Hydrogen's NZ role may be limited - Concept

Hydrogen's NZ role may be limited - Concept

By Gavin Evans

Feb. 1 (BusinessDesk) - Hydrogen may have a role in niche freight and heavy transport operations, but is unlikely to be competitive against gas or electricity in other New Zealand transport or industrial applications, Concept Consulting says.

The company looked at hydrogen’s potential as a low-emission fuel, both when made through electrolysis and when extracted from natural gas in conjunction with carbon capture and storage. It then attempted to project how costs of the various technologies may evolve during the next 20 years.

The consultancy found that in most cases, hydrogen is unlikely to become cost-competitive with direct uses of electricity such as electric vehicles, electric process heat boilers, and heat pumps for space and water heating.

That is largely due to “significantly lower” process losses in direct use of electricity.

“For example, almost three times more renewable energy is required to power a hydrogen vehicle than an electric vehicle, and approximately twice as much renewable energy is required to fuel a hydrogen boiler or heater, compared to an electric boiler or heat pump,” Concept said in its three-volume, 157-page report.

“These direct electric technologies are also projected to enjoy significant cost reductions – eg electric vehicles are likely to continue to enjoy cost and performance improvements at a rate similar to that seen over the past decade.

“At high carbon prices - likely over $3-400/tCO2 - hydrogen could become a cost-competitive fuel for firing gas turbines for peak or seasonal electricity generation. However, large-scale storage is problematic, and hydrogen-fired turbines may struggle to compete with other options such as biomass or over-building renewable generation.”

New Zealand firms are involved in multiple trials of hydrogen technology, mostly aimed at testing its potential in heavy transport, but also long-term as an alternative to coal or natural gas in industrial processing.

Ports of Auckland has hired global energy consultancy Arup for a hydrogen pilot to test its suitability as a fuel for its straddle carriers and tugs. Hiringa Energy is working with TIL Logistics to test its potential in trucking and warehousing, while Pouakai NZ last year sought a loan of up to $20 million from the Provincial Growth Fund to test the feasibility of a combined power, hydrogen and fertiliser plant in Taranaki.

Earlier this month, the Ministry of Business, Innovation and Employment awarded Arup a $150,000, six-month contract to help it deliver a hydrogen strategy – ideally before May.

Today’s report, funded by Contact Energy, Meridian Energy, MBIE, the Energy Efficiency & Conservation Authority, First Gas and Powerco, will be little comfort for the Labour-led government, still bruised by the backlash to its ill-conceived ban on new offshore gas exploration.

It has talked up hydrogen’s potential as a long-term replacement for the gas sector. In October Energy and Resources Minister Megan Woods signed a cooperation agreement with Japan on hydrogen development, noting at the time that New Zealand’s “abundance” of renewable energy could be used to make hydrogen.

Concept noted the potential interest of countries like Japan and South Korean – both with limited renewable energy of their own - in hydrogen.

While that could be a significant export opportunity for New Zealand, the firm observed that meeting that demand, or any other high-volume hydrogen applications, comes at a cost to the country's other domestic energy options. Scale production also gets no benefit from “opportunistic” hydrogen production at times when power is cheap.

“Exporting a meaningful amount of hydrogen to Japan would significantly draw upon our own developable resources and increase New Zealand electricity prices to some extent,” Concept says.

“The associated electricity demand could be material on a New Zealand scale such that export would need to be coordinated with new supply - or retirement of a large user such as the Tiwai smelter.”

Concept estimated that, by 2040, New Zealand could ship renewable hydrogen to Japan at a cost of about $44 a gigajoule, compared with a liquefied natural gas price of $14/GJ. That would require a carbon price of $550 a tonne to be cost competitive.

For its study Concept calculated the cost of making hydrogen through electrolysis at $8.91/kg. That cost, which includes tank storage, is equivalent to $63/GJ or 23 cents per kilowatt-hour. The wholesale cost of gas is about $6/GJ and 7.5c/kWh for electricity.

Using existing steam methane reforming from gas, hydrogen would cost $2.70/kg, or $19/GJ, but would need a carbon price of $100 a tonne.

The firm found that, for heavy transport, both hydrogen and electric vehicles were likely to be cheaper than diesel trucks assuming a $100 carbon price. But that modelling also assumed that world-scale development of both electric and hydrogen for heavy trucks results in lower costs.

Concept said that would require countries to use both technologies, which appeared unlikely, or that different parts of the globe would go down different tracks.

Without the cost of public fuelling infrastructure, hydrogen could be a good fit for return-to-base, or never-leave-base applications like forklifts and port cranes, it said.

But if the rest of the world goes down the hydrogen route for long-distance trucking, New Zealand will have no choice but to follow. That could raise “tricky” public policy issues around infrastructure investment to support that.

“The winner of the race to replace diesel may ultimately be determined by how quickly and successfully overseas vehicle manufacturers improve the value proposition for each type of truck.

“For now, there appears to be much more research and development going into battery electric, with current rapid uptake of light EVs driving battery cost reductions that will also benefit heavy EVs.”

Concept found that hydrogen could be used to generate power to meet winter peaking and dry-year demand, but it observed that it makes no sense to use green hydrogen, derived from base-load electricity, to displace base-load electricity.

Making hydrogen when power is cheap requires storage. Concept estimated storage as ammonia would require a carbon price of about $750 a tonne. Underground storage, such as at First Gas’s Ahuroa facility could be competitive at a carbon cost of $200, based on fuel costs only.

But Concept noted that hydrogen has a lower energy density than gas, requiring about three-times as much storage. Hydrogen turbines are also still at an experimental stage.

“Given these costs, hydrogen-fired turbines may struggle to compete with other low-carbon options for meeting dry-year requirements such as biomass or over-building renewable generation.”

(BusinessDesk)

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