How e-methanol can drive investment in UK industry

The UK Government can unleash investment and jobs growth in Scotland and northern England by adopting policies to encourage the production and use of e-methanol.

E-methanol has huge potential for the UK. First, e-methanol producers could be reliable off-takers of electricity created by Scotland’s wind farms, and thus underpin investment in the renewables industry. Second, locally produced e-methanol could support energy security in the UK in an era of global shocks to the energy market, and become central to the fuelling strategies of maritime businesses, transport groups, and other industries.

And third, more backing for e-methanol could unlock investment and jobs in production plants for the fuel in Scotland and northern England. Trade body Scottish Renewables has reported that growing the broader green hydrogen sector could contribute £25bn to the Scottish economy each year by 2045 and create 300,000 jobs, though it is harder to find specific figures for e-methanol. This is in addition to environmental benefits of enabling industrial users to adopt greener alternatives to fossil fuels.

The UK Government could realise these benefits by delivering on its commitments in the Hydrogen Production Business Model to bridge the cost gap between fossil fuels and sustainable alternatives such as e-methanol, and support its production in the UK.

There is currently a disconnect between companies that want to invest in e-methanol production plants and those that would consider using the fuel. UK policymakers will only be able to access the many benefits of e-methanol if they help to bridge this gap, and it would also help if there was one government department dedicated to this role.

The right time for UK e-methanol

E-methanol is a synthetic liquid fuel that can be created using electrolysers powered by wind and solar farms to split water and hydrogen, and then combining that hydrogen with captured carbon dioxide to synthesise methanol. If powered by renewable sources, this could help the UK achieve a target of reaching 10GW of low-carbon hydrogen production by 2030, as well as goals to increase the proportion of sustainable fuels in the aviation and transport sectors.

But the benefits of e-methanol go far beyond sustainability and enable UK policymakers to foreground energy security in an era of increased global energy shocks. Over the last five years, we have seen Russia launch a full invasion of Ukraine and current hostilities between the US and Iran in the Middle East. Both wars have led to increased volatility in energy markets, and this has coincided with more protectionism in global trade policy.

Locally produced e-methanol could insulate users from some of the disruption in global energy markets and enable the UK to boost energy security.

Torben Norgaard, vice president and head of partnerships and offtake in power-to-X at European Energy, which commissioned the world’s first commercial e-methanol plant Kassø in Denmark in May 2025, explains that e-methanol is a “very versatile chemical compound” and it would benefit Scotland and the wider UK to produce it locally.

He says e-methanol is more versatile than alternatives like ammonia, which is mainly used for agricultural fertilisers, or sulphuric acid: “E-methanol is a foundation in so many sectors. Those include maritime, but it’s moving into land transport and jet fuel. Those fuels are more complex than methanol, but you build them from methanol. You can also use e-methanol in processes, such as more sustainable plastic production.”

Norgaard says the UK could start to gain benefits of e-methanol by supporting imports from other countries, as this could encourage businesses to adapt their operations. He says the maritime sector could be a good starting point, and adds that encouraging imports of the fuel could create the market to pave the way for increased e-methanol production in the UK.

Mike Bullock, chief executive at the Northern Lighthouse Board, which leads an initiative called the Future Maritime Fuels Group (FMFG), says vessel operators in the group see e-methanol as a viable alternative to fossil fuel. FMFG is looking to build alignment between operators, ports and government on zero-carbon fuels.

Bullock says the maritime sector is facing a “chicken and egg” situation that we have seen in other areas of the power-to-X industry. Potential buyers of e-methanol in the maritime sector want certainty that there will be a reliable supply of the fuel at the right price before they invest in changing their vessels and operations, and are unwilling to order new ships able to use the fuel without that certainty. Meanwhile, potential producers of e-methanol will only be confident enough to invest in building e-methanol plants when those deals are in place.

“E-methanol is a good solution for us, but unless somebody provides a guaranteed plan to build a plant that will produce methanol by 2031, and provide a robust supply chain to distribute the fuel to where we need it, then we can’t commit to procuring a ship that uses it,” he says. It may take intervention by the UK Government to give both buyers and sellers the confidence they need.

Demand- and supply-side support needed

The UK Government has been looking to provide support for the UK power-to-X sector with its Hydrogen Allocation Round (HAR) regime, through which it is looking to provide support for low-carbon hydrogen production with Low Carbon Hydrogen Agreements.

These 15-year agreements are similar to Contracts for Difference used in the offshore wind sector, because they help operators bridge the gap between the cost of producing green hydrogen and the market price of natural gas.

Over £2bn of support was awarded to 11 green hydrogen plants with headline capacity of 125MW in HAR1, with 27 projects totalling 765MW shortlisted for support in HAR2 including European Energy’s Selms Muir Hydrogen hub in West Lothian, Scotland. This project is set to produce up to six tonnes of hydrogen each day to fuel buses and construction vehicles, as well as other industries. It is due to be operational in 2028.

Future rounds HAR3 and HAR4 are due in 2026 and 2028, and UK policymakers hope the cost of low-carbon hydrogen will reach parity with fossil fuels within 15 years. Some developers in the HAR process have highlighted challenges resulting from the rigorous due diligence process for HAR2 projects, which is delaying projects from being able to reach final investment decisions; a lack of clarity over rules for HAR3 and other future rounds; and updates to the UK Government’s Hydrogen Strategy.

Such an approach could help support growth in the e-methanol sector, but we would also like to see changes to policies on carbon capture, utilisation and storage (CCUS) in the UK. At present, there is competition caused by CCUS policy, which supports carbon capture and storage, and our desire to access biogenic carbon dioxide that is needed in e-methanol production. This would support prospective e-methanol producers.

Martin McCormack, director of strategy and partnerships at the Energy Transition Zone, a not-for-profit company seeking to support the energy transition in northeast Scotland, says there is huge potential for Scottish e-methanol to be used locally and exported. He says support from the government would give potential e-methanol offtakers confidence that they can invest in changes to their operations because the technology has support.

He says: “If a green methanol producer can evidence that it is a very safe, reliable and cost-effective alternative to diesel, there may be less debate about which is the right route to go. Getting case studies is going to be important when, effectively, the maritime sector is wary to make the jump because are they betting on the right technology.”

E-methanol is easier to transport than ammonia and liquefied natural gas because it can be stored and moved with conventional infrastructure, and is more stable than hydrogen in gas form. McCormack says port operators such as Port of Aberdeen see the potential in e-methanol to support their operations, and that other sectors see possibilities too.

“It’s good for maritime transport and it could be good for other applications. Batteries are dominating the small vehicle domain, but there’s a lot of debate around what’s the right technology for HGVs and big off-road NRMM (non-road mobile machinery) market,” he says, adding that Scotland has “abundant power potential” to scale up production.

In addition, he argues that supporting offtake from Scottish wind farms would reduce the need for Government to support costly grid upgrades and constraint payments because the renewable power that would be exported is used in fuel production. It also supports jobs and the supply chain.

“The old order of free trade is becoming a thing of the past and more protection of local supply chains and jobs, building in the UK, that is important,” he say. “It’s good to have these projects in the UK, and there’s an additional benefit if the UK is well-placed to support these projects with its supply chain and technical and skills capabilities.”

European Energy’s Norgaard says that increasing the use of e-methanol in localised groups within certain industries, such as ferry operators in Scotland, would be a helpful starting point.

He says: “There are parts of the maritime sector, and other sectors, operating as small monopolies. Encouraging the use of e-methanol in these groups can help politicians to deliver on energy security. If you build a local industry to supply fuels for these groups then you can increase the supply side, and then you start to build your resilience and security of supply while creating jobs and making progress on the climate.”

Conclusion

E-methanol has huge potential to drive investment and jobs in Scotland and elsewhere in the UK, but this relies on policymakers seeing the fuel’s potential – in the maritime sector and beyond – and then providing businesses with certainty of supply and cost.

Developers such as European Energy stand ready with UK-based projects using the lessons we have learnt from Kassø, but we can only invest if we are confident that the offtakers are there to buy fuels that we produce.

With targeted support, however, we can unleash the potential of this new industrial sector in the UK at a time when energy security is top of everyone’s agenda.