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Hydrogen policy paper appears to be means to an end

Hydrogen policy paper appears to be means to an end

First published in Energy and Environment on September 5, 2019.

The Government’s discussion paper on hydrogen outlines a possible future with it playing a major role in the energy sector, but the underlying presumption is this will need a large overbuild of renewable generation to make it economic.

Energy and Resources Minister Megan Woods said the Green Paper - A Vision for Hydrogen in NZ - lays out the role hydrogen can play in the economy. But this comes with some riders – mainly that the Government will not support hydrogen projects created from non-renewable sources.

“For a country blessed with abundant renewable energy, the ability to convert our clean electricity into green hydrogen which can fetch a premium on global markets is a major economic opportunity.”

Woods sees the paper as part of a wider renewable energy strategy work programme to reach 100% renewable electricity by 2035 and hydrogen fits into her plan to try and make economic sense of the need to overbuild renewables to meet generation shortfalls.

“Everybody knows there will need to be some over-build in order to get to the 100% renewable target. What hydrogen provides is an exciting opportunity, is a way for us to make that over-build, that over-capacity, economic and to actually create a whole new export opportunity.”

What is lacking from the narrative is who is going to build the excess renewable generation and who will pay for it. Transpower has estimated generation supply would have to roughly triple to meet a 2050 net-zero carbon target and still have back-up for peak winter or dry years.

The Interim Climate Change Committee and many in the sector have advised that squeezing out the last few percent of non-renewable generation above around 95% will be costly. This will have the perverse effect of making electricity more expensive and slowing efforts to de-carbonise industry and transport – sectors that are much heavier emitters than electricity generators.

The green paper does not gloss over the numerous technological problems in developing a hydrogen market, or the expense of building the necessary infrastructure to store and transport it. It also acknowledges the current cost of hydrogen made without only renewables – so-called ‘green’ hydrogen - is not economic.

Concept Consulting has estimated making hydrogen using electricity was more than three-times the cost of product made from gas. If storage was included renewable hydrogen was about 10-times the cost of gas. Concept estimated by 2040, NZ could export renewable hydrogen to Japan at a cost of about $44 a gigajoule, compared with a liquefied natural gas price of $14/GJ.

Woods cited the International Energy Agency saying costs would fall and NZ would benefit from being near the front of what could be a new export market in a world looking for zero-emission energy, as well as providing a new source of clean locally made energy.

A number of companies, some with Government assistance, have work underway on studies and pilot projects. Many of the proposals being considered are centred around the use of gas and while Wood acknowledged a hydrogen industry may need to use gas-based product to gets established, there would be no government support for those initiatives.

PEPANZ CEO Cameron Madgwick suggested gas in combination with carbon capture and storage technology could be used and legislation was needed to allow this should happen. There is already a proposal from the 8 Rivers led project in Taranaki along these lines, but ministers are sceptical about the cost and practicality of CCS.

First Gas has also received money to look at the potential to adapt the existing gas network infrastructure to transport hydrogen. If this was feasible it would reduce one of the major development hurdles, but there are major technological challenges.

First published in Energy and Environment on September 5, 2019.

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