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Are infrastructure clusters a silver bullet for the energy transition?

Published by , Editorial Assistant
Global Hydrogen Review,

The IPCC’s recent 'AR6 Synthesis Report' into the effects of climate change underlines the need for “rapid and far-reaching transitions across all sectors and systems”. The regulatory and policy frameworks, templates and static structures that have underpinned our systems for decades need to be reimagined. Energy frameworks in particular must be reworked and recalibrated to stimulate innovation, mobilise capital and motivate a nation to meet the transition challenge.

For the UK, this means viewing itself as a 're-emerging' market, looking at the bigger picture and thinking long-term. Stepping back and assessing the tactics that helped propel recently emerged markets to the forefront of the global economy reveals alternative models to those currently in place in the UK. If married with nascent or underutilised green technology such as hydrogen, these learnings from China, the Middle East and other more recently developed markets offer opportunities to pioneer new systems with sustainability at their core.

Zoning growth

One such approach prevalent in newer economies, that may lend a model for the UK, is special economic zones (SEZs). As allocated geographic areas with a specified remit of economic activity, SEZs can have a vast range of objectives and functions. These zones have been used with considerable success around the world to achieve policy objectives from economic growth to technological innovation – setting the stage for the transition to be next in line.

The Middle East offers several models for SEZs that may be instructive for a zone-focused sustainability initiative. The Jebel Ali Free Zone in the UAE commenced operations in the 1980s as an integrated business hub. The introduction of special tax, corporate, and planning rules for this zone proved highly effective in attracting companies in the target sectors, including logistics, petrochemicals and e-commerce to establish operations within the SEZ. The zone itself has evolved into a catalyst for trade and an ecosystem enabling qualifying businesses to thrive, and now contributes more than 21% of Dubai’s GDP.

Elsewhere in Dubai, developments such as Dubai Internet City and Dubai Media City provide further models of how developing economic hubs or emerging sector clusters encourages the resource sharing and collaborative enterprise that bolsters growth.

Tools for the transition

Thought leaders and first-movers in the renewable energy sector have been calling for wider support for the creation of special zones targeting technology and innovation, for the transition. They argue that enabling such ecosystems will be key to making progress towards net zero. The principles and methods of existing, flourishing SEZs can and should be adopted and adapted for the launch of green equivalents to encourage innovation, scale, and economic growth down a sustainable path.

'Green clusters', 'energy transition zones' and 'sustainable innovation hubs' are a few examples of the enormous number of applications in the green economy of structures following an SEZ-like approach. Zones that offer regulations favourable for green investment, proximity between businesses to boost innovation, and planning rules that accommodate for necessary development would go some way towards overcoming barriers to transition efforts. Present frameworks, developed for a brown economy, keep talented but cash-strapped sustainability pioneers scraping together bus fares to visit funders on the other side of the country, rather than focusing their time and efforts on their metier.

While the potential of sustainability-focused zones has been barely tapped, examples do exist. China has promoted several SEZs with green angles in the last decade, and when Abu Dhabi launched its visionary integrated sustainable urban living and infrastructure concept known as 'Masdar City' in 2006 it was in essence a green initiative wrapped in SEZ concepts. Masdar City aims to be the most sustainable urban community in the world and a hub for clean tech, aligning its own development with its free zone objectives. As such, it is something of a living example of how a SEZ can evolve beyond just a means to scale the sector, but to also show the value of this as economies strive towards net zero.

Unlocking hydrogen

Clean energy hubs are another form of SEZ initiative that may have disruptive potential, for the hydrogen economy, in particular. For instance, a green hydrogen cluster with zero carbon electrons powering electrolysers producing green hydrogen could then fuel other proximate businesses. Production facilities for green ammonia, e-methanol, or e-fuels such as sustainable aviation fuel, could all leverage a supply of green hydrogen if positioned in a cluster of this kind. Excess green hydrogen could then be blended into a gas pipeline as part of the wider decarbonisation effort.

Co-locating developers, innovators, and other stakeholders in the same green cluster also offers some practical benefits, particularly in relation to infrastructure and transportation challenges presented by hydrogen. If the cluster can be located near a major data cable, energy-intensive data centres could be attracted to the site given the availability of reliable, renewable power and green hydrogen generators, or battery storage, solutions to help smooth the intermittency challenge of renewables.

To enact sustained change in the transition, the challenge is to recreate in the green economy the successful industrial clusters built around energy and raw material supplies that exist in the carbon economy. Co-locating initiatives within eco-systems underpinned with clear zero-emission policy goals This will be key to unlocking the potential scale of technologies such as green hydrogen, as greater availability can generate higher demand.

Prepare for take-off

At present, the huge potential hydrogen as a green energy source is not being leveraged as low commercial interest continues to stunt supply, but emerging projects in the UK, such as at Manchester Airport, are beginning to shed light on a solution to this Catch-22. By ensuring the necessary infrastructure is in place to transport, store and supply hydrogen, Manchester is set to become the UK’s first aviation hub to offer a direct fuel supply to airlines operating hydrogen-powered aircraft. The fuel will be sourced from HyNet, a government-backed low-carbon and hydrogen energy project in the North West.

This project should exemplify how government policy can stimulate growth in hydrogen production, enabling downstream industries, such as the aviation sector, to consider using the product. Although the Airport’s hydrogen sources may not be entirely green, it illustrates a structure whereby infrastructural change could ultimately feed into proximate businesses’ energy transition strategies.

In carbon’s footsteps

As with SEZs, green clusters or zones should see complementary infrastructure developed in tandem with the operations making use of it. Existing economic zones have shown us that this approach maximises the practical application of that infrastructure and in the case of green zones, would maximise the practical use of clean energy sources, while also providing a platform that accelerates innovation as resources and ideas are shared. The introduction of green clusters near existing facilities could also have transformative impacts, however. An industrial energy transition zone near existing facilities could lead to the creation of a nearby cluster, enabling those sectors to start developing decarbonisation solutions.

For hydrogen, channelling investment and focus into dedicated zones could offer the push desperately needed to break the cycle of limited demand choking supply, with substantial implications for the transition. By opening doors to innovation and investment aligned with green goals, restricted zones could have very far-reaching effects.

Written by Gavin Watson, Partner at Pillsbury Winthrop Shaw Pittman LLP.

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