The Government wants to position New Zealand as a front-runner rather than a fast-follower on the development of green hydrogen.
Energy and Resources Minister Megan Woods is talking up the benefits of using hydrogen to transfer and store renewable energy.
For New Zealand to reach the Coalition Government’s goal of having 100% renewable electricity by 2035, an over-capacity of renewable energy (hydro, geothermal, wind, solar and biomass) needs to be built.
This is because under this scenario, coal and gas wouldn’t be switched on when demand peaks and/or supply slumps.
So instead of this over-supply of renewable energy going to waste, Woods wants it to be captured in hydrogen cells and either used domestically or exported.
She also sees opportunities for renewable energy capacity to be built specifically for the purpose of fuelling hydrogen.
The Ministry of Business Innovation and Employment (MBIE), in a document released on Monday - A vision for hydrogen in New Zealand: Green paper - detailed the opportunities producing hydrogen presents, as well as the “numerous significant challenges” it poses.
An underlying theme of the paper is that a number of ducks need lining up for hydrogen to meaningfully feature in New Zealand’s energy mix, let alone be an export income earner.
Fuelling hydrogen - 270 new wind turbines (or the equivalent) needed a year
First and foremost, is the issue of ramping up the supply of renewable energy so it can replace fossil fuels (oil, gas and coal).
The Productivity Commission last year estimated electricity generation needed to increase by between 45% and 65% by 2050 for there to be electrification across the economy - IE for electric vehicles to be taken up and the likes of Fonterra to replace its coal and gas boilers with electric ones.
However Transpower, in a 2018 report, estimated that electricity demand as a proportion of total delivered energy demand needed to increase from 25% in 2016 to 61% by 2050:
To meet this demand, it forecast 60 TWh of new generation would be needed. This equates to 4.5 typically-sized, 60-turbine wind farms being built every year from 2025.
In other words 270 new turbines, or capacity to create the same amount of energy, built every year.
Woods on Monday acknowledged these projections, saying the question was how much of this energy should come from wind versus other forms of renewable energy.
The MBIE report showed how the greatest potential capacity lies in wind generation.
Wind currently only makes up 0.83% of New Zealand’s energy supply. Meanwhile solar - another form of energy with lots of potential - makes up 0.07%.
Green hydrogen uneconomic… for now?
Jumping over the initial hurdle of securing renewable energy supply, the question is whether it’s economically viable for it be used to fuel hydrogen.
MBIE noted that globally, 95% of the hydrogen produced is “grey” or “brown”, meaning it’s derived from industrial processes or carbon fuel like gas.
Woods accepted that although the Government isn’t issuing new oil and gas exploration permits, grey or brown hydrogen may need to be produced until renewables are scaled up.
But ultimately, her focus is on “green” hydrogen made from renewables.
MBIE said that as the cost of renewable electricity falls, the cost of producing green hydrogen will drop. It expected new technology, including more advanced electrolysers, as well as economies of scale, to reduce costs.
“Hydrogen currently appears less competitive than direct use of electricity for most applications but should become competitive in some applications, such as 24/7 on-site freight loading operations or meeting energy demands for remote, off-grid locations,” MBIE said.
Potential uses: transport, heat processing, de-carbonising gas
MBIE said there weren’t “significant technical challenges” to using hydrogen as a transport fuel in New Zealand today.
Rather the hurdles were around policy and regulation, economics, infrastructure, hydrogen availability, vehicles, economics and safety.
“Initially the economics will favour converting daily ‘return-to-base’ fleets, public transport fleets or heavy-duty industrial precinct applications such as the current project at the Ports of Auckland,” MBIE said.
A Taranaki-based company - Hiringa Energy - is already working on producing hydrogen to fuel trucks, buses and forklifts.
Its founder, Andrew Clennett told interest.co.nz it needs to secure enough demand so it has the economies of scale to really push go with its offering.
This requires regulatory and policy change, as well as public and private sector investment.
In essence, before a trucking company starts replacing its fleet with hydrogen powered trucks that use Clennett's energy, it needs to know the infrastructure is there to support it.
MBIE also explored how hydrogen could be used for industrial process heat - a large source of New Zealand’s emissions.
“Research on future capital costs is limited, although in principle it should be similar to conventional gas boilers,” it said.
“Currently, the total costs of generating heat with hydrogen are significantly higher than with natural gas.”
Another potential use for hydrogen is to blend it with natural gas to make the gas cleaner.
MBIE said this could partially decarbonise heating used in homes and smaller businesses.
Using existing gas pipes and infrastructure could also be a cost-effective way of storing the hydrogen.
However the International Energy Agency earlier this year noted some safety issues blending hydrogen and gas. It also said this reduced the potency of energy, so more gas would be needed to achieve the same outcome.
The logistics of transporting hydrogen
Another issue to address is transmission and distribution.
MBIE said most hydrogen produced today is used at the same place it’s produced. It can be expensive to transport, but like natural gas, this issue can be overcome by compression or liquefaction.
Hydrogen can also be incorporated into larger molecules like ammonia or methanol that can be transported more easily.
New Zealand already exports methanol and produces ammonia-urea.
While we don’t export ammonia, MBIE said there was a large global market for the fertiliser precursor chemical.
It noted the infrastructure, distribution and handling processes already established to export methanol could be piggy-backed on.
New Zealand and Japan in October signed a Memorandum of Cooperation over working together to develop hydrogen technology.
Accordingly MBIE noted Japan could be New Zealand’s first hydrogen export market, followed by the likes of South Korea - another country in relatively close proximity to New Zealand that has limited renewable energy alternatives and a government interested in hydrogen.
A question of whether it makes sense for NZ to be at the frontier
MBIE once again noted how New Zealand would be a front-runner with a focus on producing green hydrogen:
“There is currently no international market for hydrogen, and no common price. Cost competitiveness of the market depends on the scale, distance from the market and cost of electricity.
“Hydrogen importers may choose to focus on cheaper, brown hydrogen if the drivers behind the hydrogen market do not include emissions reductions.
“Timing of any investment in a hydrogen export market will need to be carefully considered in relation to the development of receiving facilities by importing nations and the securing of purchase agreements in a competitive global commodity market.
“At present there are no identifiable established international supply chains, logistics or infrastructure established, and these may involve significant costs and risks.
“Although there has been some progress in establishing international standards and codes on hydrogen production and transport, these have not been universally accepted or adopted in the energy or transport sectors. Getting international agreement takes time.”
Clennett believed being a geographically small country with an abundance of renewables made New Zealand the perfect place to innovate.
The public has until October 25 to make submissions on the MBIE paper.