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Hydrogen’s central role in decarbonising Australia’s economy

Touting benefits of lower costs and greater energy security, Australia’s gas distributors explain their transition plans for a green hydrogen future and what needs to change to make it happen.

When most people think about decarbonising Australian households, they usually think of electrification.


But substituting natural gas with zero-emissions hydrogen is increasingly being considered as an opportunity to more quickly reduce the carbon footprint of the nation’s 10 million homes.


In fact, used in combination with electricity, hydrogen carries several advantages over full electrification, in particular that it is much lower cost than converting the entire household sector to electricity-only.


“We need to consider the possibility that hydrogen is a substitute for natural gas, rather than going the whole way electric,” says Aldo Tassone, Associate Director, Energy & Infrastructure at Westpac Institutional Bank.


“Hydrogen should be seen as part of the equation and complementary to electrification, rather than in the same bucket as fossil fuels.”


Hydrogen is a completely green fuel if it’s produced using renewable electricity and it doesn’t produce carbon when burned.


A wind or solar farm can be used to power an electrolyser, which splits water into its component parts of hydrogen and oxygen. When hydrogen is burned, that process is reversed and it combines with oxygen to produce water – its only by-product.


Westpac Institutional Bank is supporting its clients as they transition away from fossil fuels, including those in the gas sector. In fact, gas distributors are already working towards a hydrogen future.


Testing the mix on the front burner


Australian Gas Infrastructure Group (AGIG) has begun blending hydrogen with natural gas, which is used in exactly the same way as natural gas is today.


The gas infrastructure business – which distributes natural gas to more than 2 million residential, commercial and industrial customers around Australia – is testing how much hydrogen could be blended into the mix for current household appliances, with expectations it will be somewhere around 20-30 per cent.


Its Hydrogen Park South Australia project, for instance, is Australia’s largest electrolyser and the first to deliver a renewable hydrogen blend to customers on the existing gas network, with five per cent hydrogen gas supplied to 700 homes. Other projects underway are more ambitious.


The jump from blends of 20-30 per cent to 100 per cent can happen quite quickly, but ultimately require household hot water heaters, gas fireplaces and cooktops to be replaced with hydrogen-ready appliances.


AGIG Chief Executive Craig de Laine says that to drive the change, the industry needs a policy mandate for consumers to install these appliances. If that mandate were introduced in 2025, for instance, it wouldn’t be until 2040 that homes were ready for the switch over, because most gas appliances have a 15-year lifespan.


The switch to hydrogen is a long-term vision, with AGIG aiming to deliver at least 10 per cent renewable gas in its networks by 2030, full decarbonisation by 2050 at the latest – and by 2040 as a stretch.


It won’t be the first time Australia has changed its domestic gas mix, or the first-time hydrogen has been used in the home. In the 1960s, Australia underwent an uneventful transition to natural gas from town gas (gas manufactured from coal), which was made by heating coal and contained about 50 per cent hydrogen.


Like many other Australian gas suppliers, AGIG has been upgrading its network for the past two decades, replacing ageing mains pipes with polyethylene pipes, which are less prone to cracking and leaking.


“From an infrastructure perspective, we've already done the work we need to do to transition to a 100 per cent hydrogen network,” says de Laine.


A pipeline of benefits


A key advantage of using hydrogen is that the gas network – currently used for methane gas – is, in effect, like a giant battery and can help more efficiently use the existing renewable electricity generation. It can use wind and solar in the middle of the day or night, when demand is lowest, to run electrolysers to produce green hydrogen, which can then be used to heat homes and hot water and for cooking in the evening.


“When you start thinking about that, the benefits are quite phenomenal,” de Laine says.


“All of a sudden, you are more than doubling the market for renewable electricity and you're transitioning the whole concept of renewable electricity from being almost a non-flexible peak‑load type form of energy to a base load form of energy because you can use it in the form of hydrogen all the time.”


It would significantly reduce the cost of renewable electricity by getting more out of existing wind and solar generation and wouldn’t require so much new build of electricity infrastructure to meet the economy’s decarbonisation targets.


In fact, according to a Frontier Economics study in Victoria, which compares the cost of transitioning to electricity only with transitioning to electricity and gas, there’s a 50% saving in the second option.


David Gillespie, Chief Financial Officer of gas and electricity distribution and transmission company Jemena, says these lower transition costs should be factored in when people consider hydrogen as a future fuel source. Regulators should consider the investments of gas companies in upgrading their networks in their pricing determinations.


“The efficiency of storage of a thermal product and the energy efficiency it brings in terms of gas‑powered generation becomes a really interesting part of the conversation,” he says.


Heading off the challenge to lower costs


But hydrogen is currently still expensive.


“If I need to sell a cake for $10 but my ingredients cost me $20, then I've got a pretty challenging business model to try and underpin investment. That's broadly what's happening right now,” Gillespie says of hydrogen production.


The main cost is in the electrolysers, so there are major research and development efforts underway around the world to bring that cost down. If they are successful, hydrogen will have a much brighter future as a cost-effective part of the overall energy mix.


In the meantime, Gillespie would like to see governments introduce green gas targets to their energy policies, similar to the Renewable Energy Target which has so successfully driven renewable electricity production over the past two decades.


By promoting gas without mandating its role, governments are lessening the investment signals to the market to develop green hydrogen capability, he says.


Governments in other countries are also seeing the potential for green hydrogen in their energy transition and developing policies to support its contribution. Only this week lawmakers in the United States agreed to generous industry support provisions that would make their green hydrogen the cheapest in the world, representing a significant turning point for the industry.


Jemena plans to investigate how renewable gases such as hydrogen can be fully integrated into the existing gas networks and, in the meantime, is adding biogas to the energy mix, which Gillespie describes as a bridge to hydrogen. “Biogas today is economic, whereas hydrogen still has a way to go,” he says.


With the current global surge in natural gas prices, biogas can be produced at a “significant discount” to current gas prices. It is a gaseous fuel of primarily methane and carbon dioxide, produced by the fermentation of raw materials including agricultural waste, food waste and sewage.


Jemena, with its partners Sydney Water and ARENA, is building a biogas plant at the sewage works in Sydney’s Malabar, one of several biogas opportunities around the state. In NSW, there are at least 15 petajoules of potential biogas projects near to the distribution network, compared with Sydney’s annual household consumption of about 30 petajoules of gas.


There are other benefits as well, such as catering to the preference of consumers who use gas for cooking or heating.


Gillespie says Australia should start thinking more about using a mix of fuel sources, rather than just seeking to rely on electricity alone.


“It's not that you need to back one technology in this,” he says. “You can see a really plausible role for green gases in that mix to shore up the reliability of the energy system and do that more efficiently than current battery technology can.”


What are the key moves for Australia to become a hydrogen exporter?

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