployed the bulk of the Carbon Capture team into other technology areas, and has wound down internal activity on this technology, to the level of a watching brief as far as the UK market is concerned. The Renfrew personnel employed in CCS activity currently mainly provide technical and R&D support to our parent company Doosan Heavy Industries and Construction, who are involved in the global coal new build market in areas where there is still an interest in utility scale carbon capture. Industrial Carbon Capture Recently, and as outlined in the Energy Strategy document, the CCS technology application in the UK has shifted from utility to industrial scale application, with growing support for the establishment of an industrial CCS infrastructure. As illustrated in the attached in house Doosan Babcock document (Appendix 2) we estimate that, at best, around 33% of UK industrial CO2 emissions can be captured; the remaining 67% are either too diverse for capture or will be avoided by technology change (driven by cost considerations). The analysis is based on 2015 data on the installed industrial capacity in the UK at that time. In the intervening period there has been closures in the steel industry which reduce the bulk of CO2 emissions from that industry, there is a move by steel producing organisations like Liberty to produce a GreenSteel strategy which will reduce/eliminate CO2 emissions from that industry1, and as we move towards transport decarbonisation one has to question if all the current six refineries in the UK have a future in their current form. Similar comments apply to all the industrial sectors involved; it seems that the approach is to accept that industrial processes have to be carbon intensive, so let’s build an infrastructure to capture and store the emitted carbon. In Doosan Babcock view, this approach has the potential for the CCS infrastructure developed around the current industry base and technology to become a stranded asset in the not too distant future, as the industry it would have been built to serve changes and develops in a low carbon world. From an industrial future perspective, and to aid understanding of the potential demand for a CCS infrastructure, Doosan Babcock believe that now is the time to answer a different set of questions based around building a low carbon industrial future for Scotland i.e. what is the industrial pathway for Scotland?, what industrial processes have a long term future?, how can those processes be made carbon independent? (a philosophy of rather than

1Liberty House Group about section (2017) http://www.libertyhousegroup.com/company/vision/

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017 invest in CCS lets invest in new processes, much like the steel industry has recently initiated2)?, and is there a role to play for carbon capture and utilisation (CCU), as opposed to storage, in a sustainable industrial cycle? CCS and Hydrogen Production More recently, CCS is being considered, with Steam Methane Reforming, as a potential technology for the production of hydrogen in any bulk scale. The vast majority of industrial hydrogen (global supply 60 million tonnes per year) is produced in bulk from coal gasification or steam methane reforming (SMR), both of which require a lot of energy and generate significant carbon dioxide emissions. Carbon capture from the process is necessary to provide low carbon (or so called “brown”) hydrogen. Perceived environmental disadvantages, all other things being equal, of the production of brown hydrogen are two-fold…continued reliance on fossil fuels for energy production, and a 20th century technology approach with large centralised carbon intensive inefficient plant being applied to a 21st century situation, where a decentralised energy approach is becoming the norm. Using renewable energy to produce hydrogen (so called “green” hydrogen) is an alternative approach and potentially more aligned with Scotland’s global environmental aspirations; it is fair to say that the scale of this technology is still in relative infancy when compared to SMR technology, with current demonstrated production rates being more suited to local rather than bulk production of hydrogen. It is generally accepted that costs of production of “green” hydrogen are currently more expensive than “brown” hydrogen; efficient electrolyser utilisation can result in comparable production costs (see our answer to Question 7 attached). The Energy Strategy document proposes widespread hydrogen roll out in the gas network post 2025 (subject to UK government approval). In the interim period, and as per the UK hydrogen route map, there is considerable work to be done on hydrogen standards, proving technologies etc. This proving work will require hydrogen production, most likely at a local scale. By using both “brown” and “green” hydrogen in the pre-2025 period for these proving trials, then cost and performance information can be obtained in a representative Scotland environment with both production approaches, ultimately leading to a decision on appropriate infrastructure investment. It may well be that a combination of local “brown” and “green” production methods are eventually applied, with an infrastructure approach to suit3. 1.3 Exploring the role of new energy sources in Scotland’s energy system Doosan Babcock strongly support this priority as a key item in delivering the Energy Strategy; new low carbon energy sources (and associated conversion technologies) are required across all energy sectors if the 2050 climate change targets are to be achieved. We believe that this item should be one of the main priorities of the Scottish government going forward. The “Pathway to 2032” presented in Figure 1 of the Draft Climate Change Plan4 indicates that, by 2032, Scotland’s electricity, services (non-domestic buildings), and residential sectors will be largely decarbonised, with additionally significant decarbonisation of transport. Essentially, in 15 years’ time, the pathway implies CO2 emission reductions of over 50% compared to 2017 levels, with almost 30% (over 13MtCO2e) being associated with the electricity, services and residential sectors. These are both significant challenges, and will require a step change in activity in these sectors compared to today. To meet these targets, which are fully supported by Doosan Babcock, it is considered essential that:  New low carbon energy sources are developed and introduced; of the potential new energy sources, available hydrogen offers the greatest potential in the decarbonisation of heat in the service and residential sectors.

2Ibid

3 Scotland’s Energy Strategy: the role of carbon dioxide capture and permanent storage (2016) http://www.sccs.org.uk/images/expertise/reports/working-papers/WP_SCCS_2016_07_Scotland_Energy_Strategy_2.pdf 4 Draft Climate Change Plan (2017) http://www.gov.scot/Publications/2017/01/2768

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

 Appropriate funds are set aside to not only explore the development and production of these new energy sources, but also to support policies to enable economies of scale and technology cost competitiveness to be achieved within as short a timescale as possible. Funds are also required for the demonstration of production techniques and fuel to energy conversion technologies.  The funding process should also recognise that investment in certain technologies (e.g. fuel cells) is a “no regret” move, as fuel cells can operate on both natural gas and hydrogen. Initial investment in fuel cells operating on natural gas will reduce carbon emissions, and provide a continuous carbon emission bridging approach until complete decarbonisation is achieved using hydrogen.  The decarbonisation energy source and technology involved should not result in a deterioration in air quality; this is particularly important as we move towards a decentralised local energy system.  Given the relatively short timescale of 15 years associated with the service and residential sector decarbonisation targets; it is considered essential that investment should be “kick started “almost immediately. Such signals are required to promote and incentivise industry involvement and investment forward planning.  The investment process should be accompanied by a clear route map of timelines associated with the decarbonisation activities, coinciding with the “Pathway to 2032” decarbonisation profiles. We recognise that there are today uncertainties associated with the options available and the future costs associated with those options, but sufficient investment funds and incentives should be set aside over the next few years to enable a policy of demonstration of potential new energy sources (at a reasonable scale) to provide this additional information and ultimately selection and implementation of the energy sources (and associated technology (ies)) of choice to deliver the 2050 climate change obligations. 1.4 Increasing renewable energy generation The decarbonisation of the electricity sector in Scotland is now largely complete, with fossil fuel replaced in the main by wind and intermittency and other related issues covered and managed by the zero-emission nuclear plant at Hunterston and Torness. The decarbonisation of transport and heat presents different challenges, with the ultimate end game there (in a zero-carbon environment) being most likely a combination of electricity (in the main applied to transport with potential application to heat decarbonisation) and hydrogen (mainly applied in heat decarbonisation with potential application to transport decarbonisation). The primary source of energy in both cases should be renewable based. Closure of Hunterston and Torness within the next 15 years will most likely require additional base load reliable electricity generation, with the intermittency issues associated with most large-scale renewables having to be solved by a combination of increased network investment, energy storage and demand side management technologies. Increases in smaller scale decentralised low/ zero carbon generation systems will provide potential base load capability and the additional power required, but will still most likely require energy storage and demand side management technology development and application. It is a generally accepted wisdom that security of electricity supply will start to become prominent as the amount of renewable electricity increases, although advances in IT and network management (both up and downstream of the meter) may reduce the severity of the issue to some extent. As the system in Scotland is already experiencing concerns with black start capability and a lack of system inertia, these concerns will potentially increase with increased levels of distributed renewable generation and the associated more sophisticated mechanisms for providing system services. Increased interconnector activity, and / or the introduction of additional base load capacity could help to alleviate these concerns. There are a number of potential options to provide this additional base load capacity, which ideally should be zero carbon. Stacked Fuel Cell technology plant (up to 50MW electrical capacity) is currently being installed in South Korea; operating on hydrogen they are carbon free. This technology, operating on natural gas, could provide an immediate baseload capacity capability, and ultimately carbon free when hydrogen networks are available, and as such a similar model should be considered to be built close to Scotland’s major cities and towns. Alternatively, as a technology to provide reasonably efficient base load electricity, Doosan Babcock believe that it is necessary for the Scottish Government to review its nuclear stance in the light of recent ongoing

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017 developments in that arena, where new small modular nuclear plant are cheaper and quicker to build and are inherently safer by design. Doosan Babcock welcome the Whole System View of energy policy approach set out in the Energy Strategy document, recognising the interactions and effects that elements of the energy system have on one another. We note that a new 2030 “all energy” target for the equivalent of Scotland’s heat, transport and electricity consumption of 50% from renewable sources is proposed, to capture the ambition of the new system wide approach. It is not clear to Doosan Babcock how this target of 50% has been arrived at, and a number of questions are raised: 1. What is the logic and reasoning behind the 50% number? 2. Is the 50% renewable content compatible with the 28MtCO2 e to be emitted in 2030 according to the “Pathway to 2032” in the Draft Climate Change Plan? 3. Just exactly what renewables are accounted for in the number ...does hydrogen for example count as a renewable? 4. What is the current view of what the 2030 energy mix will look like and what target is being set for baseload generation? A demonstrated linkage between the two parameters (50% renewables and 28MtCO2 e) would give both industry and the public confidence in the totality of the Energy Strategy; this linkage does not seem to be readily provided in the available documentation. 1.5 Increasing the flexibility, efficiency and resilience of the energy system as a whole Given the above, Doosan Babcock consider that, if the ambitions of the Draft Energy Strategy are to be fully realised, then it is a given that the flexibility, efficiency and resilience of the energy system requires to be upgraded. The ongoing development and application of smart, flexible, decentralised grid friendly technologies will further enhance the flexibility of the system. To do this, investment in storage, grid management technology and decentralised reliable energy technologies is also required.

2. What are your views on the actions for Scottish Government set out in Chapter 3 regarding energy supply? In answering, please consider whether the actions are both necessary and sufficient for delivering our vision.

2.1 Continuing to Support the Recovery of North Sea Oil and Gas as a Highly Regulated Source of Hydrocarbon fuels 2.1.1 Continue to work with the OGA etc….to MER of oil and gas…. As we indicated in our answer to Question 1, as a significant employer in the Scottish oil and gas sector, Doosan Babcock supports the drive for continued recovery of our natural resource for Scotland to receive the positive economic impact it brings. Therefore, we support continued work with the OGA, UK Gov and Industry to avoid the premature cessation of production. Considering the very aggressive carbon reduction targets, and the necessary transition from fossil fuels, it is necessary to also recognise how we can make most efficient and clean use of our resource to support the transition to low/zero carbon fuels in this sector. 2.1.2 Provide continued support…the sector can be competitive …decades to come See our answer to 2.1.1 above. 2.1.3 Maximise opportunities for …transfer of skills and knowledge….low carbon Doosan Babcock consider that this is a key action going forward; the skills and knowledge acquired in the North Sea are very applicable to the development and implementation of a low carbon transport and heating strategy. There are a number of areas where retraining and reallocation of the workforce would be beneficial e.g. hydrogen

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017 production and distribution, biogas and bio fuel production and distribution, marine and tidal renewables, grid management and control, IT, logistics etc. 2.1.4 Support investment ….. the ”go to “ place for oil and gas technology solutions Clearly there are benefits to the UK and Scotland economy by virtue of this action; as we indicated in our response above, as a large employer in the sector, Doosan Babcock support the investment in the sector and its people. 2.1.5 …maximise the economic benefits from decommissioning of oil and gas assets Doosan Babcock has invested heavily in up-skilling and cross training our people to transition from fossil energy generation to be deployed in the oil and gas sector. We welcome the action to maximise opportunity of investing further in people so that the Scottish supply chain is prepared to take advantage of any decommissioning opportunity. 2.2 Supporting the Demonstration and Commercialisation of Carbon Capture and Storage and CO2 Utilisation 2.2.1 Work with Industry … for small scale CCS and CO2 utilisation projects As outlined in our response to Question 1.2, we see two potential applications for CCS in Scotland 1. In the industrial arena 2. In the bulk production of hydrogen using SMR ( Steam Methane Reforming) technology

The industrial perspective From an industrial future perspective, and to aid understanding of the potential demand for a CCS infrastructure, Doosan Babcock believe that now is the time to answer a different set of questions based around building a low carbon industrial future for Scotland i.e. what is the industrial pathway for Scotland, what industrial processes have a long term future, how can those processes be made carbon independent (a philosophy of rather than invest in CCS lets invest in new processes, much like the steel industry has recently initiated5) and is there a role to play for carbon capture and utilisation (CCU), as opposed to storage, in a sustainable industrial cycle. Doosan Babcock would recommend that, as a precursor to any implementation associated with this action, that the Scottish Government commission an independent assessment into: 1. What the future (say from 2030 to 2050) industrial landscape in Scotland might look like from a service point of view e.g. will there still be a steel industry in Scotland, a cement industry etc. This will most probably require close engagement with industry. 2. How can future industry operate in a low carbon environment ..and provide funding from now to develop/ prove low carbon industrial techniques (e.g. Sweden has just initiated a project to use hydrogen in steel making, making the process carbon free). 3. What is the total potential CCU in Scotland?. 4. Given all of the above what will be the resulting emitted carbon from industry and how much of this can be captured, and at what cost. 5. Only after completion of this independent exercise, when facts are available, should a decision on the deployment, and scale, of an industrial CCS infrastructure be made, and small scale CCS and CCU demonstration projects be considered. Doosan Babcock would be happy to share our experience to date, and participate in if considered appropriate, any assessment approach.

Bulk Hydrogen Production There are two approaches applicable to bulk hydrogen production6.

5 Liberty House Group about section (2017) http://www.libertyhousegroup.com/company/vision/ 6 C. Philbert, Hydrogen – revised analysis (2017) http://cedricphilibert.net/hydrogen-revised-analysis/

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

1. The vast majority of industrial hydrogen is produced from steam methane reforming (SMR), which needs a lot of energy and generate significant carbon dioxide emissions. CCS is required to capture the CO2 produced from this “brown” hydrogen production method. 2. A much smaller proportion of hydrogen is produced via electrolysis of water, which can be a far more sustainable method if the electricity is produced from renewable sources. This approach, to produce so called “green” hydrogen, is more aligned with Scotland’s global environmental ambitions It is generally accepted that costs of production of “green” hydrogen are currently more expensive than “brown” hydrogen; efficient electrolyser utilisation can result in comparable production costs (see our answer to Question 7). As outlined in our answer to Question 1.2, Doosan Babcock support the use of small scale proving trials for the production of both “brown” and “green” hydrogen in the pre-2025 period. This would allow cost and performance information to be obtained in a representative Scotland environment with both production approaches, ultimately leading to a decision on appropriate infrastructure investment. It may well be that a combination of local “brown” and “green” production methods are eventually applied, with an infrastructure approach to suit7. Doosan Babcock would be happy to share our experience to date, and participate in if considered appropriate, any independent assessment approach. 2.2.2 Explore the opportunity to combine bio energy production and CCS This action could be undertaken as part of the study suggested in 2.2.1 above. 2.2.3 Maintain pressure on UK…to align its CCS strategy with Scottish...priorities Subject to the outcome of the actions suggested in item 2.2.1 above. 2.2.4 Support the commercialisation of CCS through securing a demonstrator project Subject to the outcome of the actions suggested in item 2.2.1 above. 2.2.5 Work with OGA to…ensure retention of existing critical infrastructure…with CCS Until the outcome of the actions suggested in item 2.2.1 above is known, then it would seem to be prudent to ensure retention of any existing critical infrastructure suitable for use with CCS.

2.3 Exploring the role of new energy sources in Scotland’s energy system 2.3.1 Review the role for new technologies and energy sources... Introduction Doosan Babcock are supportive of the recognition in the Energy Plan of the role proposed for hydrogen in the energy system in Scotland (as outlined in paragraphs 81 to 85 and the block insert in the Strategy document) and would agree that Scotland is uniquely place to support an emerging hydrogen economy. Stationary fuel cells can support Scotland’s existing and future energy needs as it transitions to an integrated distributed energy environment. Stationary fuel cell technology is modular from sub MW to multi MW scale and provides the cleanest (from an air quality perspective) highly efficient low carbon electricity and heat generation. The technology can operate on natural gas, biogas or hydrogen and is a proven technology with over 12 million operational hours and over 110MW of global installed capacity. When operating on biogas or “green” hydrogen (ie hydrogen produced by renewable energy) fuel cell technology can be considered a renewable technology. The state of readiness of fuel cells to step up to the plate in these applications can be demonstrated by the recent (06 January 2017) press release from Doosan Fuel Cell America i.e.

7 Scotland’s Energy Strategy: the role of carbon dioxide capture and permanent storage (2016) http://www.sccs.org.uk/images/expertise/reports/working-papers/WP_SCCS_2016_07_Scotland_Energy_Strategy_2.pdf

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

Doosan Fuel Cell signed an Agreement to participate in the Daesan Hydrogen Only Fuel Cell Power Plant Project at the Renewable Energy Investment Forum hosted by the Korea Ministry of Trade, Industry and Energy in December of last year. This will be a 50MW fuel cell project that will be the first to use hydrogen as the only fuel source for the fuel cells that will generate power. The project will utilize hydrogen supplied by Hanwha Total Petrochemical Co., Ltd. The stockholders for the project are Hanhwa Energy, Korea East West Power Co., Ltd., Doosan Corporation, and SK Securities. The project, which is scheduled to be completed by June 2019, has a cost estimated at 250 billion Korean won (£172m GBP). It will be the world’s largest hydrogen only commercial fuel cell power plant. The ground-breaking ceremony for this project is scheduled for the middle of this year, and delivery and installation of the fuel cells at the site is expected to begin in early 2018. Fuller technical details of the Doosan Babcock fuel cells are presented in Appendix 3. Doosan Babcock consider that the combination of hydrogen and fuel cells as a heat decarbonisation technology is an arena where Scotland and its local industries can gain significant competitive advantage in the UK hydrogen economy market place, with the Scotland Energy Strategy thinking being ahead of the rest of the UK in this respect. This combination of technologies has significant potential across multiple applications, including, heat, energy storage and transportation. The decarbonisation of heat A combination of hydrogen and heat networks and supporting technologies are key to achieve the decarbonisation of heat and maintain a compatible timeline for both the 2032 targets and the 80% carbon reduction target set for 2050; technologies powered with natural gas (and/or biogas) provide the “no regret” interim stepping stone to the early achievement of these targets, whilst at the same time providing the opportunity to facilitate a distributed energy solution. The Energy Strategy – Scotland’s Energy Efficiency Programme (SEEP)8 recognises two steps in the decarbonisation of heat (paragraph 29) 1. Demand reduction and heat decarbonisation measures operating in parallel from now to 2025 2. Post 2025 (in line with the timescales proposed in the UK hydrogen road map) a shift away from natural gas as the primary residential and service heat energy source to hydrogen (and potentially biogas), thereby facilitating the complete decarbonisation of heat and delivering the 2032 pathway objectives. Clearly energy production technologies installed in the period from now to 2025 need to be future proofed from a hydrogen / biogas perspective (i.e. a no regret installation); fuel cells are a technology satisfying this criterion. The time period from now to 2025 also offers the opportunity for the demonstration of fuel cell technology in a wide range of heat decarbonisation (and decentralised energy) applications, facilitating both public acceptance and understanding and technology cost reduction via economies of scale. As indicated in the Strategy document, for this approach to be effective the 100% conversion of the existing natural gas grid to hydrogen / biogas is required in the period post 2025; this in itself is a significant challenge not only in the conversion (although there is prior experience with the conversion to natural gas in the 1970’s) but in the economic production of sufficient hydrogen (and storage / distribution of same). Providing the right policy signals A principle challenge to enable the maximum uptake of innovative technologies relates to technology costs and achieving deployment at levels which will drive costs down. Providing the right policy signals and support at an early stage can drive down technology costs and limit the need for ongoing subsidy. We recognise that there are today uncertainties associated with the options available for the production of hydrogen and the future costs associated with those options, and sufficient funds and incentives should be set aside over the next few years to enable a policy of demonstration of potential new energy sources (at a reasonable

8 Scotland’s energy efficiency programme (2017) http://www.gov.scot/Topics/Business- Industry/Energy/Action/lowcarbon/LCITP/SEEP

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017 scale) to provide this additional information and ultimately selection and implementation of the energy sources (and associated technology (ies)) of choice to deliver the 2032 Pathway and the 2050 climate change obligations. With fuel cells, however the position is slightly different in that the cost and performance today is known. For example, hydrogen fuel cell installations typical costs today are around £1.5million to £2million for a 460kWe/ 500kWh plant. Technology cost downs for fuel cells will occur; however short term deployment would additionally benefit from the right policy signals and support. At today’s investment costs, the levelised cost of producing a unit of heat from a large scale stationary fuel cell is circa 35% higher than the cost of sourcing a unit of heat from a conventional CHP plant. This is because despite the increased primary energy savings of the fuel cell, its production costs remain higher than conventional CHP. However, the benefits of global economies of scale will narrow this cost differential and fuel cells are predicted to achieve cost-parity with conventional CHP within four years of policy support being initiated to “kickstart” the technology application in Scotland and the UK, based on the learning rates of 16% observed in Japan. Increased deployment in the UK would also mean the technology is more likely to be manufactured locally in the UK, supporting related Industrial Strategy objectives, and providing further cost reductions. Doosan Babcock plan to use their factory in Renfrew to manufacture and supply fuel cell technology in the future. It seems clear from the Energy Strategy document that the Scottish government understands and appreciates the potential strategic role for hydrogen and fuel cells in delivering the 2050 climate change objectives, and the industrial benefits that can be derived by Scotland in deploying these technologies. Along with exploring further the strategic role of fuel cells and hydrogen, Doosan Babcock would recommend that the Scottish Government assess the potential of introducing a support framework for the deployment of fuel cells on a par with other low carbon technologies.

Air Quality We would like to propose one additional area which can also support the Government’s policy objectives and therefore should be considered in developing an action plan. We note from the Energy Strategy document that there is no mention of air quality; this seems to us to be an important omission. In Doosan Babcock opinion, decarbonisation has to be delivered with acceptable air quality i.e. any unintended consequences of the decarbonisation technology in terms of decreasing air quality have to be avoided. The 2015 UK Air Quality Plan9 is transport focussed and whilst the Plan has references to emissions from residential and commercial buildings, it strongly suggests that forthcoming legislation via MCPD and decarbonisation will deliver improved building air quality standards. The 2017 draft Air Quality plan10, an update to the 2015 plan, was recently published but this too remains transport focussed and still asserts that the MCPD will act as the primary lever to tackle emissions from buildings and industry. ‘Up in the Air’, a Policy Exchange report11, refers to modelling which shows that gas combustion from stationary sources is likely to overtake road transport as the single biggest source of NOx emissions in Central London by 2020. Also quoted are Greater London Authority (GLA) targets for 25% of power consumed in London to come from decentralised generation by 2025. This will be beneficial in reducing overall greenhouse gas emissions, but will increase local emissions of NOx and other pollutants i.e. result in poorer air quality. Whilst the Up in the Air report refers specifically to Central London, a similar scenario is to be expected for most major conurbations in the UK, including Scotland, exacerbated by the trend towards decentralised generation.

9 DEFRA (2015) ‘Improving Air Quality in the UK: Tackling Nitrogen Oxide in our Towns and Cities’ https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/486636/aq-plan-2015-overview- document.pdf 10 DEFRA (2017) ‘Improving air quality in the UK: Tackling Nitrogen Oxide in our Towns and Cities’ Draft/Revised https://consult.defra.gov.uk/airquality/air-quality-plan-for-tackling-nitrogen- dioxide/supporting_documents/Draft%20Revised%20AQ%20Plan.pdf 11 Policy Exchange, Up in the air: how to solve London’s air quality crisis (2016) https://policyexchange.org.uk/wp- content/uploads/2016/09/up-in-the-air-part-2.pdf

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

The way we generate, distribute and consume energy is changing with energy generation increasingly deployed closer to the load it serves, offering advantages over the centralised model as we have discussed earlier. Over the past four years there has been a rapid increase in decentralised energy generation, with up to 2GW added to the grid each year in the UK and forecast to be maintained at similar rates until 2036. The impact of energy decentralisation on air quality cannot be taken lightly. Air pollution is the fourth greatest overall risk factor for human health12 worldwide and in the UK, two air pollutants alone (particulates and nitrogen dioxide) contribute to the early deaths of 52,500 people annually13. These health problems cost the UK more than £20 billion each year14. As noted by the IEA15, ‘air pollutants arising from human activity overwhelmingly derive from energy production and use, mainly the combustion of fossil fuels and biomass’. The policy framework currently in place does not go far enough to address combustion air quality issues. Support schemes to promote the deployment of decentralised generation do not give adequate consideration to the impact on local air quality. The RHI scheme offers support to biomass heating and biomass CHP with insufficient consideration given by local planning authorities as to the location of the deployment of these technologies. Also at present conventional gas CHP receives policy benefits with no consideration on the impact of the technology, in terms of local pollutants or relevant minimum standards. European emissions legislation, such as the Medium Combustion Plant directive (MCPD), sets pollution limits but currently does not go far enough. It is important that the Scottish Government assesses the interplay between energy and air quality policy targets and the potential of introducing more stringent limits for NOx and particulates in urban centres using levers such as the MCPD legislation. For information, Appendix 4 presents an overview of the NOx emission characteristics of commonly used domestic, industrial CHP and MCPD applications. It is interesting to note from this table that:  The NOx emission level from a Fuel Cell, in mg per kWhr, is currently almost 30 times lower than the 2018 legislation for natural gas fired residential boilers (2mg/kWhr versus 56 mg/kWhr).  Compared to the cleanest gas fired CHP technology operating in 2019 under the proposed MCPD regulations, the 2 mg/kWhr NOx emission level from a Fuel Cell is significantly lower than the gas engine NOx emission level of 288mg/kWhr.  Other European countries have tighter NOx emission levels already in place from stationary combustion sources, compared to those proposed to be adopted by the MCPD in the UK.  From an air quality perspective, wood stoves and biomass related combustion activities are amongst the highest NOx emitters, even when they are designed to current best practice.  NOx emission control technologies exist, at relatively low cost, which would enable NOx emissions from gas engines to be significantly reduced from current uncontrolled levels. For example, with SCR NOx control on a gas engine it is possible to achieve 12 mg/kWhr NOx emission, with minimal power loss and additional capex of circa 10%. This suggests proposed MCPD limits could be significantly tightened to improve air quality.

2.3.2 Consider how planning can support the future energy system The Energy Strategy document recognises, page 35/36, that “coordinated activity by the public and private sectors over the next five to ten years will be essential to achieve any large scale roll out of hydrogen and fuel cell technologies by the mid 2020’s”. Due essentially to a lack of awareness of the technology, Fuel Cells are often not listed as a potential technology in important documents such as Local Authority Planning Guidance. Greater awareness can drive deployment and decrease the time over which cost-downs occur. In addition to achieving greater awareness, the technical capability and understanding of new technologies both within and across Local Authority and National Planning organisations needs to be improved.

12 IEA (2016) ‘Energy and Air Pollution’ 13 DEFRA (2015) ‘Improving Air Quality in the UK: Tackling Nitrogen Oxide in out Towns and Cities’ 14 Royal College of Physicians (2016) ‘Every breath we take’ 15 IEA (2016) ‘Energy and Air Pollution’

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

2.3.3 Collaborate with UK...local government etc. on UK hydrogen roadmap The Energy Strategy document recognises that hydrogen can have a strategic role in Scotland’s future energy mix, along with supporting technologies that use hydrogen to generate heat and electricity locally in an efficient manner. The Strategy for hydrogen is based on a 2025+ conversion of the gas grid to hydrogen. A similar timeline is outlined in the UK hydrogen roadmap16 which has three distinct timelines broadly aligned with the Energy Strategy document: 1. 2016 - 2020 Preparing for system change 2. 2020 - 2025 Putting it into practice 3. 2025+ Widespread rollout It is Doosan Babcock understanding that the level of hydrogen competence and understanding within Scotland is on a par, if not above, that in the rest of the UK. It is also recognised that decarbonisation of the gas network is most likely a UK decision rather than a Scotland alone decision. Given this, and the potential timeline uncertainty that any UK wide decision may involve, it is important that Scotland is ahead of the game in terms of being ready for the widespread rollout phase post 2025. Doosan Babcock would recommend that Scotland develops its own route map for hydrogen development and deployment in Scotland. The setting up of a “Centre of Excellence” for hydrogen in Scotland, capable of establishing the strategic basis for hydrogen in the energy system, together with the oversight of trials and innovative projects, codes and standards, should be considered by the Scottish Government in the first instance. This work in Scotland could complement, and contribute to, the recently announced BEIS innovation programme17 to de-risk and demonstrate the use of hydrogen for heat in UK homes and businesses, and a similar approach is recommended in Scotland, to be completed within the next five years. Such an approach would enable Scotland to build on the work which has already been undertaken in the preparation of the UK road map, and customise the approach to Scotland, facilitating faster implementation whilst at the same time developing competence and standards which are exportable. 2.4 Increasing renewable energy generation 2.4.1 Call on the UK ..to provide a stable supportive regulatory regime As per paragraph 107 of the Energy Strategy document, a recent BEIS study18 has shown that there is the potential to reduce the costs of on shore and offshore wind, with on shore wind estimated to become competitive with gas in the 2020’s and offshore wind competitive with gas by 2030. This cost down trend is clearly driven by economies of scale and application of recent experience, an approach which applies to most new technology deployment, and is recognised within the Energy Strategy document, paragraph 111, where the renewables industry is challenged to make Scotland the first area in the UK to host commercial onshore wind development without subsidy. Clearly a stable supportive regulatory regime will provide certainty to developers in the interim period until cost parity is achieved. The indication that wind technology is approaching cost parity should be recognised in setting the applicability and timing of the supportive regime. Similar comments as to the above apply to the other renewable technologies referenced in pages 40/41 of the Energy Strategy document. Doosan Babcock agrees with the comment on seeking greater clarity of the Levy Control Framework post the currently planned timeline of 2020/2021. This clarity is required soon to facilitate investment post 2020. 2.4.2 Seek to address grid constraints...for distributed power generation…

16 E4Tech (2016) ‘Hydrogen and fuel cells opportunities for growth’ http://www.e4tech.com/reports/hydrogen-and-fuel- cells-opportunities-for-growth-a-roadmap-for-the-uk/ 17 BEIS, Programme management contractor for UK hydrogen for heat demonstration, (2017) https://www.delta- esourcing.com/delta/viewNotice.html?noticeId=253346240 18 Utility Week (2016) ‘BEIS dramatically cuts estimates for renewable energy costs’ http://utilityweek.co.uk/news/beis-dramatically-cuts-estimates-for-renewable-energy-costs/1287962#.WRCJn1Xyupo

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

This action is clearly required as Scotland moves to a renewable low carbon decentralised integrated energy system 2.4.3 …at least half of renewable projects…shared ownership by 2020 Doosan Babcock supports the Action to put in place measures to support shared ownership of renewable energy projects; we would be happy to engage in discussions on developing the appropriate financial mechanisms 2.4.4 Support...future development of a wide range of renewable technologies Doosan Babcock supports the future development of a wide range of renewable technologies, and would make the following comments 1. Support should be extended to low carbon technologies, for example stationary fuel cells, as technologies such as these have an immediate role to play in meeting carbon targets without compromising air quality, and are future proofed to the extent that they have zero emissions when fuelled with hydrogen. When powered with biogas, stationary fuel cells transition from a low carbon technology to a renewable technology. 2. Support for the direct firing of biomass (in either electricity or heat production, or CHP applications) should cease in urban areas, as the NOx and particulate emission levels, even with best practice abatement in place, are much higher that other available technologies. 3. Consideration should be given to including the social cost of NOx and particulates in the overall technology selection evaluation (in either electricity or heat production, or CHP applications). 2.4.5 Building on success of REIF...design future support to meet energy priorities Future support should be aligned to Energy Strategy priorities, but not limited to renewables alone; low / zero carbon technologies should also be supported in any future scheme. Consideration could also be given to including social costs of pollution in the support scheme evaluation. 2.4.6…begin work on a Bioenergy Action Plan Doosan Babcock supports work on this Action Plan across the potential range of applications of biofuels. As stated in our response to item 2.4.4 above, this should not include any study on direct firing of biomass as an energy source in urban areas. 2.4.7…RHI continue to cover a wide range of technologies The current non-domestic RHI scheme, which was set up in 2011 has not been reviewed in the interim period to accommodate low carbon technologies (such as fuel cells). Fuel cells could have been, and could still be, incorporated within the RHI as per the provisions of the Energy Act 2008 (article 100(4))19. It is also worth noting that, when powered with biogas, stationary fuel cells are a renewable technology. Doosan Babcock would be happy to work with the Scottish Government in discussions with the UK government in order to get low carbon technologies added to the current RHI scheme. Alternatively, Doosan Babcock would suggest that the Scottish Government should consider its own (new or modification of existing) scheme, applicable between now and the end of the current RHI scheme in 2021, to kick start the application of low carbon technologies in the decarbonisation of heat in service and residential buildings. 2.4.8 …encourage uptake of emerging renewable heat technologies post 2021 The current RHI will end in 2021; to date any replacement schemes have not yet been developed. Clearly heat and CHP technologies should be the focus of any new scheme; however, 2021 is, in Doosan Babcock opinion, too late for such new schemes to be initiated to meet the Pathway to 2032; such schemes are required now. Doosan Babcock would also propose that any scheme should not be limited to renewable technologies alone; low carbon technologies should also be included.

19 UK Energy Act (2008) http://www.legislation.gov.uk/ukpga/2008/32/pdfs/ukpga_20080032_en.pdf

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

2.4.9 Consider the role for regulation in the development of large scale DHN Doosan Babcock considers that a stronger package of regulation and support to assist the development of heat networks, by building investor and consumer confidence, is required. In order to meet the Pathway to 2032 decarbonisation targets, it will be necessary to ensure that the technology used in heat networks is one which has a long-term future i.e. post 2032. Whilst the title of this action might imply a business approach to regulation of heat networks, it is also necessary to consider a technology approach; the technology used needs to have a long-term future. This suggests that a hydrogen based system (e.g. a fuel cell) should be used as the basic baseload energy provider of the network, potentially supplemented (if necessary) by a range of renewable technologies together with storage systems (both electrical and water). Fuel cells offer the advantage, as mentioned elsewhere in this document, that they can also operate on natural gas; investment in a fuel cell based heating network will not only provide the cleanest most efficient system but be capable of conversion to hydrogen (or mixtures of natural gas and hydrogen) operation when the hydrogen grid is in place. 2.4.10…ensure RTFO provides .. contribution to transport decarbonisation Doosan Babcock agrees with the observations made in paragraphs 127 to 129 of the Energy Strategy, in that biofuels are not a panacea to transport sector decarbonisation. Nevertheless, this should not stop the Scottish government working with the UK government to maximise the opportunities provided by the RTFO.

2.5 Increasing the flexibility, efficiency and resilience of the energy system as a whole 2.5.1...work with BEIS and OFGEM to develop Smart Energy Plan…for UK Doosan Babcock supports this action, given the interconnectivity between Scotland and the rest of the UK (and Europe) and the need for a consistent, compatible UK wide plan. A fair treatment for storage and flexibility mechanisms across the UK is appropriate. In terms of renewable technology experience and attitude to meeting the 2050 objectives, Doosan Babcock considers that the energy landscape from a decarbonisation perspective is ahead of that in the rest of the UK. In engaging with BEIS and OFGEM the Scottish Government should ensure that the views of Scottish industry are captured and represented; Doosan Babcock feel that Scottish industry would be pleased to assist the Scottish Government in developing the Smart Energy Plan. 2.5.2..overcome the barriers to deploy new PHS capacity in Scotland Doosan Babcock supports this action; the development and application of storage capacity has a key role to play in a modern low carbon energy system. 2.5.3 innovation and demonstration of new forms of storage…. See response to item 2.5.2 above 2.5.4 Consider proposals for repowering existing large scale generating sites The existing large scale generating sites offer a range of repowering possibilities, given that there is available land space, grid connections and in the main a fuel supply source. Where this fuel supply source is natural gas then there may be short term potential value in using this on the site; the grid connections are clearly valuable regardless of the fuel. The Longannet site has an abundant supply of natural gas and a transmission network. It is also close to three major towns (Stirling, Falkirk and Dunfermline). With the correct planning and investment, a district heating network could be considered which would facilitate the installation of high efficiency, low carbon zero NOx, high reliability modular fuel cell based CHP station. Alternatively a gas fired fuel cell based flexible electricity supply station could be provided. Electricity storage from green power generated on site is another potential option; the storage approach is also a potential use for sites which have no gas connection.

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

The Longannet site has also been in the past the subject of a CCS study; if hydrogen production from fossil fuels turns out to be the preferred option for hydrogen production then the site could potentially be valuable in that context.

3. What are your views on the proposed target to supply the equivalent of 50% of all Scotland’s energy consumption from renewable sources by 2030? In answering, please consider the ambition and feasibility of such a target. Doosan Babcock is supportive of the need to promote renewables as part of a plan to decarbonise Scotland’s energy system. The promotion of renewable energy should be undertaken in an integrated manner, recognising the interactions and effects that the individual elements of the energy system have on each other. For an integrated approach to be successful a renewable target should not become a means in itself; this can lead to suboptimal policy decisions. There is a risk for instance in that existing policy schemes – such as the RHI and REIF – extend support to a limited number of renewable technologies whilst excluding other low carbon solutions that deliver benefits in terms of decarbonisation, innovation and wider energy policy benefits. There is also the potential that unintended consequences e.g. decrease in air quality, can occur in this environment. Policy can create path dependency and constrain technology choice/ application...a good example of this is in the provisions of Energy Act 2008 article 100(4)20, where fuel cells are listed as being eligible for RHI incentive. In the event, the envisaged eligibility of fuel cells for the RHI incentive did not materialise (for reasons unknown to Doosan Babcock). This decision has probably delayed the potential large scale roll out of fuel cells in the UK by ten years, with consequent lack of awareness, lack of demonstration plant and urban air quality issues. For this reason, Doosan Babcock would suggest that a Scottish carbon target is a more appropriate way to drive a holistic approach to revolutionising Scotland’s energy system. There could also be an accompanying air quality target to ensure a holistic approach is being delivered.

4. What are your views on the development of an appropriate target to encourage the full range of low and zero carbon energy technologies? What are your views on the development of an appropriate target to encourage the full range of low and zero carbon energy technologies? Doosan Babcock fully supports the need for a decarbonisation target that will allow Scotland to be at the forefront for low carbon innovation. As indicated above, we feel that a carbon target is a more appropriate metric than a renewable energy target; carbon targets could be applied to each energy sector in line with “Pathway to 2032” requirements. Our main concern is that policy can create path dependency and therefore regular policy reviews are necessary to assess the potential and strategic fit of new technologies. For instance, as outlined in our answer to Question 3 above, the non-domestic RHI scheme which was set up in 2011 has not been reviewed to accommodate new technologies, low carbon technologies such as fuel cells could have been incorporated within the RHI as per the provisions of Energy Act 2008 (article 100 (4)).

5. What ideas do you have about how we can achieve commercial development of onshore wind in Scotland without subsidy? Doosan Babcock has no comment to make on his question.

6. What are your views on the potential future of Scotland’s decommissioned thermal generation sites?

20 UK Energy Act (2008) http://www.legislation.gov.uk/ukpga/2008/32/pdfs/ukpga_20080032_en.pdf

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

The existing large scale generating sites offer a range of repowering possibilities, given that there is available land space, grid connections and in the main a fuel supply source. Where this fuel supply source is natural gas then there may be short term potential value in using this on the site; the grid connections are clearly valuable regardless of the fuel. The Longannet site has an abundant supply of natural gas and a transmission network. It is also close to three major towns (Stirling, Falkirk and Dunfermline). With the correct planning and investment, a district heating network could be considered which would facilitate the installation of high efficiency, low carbon zero NOx, high reliability modular fuel cell based CHP station. Alternatively, a gas fired fuel cell based flexible electricity supply station could be provided. Electricity storage from green power generated on site is another potential option; the storage approach is also a potential use for sites which have no gas connection. The Longannet site has also been in the past the subject of a CCS study; if hydrogen production from fossil fuels turns out to be the preferred option for hydrogen production then the site could potentially be valuable in that context.

7. What ideas do you have about how we can develop the role of hydrogen in Scotland’s energy mix? Hydrogen can have a strong strategic role in Scotland’s future energy mix, combined with the supporting technologies that can use hydrogen to generate heat and electricity locally in an efficient manner. A supportive policy framework is necessary to unlock the benefits of such technologies (e.g. fuel cells) and allow these technologies to initially compete. Fuel cell technology is available now to be deployed into buildings in the UK and a number of projects have been delivered globally (including 140 Doosan Purecell® systems) or are in the pipeline. Currently, the technology operates using gas but can also operate on hydrogen (see our response to item 2.3.1 where a 50MW hydrogen fuel cell assembly is currently being installed in South Korea), meaning it would remain functional even if changes occurred to fuel use in the UK. Given the “Pathway to 2032” requirements to effectively decarbonise the service and residential sectors by 2032, then there is a need to ensure that heat networks do not lock in heat supply technology too early, with the consequences that the heat supply technology will have to be phased out before 2032. Fuel cells offer the insurance policy against this potential phase out; they can operate on natural gas providing the cleanest most efficient system but be capable of conversion to hydrogen (or mixtures of natural gas and hydrogen, and biogas) operation when the hydrogen grid is in place. The use of hydrogen as an energy storage vector which can contribute to the decarbonisation of heat and transport is becoming more widely accepted, especially in countries like Japan and Korea. In Japan, the Prime Minister Shinzo Abe has set a goal of 5.3 million hydrogen-powered homes, roughly 10 percent of Japan’s total, by 203021. The government is also expected to create a system for speeding up construction of hydrogen stations, with the aim of getting 40,000 hydrogen fuel cell vehicles on the road by 202022, and is planning to turn the athletes' village for the 2020 Olympics in Tokyo into a "hydrogen town", where electricity and hot water are

21 Watanabe, C., Ene-Farms use hydrogen to power homes but don’t come cheap (2015) https://www.bloomberg.com/news/articles/2015-01-15/fuel-cells-for-homes-japanese-companies-pitch-clean-energy 22 Watanabe, C., Japan makes big push for hydrogen fuel cells scorned by Elon Musk as impractical (2017) http://www.japantimes.co.jp/news/2017/02/10/business/tech/japan-makes-big-push-for-hydrogen-fuel-cells- scorned-by-elon-musk-as-impractical/#.WRBrAtLyu00

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017 generated from hydrogen23. Overall the countries annual hydrogen and fuel cell market is forecast to hit $9bn in 2030 and $72bn in 205024. Similar developments are underway in South Korea, with additional investment in hydrogen fuelled power stations; a 50MW fuel cell project is under construction which uses hydrogen as the only fuel source for the fuel cells that will generate power. It is interesting to consider how Japan is planning to source hydrogen. With no indigeneous fuels, Japan is developing two alternative supply sources25. One supply route is via tanker from Australia, where the plan is to convert brown coal in to hydrogen and capture / store the resultant CO2 produced. The other potential supply source is Norway, again via tanker. This source uses renewable power for a high temperature electrolysis process to produce hydrogen. Both systems seem to be comparable in price, with the Norwegian system being about 20% cheaper than the Australian system26. Other renewable sources are also being considered. The use and application of hydrogen in Scotland for residential and potential transport decarbonisation is therefore along similar lines and timescales as that being proposed in Japan, with the exception that there may be sufficient indigenous energy resource in Scotland to enable local in country production of hydrogen. There are two approaches applicable to bulk hydrogen production27: 1. The vast majority of industrial hydrogen (global supply 60 million tonnes per year) is produced from coal gasification or steam methane reforming (SMR), both of which need a lot of energy and generate significant carbon dioxide emissions. 2. A much smaller proportion of hydrogen is produced via electrolysis of water, which can be a far more sustainable method if the electricity is produced from renewable sources.

Producing hydrogen via renewable energy is not a new idea. Until the 1960s, hydrogen from hydropower-based electrolysis in Norway was used to make ammonia – a key ingredient for agricultural fertilizers. But low gas prices and the emergence of SMR meant the renewable technology became less fashionable during an era when carbon emissions were not a consideration. A senior renewable energy specialist at the IEA (Cedric Philibert) has recently produced a cost comparison of both approaches28, as shown in the figure below.

23 Mathew, J., Japan Plans to develop 2020 Olympics Village into ‘hydrogen town’ (2015) http://www.ibtimes.co.uk/japan-plans-develop-2020-olympics-village-into-hydrogen-town-1482091 24 Karagiannopoulos, L., Norway raves Australia to fulfil Japan’s hydrogen society dream (2017) http://www.reuters.com/article/us-japan-hydrogen-race-idUSKBN17U1QA 25 Ibid 26 Ibid 27 Philibert, C., Producing industrial hydrogen from renewable energy (2017) http://cedricphilibert.net/producing- industrial-hydrogen-from-renewable-energy/ 28 C. Philbert, Hydrogen – revised analysis (2017) http://cedricphilibert.net/hydrogen-revised-analysis/

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

There are three zones in the figure above 1. The first zone of free surplus power from solar and wind in for example Europe. Here electricity is considered free but the occurrences are relatively infrequent 2. The second zone based on current European renewable capacity and cost, where solar and wind combined are currently thought unlikely to exceed a capacity factor of about 50% 3. The third zone based on the most favoured regions of the world from a cheap renewable electricity costs and maximum renewables availability point of view.

From the graph above, at today’s costs, to be competitive with SMR+CCS, the electrolysers would have to run with utilization factors of greater than 40%. From a Scotland perspective of a leading global renewable based economy, production of hydrogen from renewables would seem to be the preferred option (“green” hydrogen) rather than the fossil / SMR / CCS approach (“brown” hydrogen). The above analysis suggests that a electrolyser utilisation factor of 40% and above is required to maintain ”green” hydrogen on a similar cost basis as “brown” hydrogen, and there is clearly a need for a “Scotland specific” study of the economics and acceptability of both approaches. Ultimately, in the near term of the Plan, it may be necessary to invest in both approaches initially, at small to medium scale, to provide cost and performance data to enable the future hydrogen generation policy to be determined. It may be that a combination of these technologies is required to produce the volume required from a decarbonisation perspective, and/or that economies of scale will dictate a preferred hydrogen production technology approach. In parallel with determining the preferred hydrogen production approach, it will be necessary to develop an appropriate hydrogen standard etc. as outlined in the UK hydrogen route map, adopted and adapted for Scotland’s approach.

8. What are your views on the priorities presented in Chapter 4 for transforming energy use over the coming decades? In answering, please consider whether the priorities are the right ones for delivering our vision. Doosan Babcock consider that the four priority areas set out in Chapter 4 for transforming energy use in Scotland over the coming decades are appropriate and relevant to the ongoing energy transformation process in Scotland. However, we see reducing demand and increasing energy efficiency as the key priority item of the four stated from an overarching energy strategy perspective; these issues are the fundamental building blocks of any energy strategy. We have provided specific comments against each item below.

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

8.1 Addressing the need to reduce demand and increase energy efficiency through the development of Scotland’s Energy Efficiency Programme In Doosan Babcock view, there are a number of fundamental principles which have to be adhered to in any modern energy strategy i.e.  Energy demand should be reduced as far as practical, in the case of the domestic arena by improved insulation, building standards, appliance design and modern tariff concepts. Similar approaches should apply to the industrial and commercial buildings arena.  Priority should be given to the most efficient energy conversion processes which decarbonise heat and transport without compromising air quality The requirement to reduce demand and increase energy efficiency is a key challenge that can deliver significant benefits to the Scottish economy and consumers. A potential risk with this approach is that policy activity in this area focuses predominantly on the reduction of energy demand through efficiency measures, and fails to give any consideration to incentivise innovation that will allow energy efficiency gains for energy generation. The energy and efficiency gains that can be achieved by promoting state of the art efficient generation – such as fuel cells – in key areas of the economy like hospitals, industry, education and offices are substantial and complement demand side measures. Non-domestic building regulations and policy support schemes such as SEEP should have a dual approach in promoting efficiency gains for both energy demand and local energy generation. Doosan Babcock agree that in delivering energy efficiency gains, industry is key; in terms of industrial energy efficiency but also in terms of creating high value manufacturing jobs in Scotland. In developing a manufacturing action plan to achieve this priority we are keen to stress the potential of fuel cells to support policy objectives because:  Low carbon, high efficiency/high reliability technologies such as Fuel Cells (which can be fuelled with hydrogen or natural gas) support climate change goals and contribute to the reduction of energy demand in industry by allowing to generate energy efficiently locally  Fuel cells can also support wider policy objectives such as reduced air pollution  It is a technology where Scotland has competitive advantage and can become a global leader  There is potential for Doosan Babcock to manufacture low carbon technologies in Scotland and also create significant export opportunities 8.2 Help energy consumers manage their bills As indicated in paragraph 162 of the Energy Strategy, smart systems and future innovation in tariffs could help domestic consumers react to price changes in real time. Inconsistency in smart meter / systems applications lack of public understanding of the output form such devices, and perceived current energy supplier unwillingness to introduce innovative tariffs are all issues which will need to be addressed if this priority item is to deliver the maximum benefit to the climate change objectives. 8.3 Support the introduction of viable lower carbon alternatives across all modes of transport The proposals in paragraphs 167 to 173 in terms of reduction of transport emissions are essentially focussed on increasing the uptake of electric vehicles (EV’s), apparently on the basis that (as per paragraph 173) that EV’s will offer an invaluable resource to support “whole system” energy solutions, and ease the additional strain on distribution grids caused by an increased demand in electricity supply. Doosan Babcock do not disagree with this philosophy; we are more concerned that using hydrogen to decarbonise transport vehicles (particularly long distance HGV’s) does not appear to be part of the future strategy in this respect. In earlier sections of the document (paragraphs 127 to 130) there is reference to the use of renewable fuels to assist with transport decarbonisation, but again no real mention of hydrogen. Scotland has already a rich heritage in hydrogen powered transport facilities (Aberdeen, Orkney, Levenmouth) and it would seem natural and responsible to build on the lessons learned from these exercises. The opportunity would also exist to develop a hydrogen refuelling infrastructure (as indicated in the UK hydrogen Route map) in parallel with upgrading the gas grid to hydrogen.

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

8.4 Deliver enhanced competitiveness and improved energy efficiency in Scotland As indicated in our response in item 8.1 above, Doosan Babcock agree that improving energy efficiency in industry, combined with approaches towards modern IT and automated technology will deliver enhanced competitiveness for Scottish industry. Adoption of new decarbonisation technologies, and investment in a hydrogen infrastructure, will additionally provide more export opportunities for industry.

9. What are your views on the action for the Scottish Government set out in Chapter 4 regarding transforming energy use? In answering, please consider whether the actions are both necessary and sufficient for delivering our vision.

9.1 Addressing the need to reduce demand and increase energy efficiency through the development of Scotland’s Energy Efficiency Programme 9.1.1 Make…Investment ..to make Scotland’s buildings near zero carbon by 2050 In Doosan Babcock view decarbonisation of the service and residential sectors will not be achieved without a fundamental shift in the way Scotland’s energy is produced, delivered and managed, and the action is key to delivering the 2050 vision. We have outlined earlier in this document how we see hydrogen as the energy vector in this respect, how the existing natural gas grid could be used as the basic infrastructure for the transport hydrogen, and how new technologies such as fuel cells can deliver efficient emission free combined heat and power in a decentralised integrated energy environment. It is important that policy innovation supports a wide range of solutions (both to reduce energy demand and improve energy generation efficiency), encourages technologies in areas where Scotland has competitive advantage and long term strategic potential. Therefore, it is important that new policy incentives and packages (SEEP, MAP etc.) are not rigid and extend to technologies that fulfil the criteria, such as fuel cells 9.1.2 Consult…district heating regulations and local heat…energy efficiency strategies Whilst not advocating a “one fits all” approach, (and recognising the differences in requirement of urban and rural areas), there are advantages to be gained in ensuring: - community buy in to any change in energy use - consistent approaches, where applicable, in the design of heat networks - consistent approaches in the technology of power production in the heat network Doosan Babcock support the consultation approach proposed; regulation will ultimately be required to ensure implementation (along the lines of that proposed in the appropriate Consultation Document). 9.1.3 Consult…minimum standards…energy efficiency…private rented sector housing See our comments in Item 9.1.1 above 9.1.4 Review…further regulations from 2020 to improve the performance of existing non domestic buildings Ongoing review of building performance standards should be undertaken on a regular basis to ensure that up to date technology and techniques are being used to minimise the energy requirements of all buildings eg smart insulation, smart windows etc. 9.1.5 Continue to provide funding and support to drive…energy efficiency retrofit In order to initiate new technology applications, and drive costs down through economies of scale in application, some form of “kick start” funding is required. In the earlier sections of this document we have explored how a new CHP technology like fuel cells could be funded; similar comments apply to all new technologies and approaches.

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

Funding can be used not only to demonstrate the efficiency benefits but also to obtain community buy in and acceptance.

9.2 Help energy consumers manage their bills Doosan Babcock support all the actions associated with this priority item; we have no specific comment to make on the individual actions. 9.2.1 Engage…to secure effective regulation of the energy market 9.2.2 Support.. new business models .. reduced costs to energy consumers 9.2.3 Work…with energy suppliers …helping low income households with…bills 9.2.4 Explore opportunities…synergies…energy efficiency and smart meter rollout 9.2.5 Support consumers understanding…consumption patterns…reduce bills

9.3 Support the introduction of viable lower carbon alternatives across all modes of transport Doosan Babcock has provided overall comments on this priority item in Section 8.3 above. We consider that the proposals in paragraphs 167 to 173 in terms of reduction of transport emissions are essentially focussed on increasing the uptake of electric vehicles (EV’s). Doosan Babcock do not disagree with this philosophy; we are more concerned that using hydrogen to decarbonise vehicles (particularly long distance HGV’s) does not appear to be part of the future strategy in this respect. In earlier sections of the Energy Strategy document there is reference to the use of renewable fuels to assist with transport decarbonisation, but again no real mention of hydrogen. Scotland has already a rich heritage in hydrogen powered transport facilities (Aberdeen, Orkney, Levenmouth) and it would seem natural and responsible to build on the lessons learned from these exercises. The opportunity would also exist to develop a hydrogen refuelling infrastructure (as indicated in the UK hydrogen Route map) in parallel with upgrading the gas grid to hydrogen. Given the above we do not disagree with the intent of the actions listed in the Energy Strategy document (and listed below for completeness); we would like to see additional actions relating to the promotion and adoption of hydrogen powered transport vehicles presented in this section. Finally, a number of European countries are discussing banning the sale of new petrol and diesel vehicles from 2025 / 2030; for example, the Netherlands have voted through a motion calling on the country to ban sales of new petrol and diesel cars starting in 2025.The motion has only just passed through the lower house of the Netherlands’ parliament, and would need to pass through the Dutch senate to become legally binding. But its success in a majority vote puts the earliest date yet on just when a major country might begin phasing out polluting transportation. To maintain its position as a global leader in environmental issues, and provide additional impetus to the transport decarbonisation agenda, a similar approach to that passing through the Netherlands legislature could be adopted in Scotland. 9.3.1 Fund active travel infrastructure and behaviour change levels 9.3.2 Refresh “Switched on Scotland” 9.3.3 Negotiate stretching emission standards for new cars 9.3.4 Negotiate VED differentials...between ULEV and conventional vehicles 9.3.5 Enhance the capacity of the electric vehicle charging network 9.3.6 Provide interest free loans…. purchase ELV’s 9.3.7 ..consider…incentives to promote...ULEV in taxi and private hire sector 9.3.8 Promote EV’s ..increase awareness and confidence in ..viability of EV’s.

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

9.4 Deliver enhanced competitiveness and improved energy efficiency in Scotland’s manufacturing and industrial centres Doosan Babcock support all the actions associated with this priority item; we look forward to engaging with the Scottish government in the range of activities covered in the actions below. 9.4.1 Support business...to improve competitiveness and productivity…as a key route to decarbonisation 9.4.2 Provide new incentives ..to support industrial decarbonisation 9.4.3 Seek to provide leadership through SEAB…. 9.4.4 ..minimise the impact of Brexit on progress towards industrial decarbonisation 9.4.5 enable local authorities to take a strategic approach to decarbonising heat and improving efficiency at local level…

10. What ideas do you have about what energy efficiency target we should set for Scotland, and how it should be measured? In answering, please consider the EU ambition to implement an energy efficiency target of 30% by 2030 across the EU.

Any Energy efficiency target set for Scotland should be: 1. Transparent

2. Demonstrably aligned with 28MtCO2 e planned to be released in 2030, as per the “Pathway to 2032” 3. No worse than the EU target 4. Measured / calculated using the same logic as in the EU target, to avoid any potential misunderstanding and misrepresentation.

11. What are your views on the priorities presented in Chapter 5 for developing smart, local energy systems over the coming decades? In answering, please consider whether the priorities are the right ones for delivering our vision.

11.1 Directly supporting the demonstration and growth of new innovative projects

Although a company with a strong history and track record in conventional centralised energy generation, Doosan Babcock believe that the focus in the Energy Strategy document on localised energy is key. This is because we acknowledge that the way we as a country generate, distribute and consume energy is changing. As a response to the energy trilemma, energy generation is becoming increasingly deployed closer to the load it serves, offering advantages over the centralised model. In parallel with the growth of this decentralised model, increased network investment, energy storage systems and demand side management technologies will also offer the potential for innovation, requiring demonstration funding both to prove concept and enable economies of scale to ultimately reduce costs. Along with the move towards decentralised generation, the Energy Strategy recognises that a move towards a hydrogen economy is essential if the country is to meet 2050 targets for the decarbonisation of the service and residential sectors. Doosan Babcock has presented some thoughts below on how decentralised energy production and the hydrogen economy can be stimulated with direct innovation funding. Decentralised energy production

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

The range of available decentralised energy technologies have complementary roles and often can work in tandem at local level to support energy objectives. For instance, renewable energy technologies such as solar PV generate zero carbon power, which is however, by its nature, intermittent. The higher uptake of low carbon heat pumps combined with the increasing penetration of electric vehicles will not only increase power demand, but also potentially make it more unpredictable. In this setting, controllable local generators, such as CHP, play an important role by providing continuous, peak or even back-up power which is important for a variety of applications such as hospitals, universities, datacentres, commercial and industrial buildings. In addition, many of these CHP systems can flexibly turn up or down in response to grid balancing demands. This complements increased deployment of renewable electricity, which by its nature is intermittent. The next generation of CHP technology is stationary fuel cells, because it is the most efficient solution to generate heat and power but also because it emits negligible NOx and particulates unlike conventional gas and biomass CHP. Fuel cells can successfully operate at part load for prolonged periods of operation without impacting performance or cost. They can operate on natural gas or hydrogen with small modification, ensuring that fuel cell technology will not become a stranded asset once the gas grid has been converted to hydrogen. When developing funding opportunities for district heating schemes and low carbon local infrastructure the Scottish Government should encourage the deployment of state of the art technology, like fuel cells, to facilitate initial deployment in Scotland. Hydrogen Production and Use As mentioned elsewhere in this document, it is Doosan Babcock view that hydrogen has significant potential as a zero-carbon energy vector for the decarbonisation of the services and residential heat sectors, using the existing natural gas grid as the basic distribution infrastructure. Clearly there are issues to be overcome in the use of the natural gas grid; trials to date with natural gas / hydrogen mixtures have been encouraging and further trials associated with the grid will be necessary to enable hydrogen to be fully accepted as a natural gas replacement. The opportunity exists within Scotland to go for relatively large hydrogen trials prior to full grid conversion given the number of off grid gas distribution systems available. The production (and storage) of sufficient hydrogen is another issue; technologies exist for the production of hydrogen from fossil and renewable sources. The fossil based SMR approach, which is operating overseas at relatively large scale, will require CCS; the renewables based approach, which has operational experience at a much smaller scale, does not require CCS. Costs are currently reported to be comparable provided the electrolyser utilisation is greater than 40%29, and both would be expected to fall further with economies of scale. It Is not clear at this stage which approach is best for Scotland; CCS is generally associated with a large central plant approach whilst the current size of the renewable technology approach makes it more suitable for local applications. Small scale trials of both technology approaches are required to provide cost and performance data for each technology approach; it may well be that the geography of Scotland is suitable for small and large scale applications of each technology going forward, this would need to be assessed during the technology trial period.

11.2 Developing a strategic approach to future energy systems in partnership between communities, the private and public sectors Doosan Babcock considers that such an approach is necessary if the decarbonisation ambitions associated with the Energy Strategy are to be realised.

12. What are your views on the actions for Scottish Government set out in Chapter 5 regarding smart, local energy systems? In answering, please consider whether the actions are both necessary and sufficient for delivering our vision.

29 C. Philbert, Hydrogen – revised analysis (2017) http://cedricphilibert.net/hydrogen-revised-analysis/

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

12.1 Directly supporting the demonstration and growth of new innovative projects 12.1.1 Continue to support low carbon investors 12.1.2 ...continue to support community and local renewable schemes Doosan Babcock support both of the actions listed. As discussed in our response to question 11, there should be provision for support of next generation CHP technologies, particularly when it comes to the design of grants and schemes that focus on local low carbon infrastructure and district heating. 12.2 Developing a strategic approach to future energy systems in partnership between communities, the private and public sectors 12.2.1 Explore the potential to create a GOEC to help the growth of local and community energy projects Doosan Babcock supports the principle of the potential to create a GOEC as outlined in page 67 of the Energy Strategy document. We see the main advantages of this concept being  The ability to bring low cost / zero finance into the project  The ability to bring together into one common project various disparate interests e.g. local authorities, the community, local industry  The ability to ensure common standards and efficiencies across regional authorities  The ability to drive to overall energy targets e.g. tonnes of CO2 reduction, and potentially offer incentivisation if targets are not being achieved 12.2.2 Explore the development of a regulatory framework…that will support area based efficiency strategies Doosan Babcock supports the principle of the Scottish Government exploring the principle of the development of a regulatory framework for local heat and energy efficiency strategies; it is our view that such an approach is necessary to ensure decarbonisation targets are met. 13. What are your views on the idea of a Government owned energy company to support the development of local energy? In answering, please consider how a government-owned company could address specific market failure or add value. As presented in our answer to Question 12.2.1, Doosan Babcock supports the principle of the potential to create a GOEC as outlined in page 67 of the Energy Strategy document. We see the main advantages of this concept being:  The ability to bring low cost / zero finance into the project  The ability to bring together into one common project various disparate interests e.g. local authorities, the community, local industry  The ability to ensure common standards and efficiencies across regional authorities  The ability to drive to overall energy targets e.g. tonnes of CO2 reduction, and potentially offer incentivisation if targets are not being achieved

14. What are your views on the idea of a Scottish Renewable Energy Bond to allow savers to invest in and support Scotland’s renewable energy sector? In answering, please consider the possible roles of both the public and private sectors in such an arrangement. The scope of this scheme should be expanded to include solutions that are low carbon (but not necessarily renewable) and can deliver a competitive advantage to Scotland in terms of local manufacturing and innovation. A prime example of a technology that satisfies that criterion is fuel cells.

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017

15. What ideas do you have about how Scottish Government, the private sector and the public sector can maximise the benefits of working in partnership to deliver the vision for energy in Scotland? Doosan Babcock has no comment to make on this question.

16. What ideas do you have about the delivery of the energy strategy should be monitored? In Doosan Babcock view, the draft Energy Strategy document is overall a good document from the point of view of getting the overall strategy across. The document is light on the detail of how objectives will be achieved. The ultimate test of the successful delivery of the Energy Strategy will be the sectoral achievement of the CO2 reductions quoted in the Pathway to 2032 figure 130. Whilst this achievement should be the high level KPI associated with the Strategy, it will be necessary to monitor and control the individual tasks associated with the achievement, particularly in policy support development and application, and technology choice development and application. Detailed sector road maps will be required to support the monitoring of the success of the Strategy.

17. What are your views on the proposed approach to deepening public engagement set out in chapter 6? Doosan Babcock has not comment to make on this question.

About Doosan Babcock

Doosan Babcock is a global engineering organisation with over a century’s experience in the energy sector and offices throughout the UK, Middle East and Europe. We provide engineering, aftermarket and upgrade services to thermal power, nuclear, oil and gas, petrochemical and process industries. Doosan Babcock was acquired by Doosan Heavy Industries & Construction in 2006, a subsidiary company of the Doosan Group of South Korea. Doosan Babcock has continued to grow by offering superior value to customers and through investing in new technologies. Our extensive focus on research and development in the thermal energy sector has established Doosan Babcock as one of the world’s leading providers of green energy solutions. As part of our ongoing product development portfolio, Doosan Babcock has undertaken a scenario modelling exercise on the future of UK electricity and energy supply (see Appendix 1). The key output from this exercise is that we envisage that the UK will move (and is in the early stages of that transition today) from a power generation network based on a large plant centralised model to one of a decentralised “local” energy generation model, where electricity and heat are generated at the point of use. London for example has a target to generate 25% of its energy locally by 202531, and this trend will continue around the country. In addition, we see that electricity,

30 Draft Climate Change Plan (2017) http://www.gov.scot/Publications/2017/01/2768 31 Mayor of London (2016) ‘London Energy Supply’ available from https://www.london.gov.uk/what-we- do/environment/energy/energy-supply

Doosan Babcock Response to Scotland Energy Strategy Consultation: May 2017 heat and transport energy will become part of an integrated energy system, as compared to the three essentially separate energy vectors that they are today. This localisation trend has a significant effect on the UK energy infrastructure, in terms of the production and distribution of energy. Local energy and heat networks will become the norm, and the need for further investment in new high voltage electricity transmission lines will not be required. Decarbonisation of heat (necessary to achieve the 2050 CO2 targets) will most probably require the use of the existing natural gas infrastructure, with natural gas replaced by a low carbon fuel such as hydrogen. The production of electrical and heat energy, rather than being concentrated in a few large plants, will also change with the move towards a distributed low carbon energy system, with the introduction of renewable and other low carbon technologies. A resilient, cost effective locally based integrated infrastructure is key. In addition to these infrastructure changes, energy generation technologies are also likely to change. In this submission, we have concentrated on providing information on a new (to the UK) energy generation technology which can operate in a decentralised energy production environment. Stationary fuel cells offer the UK an ultra-reliable, high efficiency energy source (energy generation at the point of use) with low / zero carbon energy and state of the art air quality, compatible with a decentralised integrated energy system. Combined with modern energy management techniques, stationary fuel cells complement modern infrastructure development and improve energy flexibility and resilience.