The Downward Trend in Energy Costs Will Bring Hydrogen Closer to Becoming Economical

The pipeline of energy projects in Australia can sometimes look fanciful, if you want to stand in a pessimist’s shoes. The EcoGeneration Solar Map of Australia 2020 that came with our April edition showed 2.8GW of solar projects above 30MW in operation and about 2GW under construction … but listed 57GW in various stages of planning. Are we to believe 20 times the current operating capacity of solar in that list will see the light of day? With wind, the map in our February edition showed 6.4GW of operating assets, 4.3GW under construction and 5.5GW in various stages of planning.

Some of the mammoths to have squeezed their way into the renewables pipeline include truly enormous projects that have placed their hopes well beyond supplying electricity to the Australian market. In Western Australia, examples include 15GW of wind and solar planned to cover 6,500 square kilometres of the Pilbara region and 5GW of PV and wind near Kalbarri in the Midwest region of the state. In Queensland, energy newcomer Austrom Hydrogen is planning a 3.6GW solar project near Port Gladstone.

Developers of these vast projects are looking well over the horizon to supply global markets with a high-energy substitute for solar and wind: hydrogen.

In a world where things aren’t always what they seem the rush to announce bigger and bigger clean energy projects linked to hydrogen production is starting to look like a kite-flying competition. The electricity round trip efficiency for creating hydrogen using electrolysis is about 35%, Graham Palmer and Joshua Floyd write in their book Energy Storage and Civilization, and that’s before considering transportation.

“Even if successful, a hydrogen-based energy system will be costlier than the fossil fuel-based energy system it replaces,” Palmer and Floyd write. “Depending on the degree to which national economies can lower their energy intensity of production, hydrogen will likely require greater expenditures on energy, as a proportion of GDP, than has been usual since the second half of the twentieth century.”

All the same, hydrogen is versatile and portable. Working out how to live with a trade-off between its positives and shortcomings will be central to realising a hydrogen economy. In the authors’ words, “It is likely to be extremely challenging.”

Hydrogen has been used for hundreds of years in oil refining and making fertilizers and explosives, but it’s usually made using natural gas or coal and used where it is made, without the need to be transported. As the cost of clean energy has fallen, the possibilities for making hydrogen in a less carbon-intensive way have expanded. So, too, have the applications for its use in mobility, grid management, steelmaking and industrial processes. Looking beyond our shores, the time has come to look at “using hydrogen as a way of exporting renewable energy to countries that want it but don’t have it,” says Daniel Roberts, the CSIRO’s director of the hydrogen energy future science platform.

“The development pipeline means that it’s not that far away,” Roberts says. “Now, making hydrogen is one thing, using it is another.”

Emissions-free hydrogen is made when electrolysers powered by clean energy split water into its constituent components: hydrogen and oxygen. In a grid where supply is increasingly dictated by the oscillating output of wind and solar plants, electrolysers can provide dynamic and productive load. “When you plug them into the grid electrolysers become quite controllable loads, and that becomes a really useful way of managing the grid when there is lots of intermittent and fluctuating energy sources feeding into it,” Roberts says, also pointing to electrolysers’ potential role in providing grid services.

Cars powered by hydrogen fuel cells are available in some major markets but the technology is likely to be overtaken by electric vehicles, or EVs, powered by large batteries.

The announcements of hydrogen mega-projects around Australia may sound ambitious until they are weighed against the export markets that are gearing up around the globe. Japan is engineering its economy to clean energy on a vast scale, with plans to adapt power generation, mobility and industry towards hydrogen as an energy source. South Korea and Germany are also in the market to import Australian renewable hydrogen.

The only problem is that storing hydrogen and moving it has been the traditional problem when getting hydrogen energy systems working at scale, Roberts says.

A common method of adapting hydrogen gas for transport is to add nitrogen and lock the hydrogen into ammonia, which is already one of the most-traded chemical commodities worldwide. Another method is to cool it to -250C, close to zero Kelvin – the limit for frigidity – and pump it into tanks.

“There are a few different pathways now where we can store and move hydrogen around, and they are all at that point where they are pretty close to being demonstrated if not at full scale then at pilot scale,” Roberts says. “There is a real sense there is momentum here that we haven’t seen before.”

The downside with ammonia is there is another efficiency loss, however, as the round-trip efficiency loss of ammonia is lower than for hydrogen. But researchers at CSIRO and Fortescue have developed a method to convert ammonia back to hydrogen in a single step, Roberts says.

“Hydrogen can be stored almost indefinitely, so it can begin to play this separate role to a battery around longer-term storage – months and seasons as opposed to much shorter timeframes,” he says. “We can build bigger grids with more renewable energy in it.”

The National Hydrogen Strategy has set a goal for 2030 that includes gas injection projects, where hydrogen can replace some natural gas supply.

ARENA is also boosting the prospects for hydrogen with its Hydrogen Deployment Funding Round, where $70 million in grant funding will support commercial-scale electrolyser projects with a capacity of 10MW or greater. The CEFC’s Advancing Hydrogen Fund is brimming with $300 million to deploy as it sees fit “to support the growth of a clean, innovative, safe and competitive Australian hydrogen industry”.

The funding is part of the federal government’s effort to reduce the cost of renewable hydrogen to below $2 a kilo, a level it believes will make it competitive as a transport fuel. The hydrogen target and ARENA funding are in response to the government adopting Chief Scientist Dr Alan Finkel’s National Hydrogen Strategy last year.

If you believe that coal is imminently about to be dumped as an energy source by a world that’s suddenly gone green, then Australia looks well positioned to neatly replace it with hydrogen as a major export and happily steam ahead. The lucky country strikes again! But it’s just not that easy, says BloombergNEF global head of industry and building decarbonisation Kobad Bhavnagri.

“The concept of exporting hydrogen is a bit overcooked. The economics just do not support the idea that you will be able to have a massive hydrogen export industry,” he says. “To liquify hydrogen you would be consuming about 25% of the energy that’s in the hydrogen, and that just kills the economics.”

If Australia could produce hydrogen for $1/kg, which is a possible future scenario, “it would cost another $2/kg to put that hydrogen on a boat,” Bhavnagri says, and that snuffs out the prospect of exporting hydrogen. “Any country that would be a potential importer should be generating the hydrogen on their own stores instead, and they would be able to do that for half the price they would be able to receive imported hydrogen on a ship.”

So why are people announcing gigawatt-scale solar and wind projects leveraged on producing exportable hydrogen?

“There is a lot of excitement and hype about the concept of exporting hydrogen because it fits a mental model Australians have about exports being the route of our economic prosperity,” Bhavnagri says. “We love the idea of putting something on a ship and sending it overseas.”

Slowly, however, people are getting wise to the fact that the economics don’t really work. “The physics and the economics of getting LNG on a ship are much better than they are for hydrogen.”

Instead, Australia might think about producing hydrogen derivatives such as ammonia or steel made using hydrogen. “Instead of exporting the hydrogen itself, you export the goods that you would make using hydrogen.”

Ammonia can be used as a fuel, but if you want to convert ammonia back to hydrogen “the economics get smashed”, he says.

“Smart companies are looking to build experience,” but it’s unlikely multibillion-dollar investments will get the go ahead for some years to come. “It’s further away than that.”

The cost of producing hydrogen from renewables is primed to fall, Bhavnagri says, but demand needs to be created to drive down costs, and a wide range of delivery infrastructure needs to be built. “That won’t happen without new government targets and subsidies.”

“Hydrogen is very unlikely to become as cheap as fossil fuels, and it looks pretty much impossible for it to become as cheap as the cheapest fossil fuels – natural gas in the US or Saudi Arabia.” Canada and Saudi Arabia are among the serious contenders as competitive exporters, he says.

The money committed by the Federal Government via ARENA and the CEFC is substantial in the global scheme of things, Bhavnagri says, although a comprehensive strategy would include a net zero emissions target. “Australian states and territories have proposed those, but at a federal level we don’t have that sort of clarity.”

With $300 million at its disposal, decisions by the CEFC can offer a strong signal to investors. How realistic, then, is the idea we can become a major exporter of hydrogen? “It’s very realistic, the question is the timeframe,” says CEFC head of hydrogen Rupert Maloney.

Hydrogen is required as an energy source if the world is to decarbonise, Maloney says. “You can’t electrify the whole energy system [which is dominated by oil, gas and coal]. You need the flexibility of a molecule across the energy system – energy by itself doesn’t provide that,” he says. “The reason everyone’s getting excited about hydrogen is you can take that renewable energy through the electricity system and turn it into a molecule which has similar flexibility to gas and oil in today’s energy system.”

Maloney sees a parallel with gas, where 20 years ago the task of exporting LNG appeared to be monstrous. “Hydrogen has challenges, there is no doubt about that, but a lot of technical minds are working on it. I think there is a pathway to exporting hydrogen in multiple formats: ammonia, liquid hydrogen. And there is also a pathway to bringing down the cost of hydrogen.”

Electrolyser technology has proven itself over the past hundred years or so, although as the prices of gas and oil fell 50 or so years ago electrolysis as a preferred method of hydrogen production gave way to steam methane reforming and coal gasification. Maloney expects the cost of electrolysis will fall as manufacturing shifts from the US and Europe to China. It happened with solar and wind, so we can expect the same with hydrogen. As electrolysers become a smaller portion of the cost of hydrogen, electricity input will hold more sway in investment decisions. “The downward trend in renewable energy costs will bring hydrogen closer to becoming economical,” Maloney says. “That’s when you get hydrogen down to below $2 a kilo.”

Based on recent electrolyser contracts around the world he expects a project can take 12-24 months to deliver.

Export markets for Australia are already engineering their energy infrastructure to hydrogen, from coal-fired to fuel cells that can adapt to multiple uses including converting back to electricity, transportation, off-grid generation and “multiple uses across the energy spectrum”.

Maloney tells EcoGeneration he is in discussions with a number of different projects across Australia, although he says they will require grant funding from ARENA and potentially state governments. These are the 10-20MW electrolysers slated most probably for domestic industry, not the mega-projects announced for exports from Western Australia or Queensland.

“We are competing against other countries [and regions] with competitive advantages in renewable energy costs such as the Middle East.”

If Australia gears up for hydrogen export, it won’t necessarily be a free ride.

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