Green hydrogen too ‘expensive and inefficient’: Finkel
The architect of the first national clean hydrogen strategy, former chief scientist Alan Finkel, says his support for the fuel has “evolved” and concedes it is difficult to see it replacing gas for heating homes.
Dr Finkel, who was commissioned by the Coalition to deliver a road map for developing a local hydrogen industry, said it was “increasingly clear that green hydrogen is too expensive” and Australia was “unlikely to use hydrogen for storage of electricity”.
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A hydrogen tank in Germany. The fuel has been touted as a possible replacement for gas around the world. Bloomberg
The potential of the fuel has come under increasing scrutiny – despite Labor unveiling an $8 billion incentive scheme to support its use this year – after Fortescue, green hydrogen’s biggest proponent, pulled its production target and said it would slow the push into the sector, warning energy prices were too high.
Fortescue’s green hydrogen production was largely bound for export, while Dr Finkel’s comments went to the fuel’s viability for domestic consumption.
“The main role for green hydrogen production in Australia will be as a chemical to produce decarbonised products for export, such as green iron, green alumina, green ammonia, green fertiliser, green jet fuels and renewable diesel,” said Dr Finkel.
“Using renewable electricity to make green hydrogen, then store it, then feed it to a converted gas generator is expensive and inefficient.
“The alternative is to use batteries [and] the price of batteries is following a stunning downward trajectory.”
Some of the material produced under the Turnbull and Morrison governments pointed to the use of hydrogen not only for export – to Japan and South Korea in particular – but for use in heating buildings, as a replacement for petrol and for manufacturing.
Saul Kavonic, an analyst at MST Marquee, said green hydrogen “will be limited to niche applications to be economically viable”, adding many in the market had already discounted it.
Green hydrogen, produced from water through a process powered by renewable energy generation, could instead be displaced by so-called blue hydrogen, which required gas and carbon capture to be considered emissions-free.
Headstart off the pace
Under the Albanese government’s flagship Hydrogen Headstart program, producers would be paid a subsidy of $2 per kilogram. However, this program excludes blue hydrogen and grey hydrogen, which does not use carbon capture at all.
South Korea’s world-first auction in May for clean hydrogen-based power generation did not differentiate between grey, blue or green hydrogen.
Mike Newman, a former trade commissioner for the NSW government, said it was broadly accepted that international buyers needed more than green hydrogen.
“There is a tacit concession that to grow the entire hydrogen market, grey and blue hydrogen may well be necessary evils to expedite large-scale hydrogen production in the short-medium term before green can be commercially viable,” said Mr Newman, who now runs a business connecting Japanese and Korean investors with local companies.
Japan’s boldest push into Australian hydrogen has been in Victoria, where a project to turn brown coal into clean hydrogen using carbon capture and storage has been allocated $2.35 billion of support by the country’s green innovation fund.
The Victorian government is waiting on the proponents – a consortium including Kawasaki and J-Power – to formally apply before stating whether it will approve the project.
Some Japanese investors have toned down their aggressive pursuit of green hydrogen ventures in Australia, concluding the projects do not stack up economically without a higher subsidy than $2 per kilogram.
“Virtually unanimously everyone seems to conclude the economics are poor on any of the green hydrogen projects unless you get significant state underwriting for projects,” said Milford Asset Management portfolio manager Jason Kururangi, adding Fortescue’s retreat “makes a lot of sense”.
Japanese war chest
The Japanese government has authorised a ¥3 trillion ($28 billion) war chest to pour into hydrogen projects around the world over the next 15 years. The selection process for the Japanese program is set to start within months.
Australian projects, like that proposed by the Port of Newcastle, are agitating to secure Japanese investment, but the lure of the Biden administration’s enormous Inflation Reduction Act spend has eclipsed Australia.
“We have to consider the amount of hydrogen that can come from Australia versus other countries, whatever the colour,” said Tatsuya Terazawa, chairman of The Institute of Energy Economics Japan.
“Anything that could help the hydrogen support mechanism in Australia to enhance the investment appeal of the project would be a good step, but it would have to be made soon to be in time for the selection process.”
A green hydrogen renewable energy production pipeline.
Woodside Energy, which has delayed a proposed hydrogen project in Oklahoma amid cost uncertainties, said both electrolysis using renewable energy and natural gas reforming would play a role in the energy mix.
“Woodside is targeting to make hydrogen using both techniques because our customers have different end-use cases, volume and schedule requirements, and price sensitivities,” a spokeswoman said, urging the abandonment of green and blue classifications and instead the documentation of the emissions intensity of any by-product.
Move from green to clean
Samantha McCulloch, the chief executive of Australian Energy Producers, a lobby group for the oil and gas sector, said almost all low-carbon hydrogen produced today was made from gas with carbon capture because it was the lowest-cost and most technologically advanced method.
“This is why other countries, including the US and UK, are incentivising low-carbon hydrogen production from natural gas and [carbon capture utilisation and storage] through a range of initiatives,” she said.
“Australia needs to do the same if we want to gain a foothold into emerging global hydrogen markets while reducing input costs for domestic manufacturers electing to switch to hydrogen.”
Similarly, Glenn Corrie, chief executive of
hydrogen technology start-up Hazer Group, said funding should move from supporting green to “clean” hydrogen, noting his technology could deliver gas at one-fifth of the cost of renewables-based hydrogen.
“Green is far too expensive, and it’s far too long-dated,” Mr Corrie said, calculating that Hazer technology could provide hydrogen buyers in Asia with gas at between $US2 and $US3 a kilogram, compared to north of $US8 per kilogram for green hydrogen.
Price risk
Matthew Rennie, a former EY partner specialising in the energy sector, said the majority of customers switching to hydrogen would be using gas, and were therefore “highly sensitive” to price variations.
“Most of these are in the industrial sectors, which are highly competitive and have less headroom to take on more cost,” said Mr Rennie, who is now-chief executive of Rennie, an independent consultancy.
But Mr Rennie said “blue” hydrogen would also struggle to find a market.
“There is no doubt that blue hydrogen is a more cost-effective supply option than green, and somewhat of a mid-way point between grey and green,” he added.
“What is less clear is whether end use customers will pay a premium for any particular colour, and whether they can ultimately afford to.”
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