Perspectives

Emerging opportunities for hydrogen and its enabling technologies

16 October 2020

The electrolyser is likely to play a key role in enabling green hydrogen for the global economy’s journey to a decarbonised future, says Macquarie Capital’s Senior Vice President of Energy Technology and Solutions, Nick Carter.

Carter notes that as we move towards more decentralised energy resources and subsequent intermittent generation with rooftop solar and large scale wind and solar, the electrolyser (with its ability to provide large flexible loads) has the potential to be the missing piece of the renewables puzzle in the Australian energy market. The electrolyser is a device which splits water into hydrogen and oxygen using an electric current. When this current is produced from renewable energy, it can create green hydrogen. When leveraged appropriately, this technology can assist the build out of renewables, manage the intermittent nature of wind and solar, and open new opportunities for hydrogen producers and businesses that can develop the software needed to integrate hydrogen into our energy networks.

Figure 1 – System Schematic

Hydrogen’s role in a renewable future

Renewables have reached a point where they can now compete with fossil fuels on price, even without government subsidies. According to an International Renewable Energy Agency (IRENA) study1 , the costs of producing PV solar has fallen 92% over the past decade. The same study notes that wind and solar are now actively undercutting even the cheapest and least environmentally sustainable coal-fired power plants.

The main obstacle now holding renewables back, according to Nick Carter, is not price but lack of flexibility.

“Unlike oil or coal-fired power plants, renewable energy sources can’t keep producing 24/7. That means they face challenges such as higher energy spot price volatility and greater costs associated with frequency balancing services. They’re also less resilient when it comes to trips or other serious network issues.”

Carter notes that to overcome this, any network relying on renewables must have significant stored energy that can be quickly released into the grid when renewables aren’t producing. South Australia’s giant lithium-ion battery is a high profile example of how this can be achieved.

Hydrogen, however, offers a viable storage alternative to lithium batteries and comes with advantages such as the ability to store and transport large amounts of energy and leverage existing gas assets.

Carter notes that hydrogen can also be used to directly power assets that can’t easily access the grid, such as remote mining sites. It can also be used in internal combustion engines and fuel cell vehicles, which means it can power transport, especially large vehicles such as buses, trains or even potentially trucks, which require too much energy to use the grid.

Another factor working in hydrogen’s favour is that like wind and sun energy, it’s not exactly in short supply. It makes up two-thirds of every water molecule and is the most abundant element on both planet Earth and in the universe itself.

Becoming green

But for all its advantages, the challenge with hydrogen to date has been in the way it is extracted.

Of the 70 million tonnes of hydrogen currently produced each year, most comes as a result of a thermochemical reaction. This process involves steam being mixed with methane at high temperature and pressure. Unfortunately, it is responsible for the equivalent of 830 million tonnes of carbon dioxide a year2. That’s around the same total emissions of a country as large as Indonesia and 150% of the emissions produced by Australia3.

“The reality is that, even though it can fill the gaps in a renewables-based energy network, it’s not exactly a green fuel source when it’s produced this way,” Carter says.

Hydrogen’s success depends on it being produced through another method and recent developments suggest that it can be - through an electrolyser.

“An electrolyser works by splitting hydrogen from oxygen in water,” Carter explains. “If that electrolyser can itself be powered by renewable energy sources, we can produce hydrogen without any emissions at all.”

“We can also then reverse the same process to generate electricity from the hydrogen we’ve extracted via a fuel cell.”

Making the economics work

While this process of producing green hydrogen is expensive today, it does have a well-articulated path to cost out via falling electrolyser production costs and cheaper renewable power.

Use cases like the replacement of hydrogen in industry and the replacement of natural gas for heating are unlikely to be justifiable in the near future on a pure cost of energy basis, but do work when you look at the cost of alternative systems that are required for deep decarbonisation targets.

“Based on the modelling that Nick and his team has completed, it is possible that an electrolyser could run in the Australian market with a low to negative electricity cost via participation in merchant energy markets. The current challenge for financiers of these projects is being comfortable with the value of any future payments for ancillary services that maybe required to drive the return on an investment,” says Macquarie Capital’s Managing Director of Energy Principal, Mike McKensey.

“The cost of electricity and the ability to run electrolysers some of the time becomes increasingly powerful as the capex of electrolysers drop. As capex comes down, the key factor driving returns is the net cost of electricity,” says McKensey.

However, while there is ample potential for the electrolyser, Carter and McKensey believe that governments and regulators have an important role in this space to support further investor confidence.

Future opportunities for low cost hydrogen

If electrolysers prove to be the solution that provides the missing piece in the renewables energy puzzle, it will reduce carbon emissions and energy costs, while also presenting enormous commercial opportunities.

Hydrogen production could become a serious industry within Australia, as the world moves to decarbonise. Our significant land and abundant wind and sun make the continent an obvious candidate for energy intensive industries such as steel and aluminium production.

A future world may involve the export of green hydrogen from countries who have excess renewable energy to those who have a limited renewable resource. For export to occur, significantly lower production costs and improvements in the cost of transport and storage are needed.

Carter believes there are even bigger opportunities for enabling technologies that can find ways to integrate hydrogen seamlessly into renewable energy networks to create large flexible loads and leverage wholesale electricity price volatility.

“An energy grid based on renewables is, by nature, much more decentralised than the current grid that’s built around baseload power stations,” he says. “You have solar being produced on rooftops, as well as wind turbines and major solar power plants. Now you have the potential for hydrogen to be sitting alongside of this, supporting the grid when it’s needed.”

“The real opportunity around this is in producing the software that controls all these different assets and delivers it to the home or business through automated bidding software.”

“When you look at it this way, the opportunities around hydrogen will be as much about big data - as well as technologies like AI and machine learning - as they will be about producing the gas.”

  1. IRENA Power Generation Costs 2019
  2. IEA Report, The Future of Hydrogen
  3. World Resources Institute, CO2 emissions by Country 2020

Flexibility of Hydrogen Electrolysers Report

Read more about the future of electrolysers in developing hydrogen in Macquarie’s report, Flexibility of Hydrogen Electrolysers.