Hydrogen projects battle early setbacks

Stephanie Unwin doesn’t mince words when talking about her experience developing a hydrogen project.

“It has been incredibly difficult, and much more difficult than anything we had imagined would occur,” the Horizon Power chief executive said.

Ms Unwin was speaking candidly about development of the Denham hydrogen demonstration project, which was commissioned a year ago and has been held up as a showpiece of Western Australia’s progress in the sector.

“As I stand here today, it’s really interesting; every major component of that plant has failed,” Ms Unwin told last month’s Pilbara Summit.

“And I say that not to say we are a failure.

“It’s actually really hard to get these things to work in a sustained operational manner.

“The electrolyser was the first thing to fail and had to be sent back to Europe.

“The fuel cell failed catastrophically next, but luckily the one that just came back is significantly more efficient.

“And then the water treatment plant also failed … we couldn’t have predicted any of these things.

“I give you that as an example of how hard the energy transition is in practice.”

It wasn’t all bad news, however.

Ms Unwin said that tough experience helped local workers develop new skills and, after a year, the Denham facility was working pretty well.

Looking beyond the Denham project, Ms Unwin spoke frankly about the wider challenges facing the new energy sector.

“I expect every developer and proponent in the room is frustrated by slow approvals,” she said.

Ms Unwin also called for a more honest discussion about the economics of energy.

“There are not the margins in moving electrons and producing electrons that you will find in iron ore or in mining generally,” she said.

“When we talk about how you pay back the capital on this infrastructure and the loans you might need … it’s really clear there will be single digit returns, and for significant periods there may be no returns.

“That means there has to be a role for governments, federal and state.”

Ms Unwin noted the federal government had committed $3 billion under its Rewiring the Nation program, but added this would come as a loan and have to be repaid.

Yet another challenge was the rising cost of building transmission infrastructure.

“Something we are hearing from the east coast is that the cost of building it has more than doubled,” Ms Unwin told the summit.

“We used to talk about four million dollars a kilometre but that has blown out anecdotally to ten million dollars.”

Laurent Trost, who heads the Australian operations of giant Norwegian fertiliser company Yara, has also spoken frankly about the sector’s challenges.

He noted that Yara is currently the only integrated downstream processing operator in the Pilbara, producing 850,000 tonnes per year of ammonia and 330,000tpa of ammonia nitrate.

It has partnered with French company Engie to build Project Yuri, which will produce renewable hydrogen to supply the existing ammonia plant.

“Yuri is the most advanced project of its type in Australia,” Mr Trost said.

“It will be one of the first off-grid power-to-hydrogen installations at industrial scale in the world.”

But, like many projects, it is behind schedule.

The solar panels for the 18-megawatt solar farm have been delivered, but not installed.

That’s because the all-important 10MW electrolyser – which produces the hydrogen – is taking longer to arrive than was originally anticipated, due to global supply pressures.

Nonetheless, engineering and design teams are continuing to plan for the integration and Mr Trost is proud of what has been achieved.

“There is a lot going on in the renewable hydrogen space here in Australia, including a lot of talk, but we are the first, the Pilbara is the first, and Yara’s global depth and experience will continue to maintain the momentum,” Mr Trost said.

He said the energy transition held out the promise of a new industry and opportunities, but emphasised it was not easy.

Consequently, Yara was exploring options beyond green hydrogen, which is sourced fully from renewable energy.

“One hundred per cent renewable hydrogen uptake to our current ammonia plant is a major challenge,” Mr Trost said.

“It requires large-scale renewable generation, which brings with it issues of access to large areas of land and the development of multi-user infrastructure and related corridors.

“Instead, we are looking at a combination of blue and green production, the former based on carbon capture and storage.

“We are currently exploring onshore and offshore options for CCS.”

Laurent Trost says Project Yuri is the most advanced project of its type in Australia.

Another company striving to develop a hydrogen project in WA is Infinite Green Energy.

Led by chief executive Stephen Gauld, it was one of the early movers in this space.

Its MEG HP1 project in Northam has attracted strong support, with international companies Samsung and Doral signing on as partners and the state government tipping in $5 million.

Yet it is facing delays as it battles to gain approval from the Regional Joint Development Assessment Panel, in part because the JDAP has not received the required advice from various state government agencies.

Energy summit

The experience of companies such as Yara, Infinite and Horizon should be top of mind when Premier Roger Cook hosts his Energy Transition Summit this month.

With Energy Minister Chris Bowen also due to attend – and hopefully providing an update on how the federal government plans to distribute grants from its $2 billion Hydrogen Headstart program – the summit provides an opportunity for a reality check on WA’s hydrogen sector.

Achievements to date have been very modest, something highlighted by the state government’s own review of its renewable hydrogen strategy.

That review pointed to Project Yuri as a major achievement, yet it is still in construction.

The review also pointed to the Denham hydrogen microgrid.

Funded fully by the state and federal governments to the tune of $9.3 million, it is a useful demonstration project but generates power for only 100 households.

Another “key milestone” highlighted by the state government was the blending of hydrogen into Perth’s natural gas network.

Gas company ATCO Australia started this process last year and currently supplies the blended gas to households in the Cockburn area.

The blend is currently 2 per cent hydrogen and ATCO is seeking approval to increase that to 5 per cent and then 10 per cent before the end of the year.

Another milestone noted by the state government was the opening late last year of WA’s first renewable hydrogen refuelling station.

This was part of ATCO’s clean energy innovation hub at Jandakot and was launched in tandem with Fortescue Metals Group.

Govt funding

All of these projects were backed by state and/or federal government funding.

Energy Minister Bill Johnston says the state has committed nearly $200 million to support the sector.

However, governments in other states are spending a lot more, and that is affecting where private companies focus their efforts.

The South Australian government, for instance, plans to invest $593 million in what it calls the world’s biggest hydrogen production facility, power plant and storage, in the regional city of Whyalla.

It will include 250MW of electrolysers, a 200MW hydrogen-fuelled power plant, and hydrogen storage.

That project has become a major focus for ATCO after it was selected this month (in a consortium with BOC) as the preferred industry delivery partner.

ATCO’s success in SA comes just a few months after it pulled the pin on its planned $53 million renewable hydrogen project at the Warradarge wind farm north of Perth.

In that case, the Australian Renewable Energy Agency had approved a $28.7 million grant to ATCO and its partner, the Australian Gas Infrastructure Group (AGIG), to cover about half the project cost.

That was evidently not enough incentive.

AGIG is proceeding instead with a very similar project in Victoria – the $53 million Murray Valley hydrogen park – funded almost entirely by state and federal government agencies.

It’s a similar story in Queensland, where state government support has played a big part in progressing projects such as Stanwell Energy’s $12 billion Central Queensland hydrogen hub and Fortescue’s Gibson Island green ammonia project.

Perth-based Fortescue is one of the most active global investors in green energy, as the company pursues multiple opportunities.

Executive chairman Andrew Forrest has made no secret of what drives his choices.

“There is no place better in the world to be investing in renewable and green energy projects right now than the US,” Mr Forrest said last month.

That was after Fortescue was selected to begin negotiations with US government agencies on development of the Pacific Northwest hydrogen hub, which is expected to receive up to $US1 billion in government funding.

“Federal funding like this, alongside other incentives in the Inflation Reduction Act, go a long way to helping reduce risk and accelerate the widespread production of green hydrogen,” Mr Forrest said.

“In turn, this will catalyse substantial private sector investment, creating new, good-paying jobs and economic prosperity for Americans, particularly those in economically vulnerable communities in the Pacific Northwest.”

Against this backdrop, it remains to be seen how much effort Fortescue puts into its WA opportunities, such as the Oakajee Green Hydrogen Hub.

The company has talked up this project but there is little to show for it on the ground.

“We are focused on the rapid development of our Oakajee Green Hydrogen Hub in the Mid West, which we believe has the strongest economic case for large-scale green hydrogen export prior to 2030,” a spokesperson told Business News last month.

The spokesperson also said Fortescue’s project pipeline still included the Uaroo renewable energy hub near Onslow, but it emerged this month that Uaroo has been shelved.

Woodside Energy is another Perth company weighing local hydrogen projects against interstate and overseas opportunities.

Its most advanced opportunity was in Oklahoma in the US, though a final investment decision on that project was recently deferred pending more certainty on tax incentives and customer offtake.

Closer to home, Woodside’s most advanced project is the proposed Hydrogen Refueller @H2Perth project.

It is a modest project with an estimated cost of $20 million, half of which is coming from a state government grant.

It comprises a self-contained hydrogen production, storage and refuelling facility at the company’s H2Perth site in Rockingham.

The project will support the early adoption of hydrogen vehicles by BGC, Centurion and Cleanaway, which are collaborating with Woodside Energy.

Each company plans to buy a handful of hydrogen fuel cell trucks while Woodside plans to buy some hydrogen passenger vehicles to use the facility.

Woodside is targeting startup in 2024 with an initial production of 200 kilograms per day of hydrogen using a 2MW electrolyser.

Giga projects

Fortunately for WA, the state has attracted strong interest from an array of global players, such as project developer and investor InterContinental Energy, oil and gas major BP, and equipment supplier Siemens.

InterContinental is the largest investor in the state’s most ambitious hydrogen project: the Western Green Energy Hub.

Located in WA’s far east between Esperance and Eucla, it entails the phased development of wind farms and solar farms to produce up to 50 gigawatts of electricity, which is about eight times the current installed capacity of the entire South West energy network.

That will power electrolysers able to produce 3.5 million tonnes per annum of green hydrogen.

ATCO Australia has built a hydrogen demonstration hub at Jandakot, including a hydrogen refueller.

InterContinental is also an investor in the state’s second largest hydrogen project: the Australian Renewable Energy Hub, located north-east of Port Hedland.

Conceptually similar to the Western Green project, it will be developed in phases, with a final capacity of 26GW to produce 1.6mtpa of green hydrogen.

BP bought into the AREH project last year with a 40 per cent stake and will become its operator.

InterContinental has just one other project: the Green Energy Oman development in the Middle East, which boasts Shell as its operator.

A key driver for all three projects is the growing demand for green hydrogen and green ammonia from countries such as Japan and South Korea, which want cleaner sources of energy.

InterContinental’s head of Australia Isaac Hinton said the group was very targeted in where it invested.

“To achieve projects online by 2030, we need to be very focused,” he said.

“We see those regions as having the best wind and solar in the world, and to achieve scale you need that efficiency.”

Mr Hinton joined InterContinental early this year and has built a team of 15 people in West Perth.

That’s not counting people employed specifically to work on each of its projects.

InterContinental’s capacity to invest in project development was helped by the recent completion of a $US115 million capital raising.

“We saw that as a huge testament to the credibility of the projects we have,” Mr Hinton said.

The investors in the capital raising included giant investment fund GIC, which manages Singapore’s foreign reserves, and Hy24, described as the world’s largest pure-play clean hydrogen investor with €2 billion of allocations.

Mr Hinton said investors were attracted by InterContinental’s project timelines.

“Financiers are really looking for scale and a faster track to development,” he said.

“Five to six years, not ten to fifteen.”

In that regard, Mr Hinton said the AREH project was likely to get under way within this timeframe.

“It’s certainly the view of the project that we expect to get energy and hydrogen on stream before 2030,” he said.

Mr Hinton said the AREH project would be developed in nodes, with each node having electrolysers located next to wind farms and solar farms.

It will produce hydrogen at the project site and transport it via pipeline to customers.

“We think that transporting hydrogen via pipeline is more effective than transmitting electricity,” Mr Hinton said.

The hydrogen will also be pumped to the Boodarie industrial estate at Port Hedland, where BP has been allocated land.

Mr Hinton said that is where the hydrogen would be transformed into products such as ammonia and methanol.

For all of that to happen, the project needs access to transmission corridors.

“One of the key risks to 2030 in giga-scale projects, hydrogen or energy, in WA, is the delivery of transmission corridors,” Mr Hinton said.

“Poles, wires, pipeline and ports.”

He said this required a master plan, which only government could lead.

“We are starting that conversation now, which is in everyone’s interests,” Mr Hinton said.

BP appraisal general manager Ian Saxby gave further insight on the AREH project when he spoke last month at the Pilbara Summit.

“We have been very open about admitting this is a huge undertaking,” Mr Saxby said.

“The sheer scale of the project will see it amount to one of the largest energy hubs in the world. “There is much to do, much to understand.”

He noted the change of name last year from the Asian Renewable Energy Hub.

“That reflects the renewed focus on supplying renewable electrons locally, right here in the Pilbara, and to later produce green hydrogen for both domestic and international customers,” Mr Saxby said.

He said the allocation of land at Boodarie opened up opportunities.

“The proximity to the world’s largest bulk export port supports the agenda to supply renewable power and hydrogen for heavy industry, including things like mining and green steel, diesel fuel displacement and the potential bunkering of green fuels,” Mr Saxby told the summit.

He said the project needed local customers willing to commit to offtake agreements to meet their own zero-carbon commitments.

Addressing the Pilbara Summit soon after senior executives from iron ore miners Rio Tinto and BHP, Mr Saxby made no secret of who those customers might be.

“We heard from a number of potential customers earlier today,” he said.

Mr Saxby welcomed the federal government’s commitment of $3 billion for energy infrastructure in WA, including upgrades to the energy transmission network, but saw potential for a lot more.

“There are opportunities for further shared infrastructure agreements, for things like desalination plants, for roads, for port facilities,” he said.

“As a company, we will continue to work for those opportunities.”

Long-term potential

Mr Hinton said InterContinental’s second WA project – the Western Green Energy Hub – was seen as a longer-term opportunity, with first production after 2030.

“It is incredibly remote but it has incredible wind and solar, which is why we picked it,” he said.

Mr Hinton described the lack of people and towns as a plus for the project, as it gave InterContinental and its partners, including the local traditional owners, a clean slate to work with.

While there is no shortage of undeveloped land and seawater in the area, he also acknowledged the challenges posed by the remote location.

“The biggest challenge will be how we get the products to customers from there,” Mr Hinton said.

The project team is starting to evaluate options, including the possible development of port facilities, which would also help with supplying materials.

It was also contemplating opportunities to develop facilities in towns such as Esperance, Kalgoorlie or Ceduna.

“Bringing the supply chain as close as possible to the project is the ideal scenario,” Mr Hinton said.

“This project won’t survive with ten thousand wind turbines being trucked from Perth.”

Andrew McCluskey wants the WA government to accelerate the development of new energy hubs in the Pilbara, Mid West and South West.

Like other hydrogen companies, InterContinental hopes the scale of its project will trigger the development of local manufacturing capability.

“The biggest opportunity is to work with industry to incentivise original equipment manufacturers to come here,” Mr Hinton said.

“The demand is there, it’s the ability to quickly come in, in the next five to six years, through permitted land with common-user infrastructure, maybe some tax concessions, and working with universities and TAFE to develop the skilled workforce.”

As well as manufacturing the towers and blades for wind farms, he said the projects would trigger big demand for a wide range of equipment, including turbines, solar panels, switch gear and transmission.

Global view

Global manufacturer Siemens is one company focused on that opportunity.

The company’s executive general manager hydrogen for Australia and New Zealand, Andrew McCluskey, said the opportunity was huge.

“Energy consumption is projected to triple by 2050 and the global demand for hydrogen is expected to grow fivefold by 2050, especially as the world seeks to decarbonise,” he said.

Mr McCluskey likens the current state of the hydrogen sector to the early days of renewable energy.

“WA has incredible hydrogen potential but the state and federal governments will need to lean in heavily in the near term and provide substantive support while the industry gets established and becomes commercial,” he said.

“Where the WA government could play a powerful role is by accelerating the development of hubs in the Pilbara, Mid West and South West, both with policy and infrastructure support.

“The local hydrogen industry would benefit if this happened as a matter of urgency.

“The other area that would support the local hydrogen industry is if the WA government played a strategic role in securing offtake agreements with other countries for the benefit of both the state and the hydrogen industry.”

Siemens supplied the electrolysis technology at the largest operating green hydrogen facility in Australia: Hydrogen Park at the Tonsley redevelopment in Adelaide.

This is a larger and more advanced version of what ATCO is doing in Cockburn; it delivers a 5 per cent renewable gas blend to more than 4,000 households and businesses and schools in Adelaide’s south.

Mr McCluskey said the versatility of green hydrogen was one of its main attractions.

This was illustrated by some of the projects Siemens is working on globally.

Last year, Siemens digitally commissioned one of Germany’s largest green hydrogen generation plants in the town of Wunsiedel, where the hydrogen is being used primarily in the region’s industrial and commercial enterprises, but also in road transport.

In September this year, Siemens completed the first test runs with hydrogen-powered trains in Bavaria. The two-car trainset will enter passenger service in the middle of next year.

Mr McCluskey said a profitable hydrogen economy at scale would require openness and collaboration across the entire ecosystem.

“Regardless of who provides the electrolysis production technology, Siemens’ capabilities in digitalisation, automation and electrification can support the hydrogen journey and project lifecycle from the generation of green electricity and grid connection to production, storage, transportation and utilisation of hydrogen – even simulation and digital twins,” he said.

Challenges

One of the positives for the hydrogen sector is, ironically, the acknowledgement of immense challenges.

This was made clear in the state government’s recent consultation paper for its hydrogen strategy review.

At a global level it referred to “the immense scale of renewable electricity and electrolyser production and storage capacity required in a relatively short timeframe.”

The paper also referred to “the current commercialisation gap for renewable hydrogen relative to other hydrogen production pathways and dominant fuel sources.”

It also listed challenges facing the sector in WA.

“The production of renewable hydrogen in WA is currently facing challenges across approval times, renewable electricity capacity, land use, sustainable water use, offtake certainty, access to high voltage infrastructure and cost-competitiveness,” it said.

“Land use in particular is a pressing challenge for the industry.

“Despite the state’s significant expanses of land, there is a high level of competing interest for conservation, mining, industrial and pastoral uses, and investment is required to transform some land to become project ready.”

Added to this should be the pressures that come from WA being close to full employment, with an abundance of iron ore, LNG, lithium, and other projects already under way.

In short, there is no shortage of challenges.