Commodity
Specific Actions
Offshore Wind Energy
Appointment of areas for future development and deployment
Along with recent target setting for offshore wind, the appointing of wind areas (and co-utilisation functions) and international alignment on the Marine Spatial Planning is perhaps the most urgent action to facilitate the large deployment of offshore wind in the 2030s and 2040s. This will be an important starting point for stakeholder discussions and infrastructural planning procedures that need to take place early on. The complexity is here that not all future competing or synergetic uses of the marine space are known fully. An adaptive approach that does not limit or exclude future co-use options such as hydrogen production, storage of energy, CCS, etc is essential.
Acceleration and security of demand by electrification of industry
Attaining a stable market outlook is a particular challenge for the offshore wind value chain. The demand for electricity and flexibility of the energy system should grow with the increase of installed wind capacity. This prevents high volatility in electricity prices, insecure industry backlogs and marginal earning potential throughout the offshore wind value chain (e.g. contractors, shippers, equipment suppliers). A key point of attention is the need for large demand clusters to be electrified. This can be in the form of electrification of process or indirect electrification with power-to-x solutions for industrial sectors.
Investments in infrastructure and sources of flexibility
A flexible and stable energy system is preferential for stakeholders across value chains in all offshore energy sectors. System integration offers flexibility to the energy system and results in more stable and better market conditions for variable renewable energy sources, including offshore wind. This could prevent ‘stop-and-go’ investment cycles straining the offshore energy value chains; and delaying the energy transition. This requires very large investments in infrastructure which takes time to plan and deploy. A priority here is to streamline permitting processes for infrastructure projects. Furthermore, it will require very large investments in flexibility in the energy system in the form of conversion (to heat, hydrogen, chemicals, liquids etc), transport & distribution networks, storage or more flexible demand. The latter especially holds for industrial flexibility. The alignment of investment agendas for flexibility and offshore wind is critical to keep the energy system and business cases for investors in balance.
Green Hydrogen
Deployment plan for offshore hydrogen value chains
Here is described how the growth of green hydrogen production in the North Sea countries should develop in order to realise a carbon neutral North Sea region in 2050. Although this pathway does not differentiate between onshore and offshore produced green hydrogen, it is expected offshore green hydrogen production will be beneficial in terms of total energy system costs and valuable in terms of landing the huge volumes of produced offshore wind energy.
Currently, the world-wide experience with offshore green hydrogen production technology is minimal with the 1MW PosHydon project at Q13a-A platform and the French at the Sealhyfe platform. Hence, there is a lot to be tested, experienced and built to develop significant offshore green hydrogen value chains potentially involving the following technologies:
Electrolysis on platforms or islands;
In- or near-turbine hydrogen production by electrolysis;
Hydrogen transport through existing and new offshore pipelines (pure and mixtures);
Small and large scale offshore hydrogen storage in compressed vessels or underground structures.
Firstly, pilots of these technologies are required in order to develop them to mature (TRL9) and make them a considerable option at all in the future hydrogen value chains. Secondly, as the timeline is short and significant scales have to be deployed in the period between 2030 and 2040, coordination between stakeholders and a detailed plan is required to provide clarity and opportunities for alignment in order to shorten the lead times of all the activities that should be in place to realise the offshore green hydrogen value chains.
Secure offtake and a market framework
A specific challenge to hydrogen, compared with, for example, renewable electricity, is that the hydrogen substance is currently not a widely traded commodity. Hence, the existing 'offtake' is behind closed doors of industrial factories, other potential future off-takers have to replace equipment before hydrogen demand establishes and lastly, there currently is no legal framework or exchange that guides how hydrogen can be traded. Therefore, the security of demand from potential off-takers and an established market framework can remove uncertainties for investors and attract investments leading to the creation of a more ‘liquid’ market for the trade of hydrogen.
An interesting development in this respect is the H2Global initiative, which is a support scheme designed to facilitate the market ramp-up of import of renewable hydrogen and its derivatives. Under this initiative a double tender scheme is designed for both long-term Hydrogen Purchase Agreements (HPAs) for suppliers and short-term Hydrogen Service Agreements (HSAs) for buyers. The difference between supply prices and demand prices will be compensated by grants (Contracts for Difference auctions).
Plan and Develop an offshore hydrogen backbone
The spatial planning for the transport and storage of hydrogen produced offshore must be advanced to ensure that timely deployment is not hampered. National and international hydrogen backbone plans for the North Sea should be drafted, on similar lines as the onshore hydrogen backbone plan, to ensure marine spatial planning is aligned and possible interconnections can be planned for efficient and timely deployment. Critical elements in these plans are to address the potential and need for offshore production, transport and storage assets. This includes the careful and early appraisal of the role of legacy infrastructure (platforms, wells, reservoirs and pipelines) in these future plans to ensure timely planning of repurpose of offshore assets for the hydrogen infrastructure.
Offshore Marine Energy
(solar, wave, tidal)
Accelerate the scale-up and deployment of offshore ocean energy
The scale-up of marine energy renewables like floating solar, tidal and wave energy is needed and recognized by the EU. The European Commission has set ambitious targets in the EU Strategy on Offshore Renewable Energy with 100 MW installed by 2025, and around 1 GW by 2030, growing to 40 GW towards 2050. Rapid scale-up and replication is thus needed to achieve these targets. Planning for and setting clear support schemes are needed to leapfrog the development steps of these technologies over the next years.
Develop hybrid offshore energy tenders
The deployment and exploiting synergies with offshore wind can be encouraged by piggybacking on the accelerated pace of offshore wind deployments. This can be accomplished through hybrid offshore energy tenders that allocate areas to wind farms in combination with other offshore energy technologies that reduce the overall variability of energy generation and optimise utilisation of infrastructure.
Derisking support for multi-energy demonstration areas
A first step to reduce the risk of deploying other marine energy technologies at sites of wind farms would be by removing any regulatory barriers that prevent co-use of wind areas for other renewable options. The current procedures are cumbersome and may lead to unwanted outcomes or delays.
An approach to actively encourage the deployment of multi-energy systems would be to make the efficiency of spatial use (in terms of energy generated per unit area) a part of the evaluation criteria for the award of offshore demonstration and deployment areas.
Blue Hydrogen
Provide investment security for blue hydrogen production assets
Blue hydrogen is seen as a transition option in many of the North Sea countries. Exemplary is the statement by Norway and Germany in a joint statement on energy cooperation on hydrogen (green and blue): “In order to realise the fastest possible high-volume imports of hydrogen (ed. exports from Norway to Germany) and ensure the rapid availability thereof, we will also jointly plan the use of blue hydrogen for a transition period…. When it comes to elaborating plans for the construction of a pipeline, consideration will also be given to the role that "blue hydrogen" can play during a transition period to "green hydrogen". Both countries are aware of the fact that this can be no more than a transitional arrangement to facilitate progress on green hydrogen and to make it economically viable as soon as possible.”
As GW-scale and thus billions of investments are planned for in the North Sea countries this requires a clear long-term signal for investors to develop a sound business model for blue hydrogen production. The timeline of this ‘transition period’ should be clear from the onset of these investments.
Provide clarity on the taxonomy and priority setting of blue hydrogen in gas demand
As a result of recent events in Ukraine and the related gas and energy crises there is strong push for reducing demand for natural gas.
Blue hydrogen can be typically produced from residual industrial gases and natural gas, but at an energy penalty for removing the CO₂ and storing it underground. Net more primary energy is needed per kg of hydrogen produced and this conflicts with the push for energy security and natural gas demand reduction. Truly a trilemma between energy security, affordability and climate action. Clarity is needed where blue hydrogen fits in the priority setting for gas demand (reduction).
Another very important piece of legislation on EU level is the package of proposals by the European Commission “to decarbonise the EU gas market by facilitating the uptake of renewable and low carbon gases, including hydrogen, and to ensure energy security for all citizens in Europe”. This package has not yet been adopted but is very important for the role of blue hydrogen. Especially the exact rules related to the taxonomy and certification of blue hydrogen and the GHG reduction threshold and link to the Renewable Energy Directive that basically establishes a green hydrogen consumption (Renewable Fuels of Non-Biological Origin (RFNBO) target with the consumption of blue hydrogen will unfold over the next months. Clarity is needed here for investors to understand the exact implications of this legislative package on the long-term viability of blue hydrogen production.
Plan and Develop an on- and offshore hydrogen and CO₂ backbone
The spatial planning for the transport and storage of hydrogen produced offshore must be advanced to ensure that timely deployment is not hampered. National and international hydrogen backbone plans for the North Sea should be drafted, on similar lines as the onshore hydrogen backbone plan, to ensure marine spatial planning is aligned and possible interconnections can be planned for efficient and timely deployment.
An important additional element in relation to green hydrogen production is that blue hydrogen requires a CO₂ transport and storage infrastructure. A transport and storage plan, preferably on detailed national and international level at North Sea basin scale would be beneficial for long-term security of sufficient and timely CO₂ storage potential under the seabed.
This includes the careful and early appraisal of the role of legacy infrastructure (platforms, wells, reservoirs and pipelines) in these future plans to ensure timely planning of repurpose of offshore assets for the hydrogen or the CO₂ transport and storage infrastructure. For the offshore there might be a conflict of repurpose; assets (pipelines, wells, platforms, reservoirs) are in some situations of value for both the CO₂ as H2 infrastructure. Such conflicting uses need to be identified early and resolved by public and private stakeholder discourse.
Natural Gas
Set targets for Natural Gas
There is significant uncertainty regarding the production and consumption of natural gas in the North Sea region, especially in light of the energy crisis of 2022. A long-term strategy defining country-level outlook and targets for the production, import, storage and consumption of natural gas is needed to remove the volatility currently surrounding the role of natural gas in the energy mix.
Develop strategy for the de-commissioning and re-use of legacy infrastructure
As gas production declines in the future, the re-use and co-use of existing gas assets like platforms and infrastructure like pipelines can extend the life of assets and reduce the overall system cost needed to develop an integrated offshore energy system. However, without a clear strategy about which assets are to be necessarily decommissioned and which can be re-used for other purposes than their original use adds an additional layer of uncertainty for investors and asset owners in planning their investments. Such a strategy needs to be elaborated with a special focus on the timelines of when the assets and infrastructure are planned to be decommissioned so that decisions about potential re-use/co-use can be made in a timely manner.
Enable the electrification of offshore hydrocarbon production
Electrification of offshore assets results in a lower emission (CO₂, NOₓ, methane) and energy footprint of natural gas production and transport. For Norway incentives have resulted in the electrification of offshore hydrocarbon production and transport. In the UK the concept has been embraced leading to emission reduction targets backed with funding as part of their North Sea Transition Deal. In the Netherlands the regulatory framework is hampering the offshore electrification (grid connected and autarkic) of offshore hydrocarbon production and transport assets while significant energy and emission savings are possible.
Carbon Capture and Storage
Resolve long-term liability and cross border challenges
The CCS Directive is the main legal body governing CCS activities in the European member states. It also amends the EU Emissions Trading Directive (EU ETS) (2009/31/EC) which Norway is part of but the UK not anymore post-brexit. A UK Emissions Trading Scheme (UK ETS) replaced the UK's participation in the EU ETS on 1 January 2021. According to the EU legal framework, CO₂ that is captured and safely stored is considered as “not emitted” under the ETS. The legal framework and its transposition into national legal frameworks has still some challenges that need to be resolved for the North Sea region.
First is the topic of long-term liability. “The topic of liability continues to be raised by some project developers, policy-makers and regulators as a critical issue in the deployment of carbon capture and storage.” This has been transposed into national frameworks differently which opens up the issue of cross-border liability challenges with the start-up of international CO₂ infrastructure projects under different liability schemes.
Cross border transport itself also has regulatory barriers. The CCS Directive has very few provisions governing transport, and the focus is on piped transportation of CO₂. Shipped transport of CO₂ is facing a legal obstacle as ships are not subject to the EU ETS Directive. Hence, the CO₂ emitter who transports the CO₂ by ship will not be able to qualify the CO₂ captured as not emitted and thus will not be able to subtract the transferred CO₂ from its yearly emissions and subsequently sell the allowances on the market. Actions should be focused on how to organise and regulate this.
A special concern is the existence of two ETS frameworks on the North Sea. It is currently unclear which ETS (EU or UK ETS) applies when an emitter captures CO₂ in the UK and stores it in another jurisdiction and vice versa. This requires clarity by UK and EU authorities and member states.
Cross-border permitting of CCS projects is thus expected to require streamlining by national authorities where possible to prevent any delay in the project deployment.
Provide long-term market incentives
Industrial parties fear – also due to the lack of a clear CCS policy and no to very limited long-term policy targets – that any investment decisions regarding CCS can be uneconomical due to changes in policy. CCS business models require are very much different to what offshore operators of hydrocarbon reservoirs are experienced with. The CCS business model is not a ‘high risk, high reward’ model, but requires long term investments in repurposing assets for CO₂ transport and storage with a limited reward model. Building a CCS network requires much involvement and dependency of additional parties in the value chain (e.g., collaborative model with suppliers of CO₂).
Next to the ETS schemes in place different additional support schemes exist in North Sea countries. Actions towards alignment and a long-term outlook of support and taxing schemes would be beneficial to further mobilise private capital in developing CCS projects.
Develop CO₂ transport and storage basin strategy North Sea
CCS is considered to be inevitable to realise the European climate targets, though much uncertainty exists on the long-term development of offshore CO₂ storage. More (international) governmental direction and initiative is required here. A broadly supported strategy is required for CCS on a North Sea basin scale, where public and private parties support governmental decision making.
This should be complemented with a vision describing: under what conditions CO₂ storage capacity is available; how much storage is needed, how much CO₂ is accepted to be imported from other regions, and what the role of CCS is in achieving negative emissions. The appraisal of whether, which and how to use offshore gas fields for carbon storage and to what extent pipelines are used for CO₂ transport is essential.
Derisking and assurance of enough storage potential on project, national and regional level is needed early as this is a time consuming and costly exercise. The North Sea Basin Task Force with government and industry representatives has already been established to examine the issues surrounding the transport and storage of CO₂ beneath the North Sea. Other international relevant bodies are The Zero Emission Platform Government Group, the Carbon Sequestration Leadership Forum and the Clean Energy Ministerial CCUS Initiative.