Hydrogen has the capacity to be a key part of Australia’s long-term clean energy mix, CBA says.
But before that can happen, key decisions will be required at the federal and state policy level to build out the necessary infrastructure.
And “for hydrogen demand to meet its potential, hydrogen supply chain costs need to fall”, energy analyst Vivek Dhar said.
In a broad research note outlining the prospects for hydrogen’s long-term future, Dhar assessed the complex dynamics around supply demand, infrastructure and storage regarding hydrogen’s place in the clean energy transition.
And over the long-term, he said high transport costs mean it’s likely to develop as a key energy export market for the Australian economy.
Instead, the most compelling economic lies on domestic shores.
Grey, blue, green
From grey (to blue) to green, hydrogen production is categorised by colour based on its carbon footprint.
As at 2021, grey (derived from fossil fuels) is the most dominant form of production — largely because it’s still the cheapest.
The blue category is defined as production processes that use fossil fuels along with a carbon-capture element.
Speaking with Stockhead last year, chemical engineer Brett Parkinson explained that carbon capture is a “transitional technology” as part of hydrogen’s long-term future.
“We need to move to a sustainable future, but we have to recognise these fuels are cheap and widely available. So we need ways for people to continue using them in a more sustainable way,” Parkinson said.
For the most part, blue hydrogen is still considered to be cheaper than green production, although “the costs of green hydrogen can vary considerably”, Dhar said.
All the way out to 2050, Bloomberg’s New Energy Finance department estimates that green hydrogen will eventually become cheaper than grey hydrogen.
That optimism stems from some gains that have already been made, particularly in hydrogen electrolysers — systems that use electricity to convert water into hydrogen and oxygen.
Breaking it down further, alkaline systems (a key focus area for China) are the more established form of electrolyser technology.
Conversely, the focus for Europe is on Proton-Exchange Membrane (PEM) electrolysers, which require the use of platinum for acid corrosion resistance.
PEMs are currently more expensive to make, but they have a key advantage in faster response times which means production can be ramped up or down depending on demand.
“All in all, large-scale alkaline electrolysers from China currently offer the lowest costs to produce green hydrogen,” Dhar said.
Australian outlook
Dhar said that with Australia’s high-quality wind and solar resources, the country has an opportunity to become a low-cost producer of green hydrogen over the medium to long term.
And on a strategic level, CBA flagged the NSW city of Newcastle as particularly well suited to become Australia’s next “hydrogen hub”.
For starters, the port city is a primary terminal for Australia’s coal exports.
Each of Australia’s three largest coal export markets — Japan, China and South Korea — have formally announced plans to reach net-zero carbon emissions by 2050 (Japan and South Korea) and 2060 (China).
“Therefore, we see a strong long-term economic and employment incentive for Newcastle to decarbonise,” Dhar said.
And strengthening the case to become a hydrogen hub is that it’s already tied into existing energy infrastructure channels.
No less than four thermal coal power generators in the region are due to be retired over the next 20 years.
In view of that, “there should be strong transmission available to power green hydrogen production,” Dhar said.
Already in some Australian regions, the prevalence of solar power has seen the cost of middle-of-the-day electricity drop significantly (sometimes it’s even free).
“If low-cost Chinese alkaline electrolysers can access grid-connected free power for just 3-4 hours a day, hydrogen production costs can effectively fall under $2/kg today,” Dhar said.
Keeping it local
While the economics for Australian resources such as gas and iron have historically been underpinned by export models, CBA says that won’t be the case for hydrogen.
“The cost of shipping hydrogen from Australia to Asia is so prohibitively high that it makes more sense” to use our own, Dhar says.
To work domestically, the establishment of a complex transport pipeline will still be required.
Dhar flagged the proposed construction of an LNG import terminal in Newcastle by Energy Projects & Infrastructure Korea as a key potential support mechanism.
A final investment decision is due on the project next year and its “location means that an integrated plan with a hydrogen hub is possible”, Dhar said.
“If a plan can amount to sharing a pipeline for hydrogen and gas, the net result will be lower hydrogen transportation costs,” Dhar said.
In addition, “the potential to use abandoned or retiring coal mines for hydrogen storage would noticeably reduce the cost for a Newcastle hydrogen hub”.
By blending hydrogen with gas — a process that’s already happening in South Australia — a Newcastle hydrogen hub could also help alleviate the pending shortfall in east coast gas.
“By sharing infrastructure like pipelines, retired coal mines and even desalination plants, we think there’s significant scope to bring down hydrogen transport, storage and production costs from where we are today,” Dhar said.
And if carried out successfully, it would mark “a huge opportunity for Australia’s manufacturing and industrial sectors”.
Export routes may be feasible, but Australia’s largest regional export destinations are likely to be producing the stuff themselves at a cheaper price.
As a result, “we think the opportunity here is small in the long-term”, Dhar said.
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