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The doubts and risks posed by Premier's $2 billion hydrogen fund

Business

The Palaszczuk Government’s $2 billion hydrogen and renewable energy strategy is really only $1 billion and is based on producing energy from a process that is not commercially viable.

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The Government announced this week that it would add $1.5 billion to the existing $500 million in the renewable energy strategy.

Of that now $2 billion, only $1 billion is in the Budget’s forward estimates, but the Government claims that if the money is spent the additional funding will be brought forward.

It isn’t unusual for governments to promise beyond the forward estimates but it certainly adds a few doubts to the viability.

The Government believes it can’t wait for hydrogen to become viable because if it does it will be playing catch up. Companies like Sumitomo are already moving ahead on the same basis.

Even so, the hydrogen strategy is a bold and probably welcome plan. It certainly ticks a lot of boxes politically. Even the mining sector likes it, but there is little information to suggest it won’t come with significant risk.

The details on the strategy are not yet fleshed out, but the funds will be for the government-owned corporations to either deliver their own projects or partner with the private sector for additional energy.

It has a requirement that the expansion of publicly-owned renewable energy drives local manufacturing jobs, which is apparently in line with the existing procurement policy.

The Government is aware that hydrogen isn’t commercially viable but has developed the policy on the basis that it soon would be. It will be up to the GOCs to derisk the projects and the funds would not be in the form of loans.

It’s understood there is already considerable appetite in the private sector with several projects that are not commercially viable needing this sort of funding to get over the line. In a similar strategy, Genex has been able to fund its pumped hydro project in north Queensland on the back of concessional loans from NAIF and State Government funding.

While Queensland has to wean itself off fossil fuels and hydrogen shows a lot of promise there appears to be a fair amount of blue sky in the policy.

Hydrogen has always been seen as a “one day” source of energy because it is expensive to produce. There are claims that its costs need to halve before it is competitive with more than traditional forms of energy and green hydrogen (using renewable energy to power electrolysers) is considerably more expensive than other forms.

But costs are coming down and experts expect they will fall in line with fossil fuels within a decade.

The European Commission’s July 2020 hydrogen strategy said green hydrogen produced with renewable resources costs between about $US3/kg and $US6.55/kg. Fossil-based hydrogen costs about $US1.80/kg, and blue hydrogen, which uses carbon capture and storage is about $US2.40/kg.

The International Renewable Energy Agency said hydrogen could compete with fossil fuel energy by 2030.

“If rapid scale-up and aggressive electrolysers deployment take place in the next decade, green hydrogen could then start competing on costs with blue hydrogen by 2030 in many countries, making it cheaper than other low-carbon alternatives before 2040,” IRENA’s analysis shows.

Hydrogen is also difficult to store and requires enormous amounts of pressure or refrigeration. Transporting it is also problematic but there are solutions being developed, which come at a cost. And yes, it is very explosive.

But a paper from ANU’s centre for climate and energy policy said the main negative factors are the cost of electricity and the cost of electrolysers, together with capacity utilisation rates. That means it’s expensive and inefficient.

It found that the cost of green hydrogen “could readily be at or below $A3/kg in the near future, and that the stretch goal of $A2/kg mentioned in Australian strategy documents is likely to come into reach, possibly rapidly”.

But it is a huge gamble to allocate $1.5 billion to something that is likely to happen. Not many businesses would be prepared to accept a “likely” outcome before investing a swag of their own money.

The idea, though, does have merit and would help Queensland wean itself off coal and gas but more detail on how the strategy would work is needed.

 

 

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