Shetland Council Signs Controversial Hydrogen Deal with Statkraft

The Shetland Islands Council (SIC) has officially confirmed a lease agreement with the Norwegian energy developer Statkraft for a hydrogen production facility on land adjacent to the former Scatsta Airport. The deal, announced on Wednesday, will generate approximately £1.13 million in annual rent for the council, along with community benefit payments estimated at £2 million once the project becomes operational, which is anticipated by 2032.

Statkraft plans to establish a green hydrogen production facility with an electrolytic capacity of up to 400 megawatts. This facility aims to utilize excess renewable energy from wind farms, which often goes unused due to grid limitations. The agreement is notable for being one of the first community benefit deals for a non-wind farm project, but it has sparked significant debate within the community.

Critics, including Green councillor Alex Armitage, have voiced strong opposition to the agreement. Armitage described the council’s decision as a “capitulation to corporate power,” stating, “To say I’m disappointed is an understatement. I have never felt such visceral anger at an SIC decision.” He argues that the council has undervalued the strategic potential of the Scatsta site, which he believes could generate substantial economic benefits for Shetland.

In contrast, SIC leader Emma Macdonald defended the agreement, asserting that it aligns with the principles established in the Fair Share for Shetland initiative. This initiative was designed to maximize community benefits from renewable energy developments. Macdonald emphasized the importance of ensuring that local communities benefit from ongoing and future renewable projects in the region.

The structure of the agreement has faced scrutiny, as it does not fully adhere to the community benefit principles adopted by the SIC earlier this year. These principles suggested a target of 2.5 percent of gross revenue from hydrogen developments, alongside guaranteed minimum payments. Instead, the Scatsta deal offers a fixed community benefit payment of £5,000 per megawatt of installed capacity, mirroring the payout from the SSE Viking wind farm.

According to the Fair Share for Shetland report, published in November 2022 by Shetland’s first Energy Transition Task Force, the industry standard for community benefit payments should be adjusted for inflation. The report suggests that projects commencing in 2024 should adopt a payment model closer to £7,300 per megawatt, reflecting the strong natural resources available in the region.

When pressed about the criticisms, Macdonald highlighted the voluntary nature of community benefit arrangements. “We have developed a set of guiding principles that we use when engaging with developers. Community benefit is a voluntary arrangement that we have no way to mandate,” she explained. The SIC will not receive any community benefits until the hydrogen plant is operational, with the council determining how funds will be allocated once income begins.

Armitage remains unconvinced, suggesting that the agreement represents a missed opportunity for Shetland. “Scatsta has everything – brownfield site status, world-class port facilities, a grid connection, and a location in the middle of the best renewable energy resources in Europe,” he stated. He expressed concern that the council’s decision could lead to a “pittance” in community benefits, rather than the substantial economic security he believes the site could provide.

Furthermore, Armitage criticized the political leadership within the SIC, arguing that a lack of cohesive political groups has weakened the council’s negotiating position with developers. “For all the problems with party politics, the lack of political groupings in the council chamber has a lot to answer for,” he said. “We can’t keep staggering on with the status quo. What we need now is real change to shift the balance of power in Shetland’s favour.”

The development of the hydrogen facility, if it proceeds, will join a series of significant energy projects in the North Mainland, including the Sullom Voe Terminal and the Shetland Gas Plant. Plans are also underway for a power hub in the area, which may feature a subsea HVDC power cable and additional renewable projects.

Local councillor Andrew Hall expressed cautious optimism about the potential economic impact of the Scatsta development, although he acknowledged that many uncertainties regarding hydrogen production remain.

Stuart Marley, Statkraft’s principal hydrogen project manager, described the lease agreement as a pivotal moment for the development of green hydrogen and ammonia production in Shetland. “This scheme offers an opportunity to combine Shetland’s renewable resources with innovative technology,” he stated, emphasizing the importance of local collaboration as the project progresses.

Despite Statkraft’s recent announcement to halt new green hydrogen projects, the company intends to advance its existing initiatives, including the Scatsta development, before seeking investors to move forward.