Green hydrogen is gaining attention in the market due to the potential of this emerging fuel source to help the world’s economies reach carbon neutral. It’s clean, storable and safe.

The economics of hydrogen have lagged behind fossil fuel and other applications to date because virtually all hydrogen is derived from fossil fuels. That largely explains why the hydrogen sector has not grown notably, Vivek Dhar, CommBank Mining and Energy Commodities Strategist, says in a recent podcast.

But he says the main focus is now on green hydrogen, which is what’s exciting the market.

Green hydrogen refers to producing carbon-free or low-carbon hydrogen. This clean hydrogen is the only carbon-free pathway to produce hydrogen. It’s produced when renewable electricity – that is, wind and/or solar – powers electrolysers to split water into hydrogen and oxygen.

Who will use it and what’s demand like?

Dhar says the demand side will ultimately dictate which sectors will adopt green hydrogen. There’s great potential for powering vehicles in the transport sector, particularly shipping, aviation, long-distance and heavy-haul transport.

On the industry side, steel production and chemical manufacturers are likely users. Hydrogen is currently used in about 5% of steel production. Perhaps more promising is the chemical industry, says Dhar, as hydrogen is required for processing oil and ammonia for manufacturing products such as fertilisers, plastics and explosives.

Hydrogen can also be used for high-temperature production, such as glass, cement and aluminium, and it’ll serve as a backstop when solar and wind power underperform.

What’s the competition and is it economical?

Green hydrogen’s main competitors are electrification and renewable power, and there’s a long road ahead to make it economical.

Electrification is becoming more competitive in low-heat manufacturing, and electric vehicles will likely overpower hydrogen-fuelled cars because they’re more efficient. Dhar says the overall efficiency of battery electric vehicles is around 70–90% while for hydrogen-fuelled cars, it’s as low as 25–35%. 

The International Energy Agency (IEA) describes the technological and behavioural changes needed to produce green hydrogen as unprecedented. But it’s green hydrogen’s carbon-free quality that will spur the necessary change.

“Realistically speaking, over the next 10 years ,there’s going to be a lot of trial and error to try and understand hydrogen. Not only on demand application, but understand on the production side where we can really add synergy to get costs low. So the next 10 years, I’d say, is a trial period,” says Dhar.

Hydrogen hubs

The opportunities for Australia are significant. What ultimately dictates the cost of hydrogen is solar and wind resources, and Australia has some of the lowest solar and wind costs in the world.

The federal government has committed $275.5 million to building Australia’s hydrogen industry. It’s partnering with Japan on hydrogen fuel cells and a liquefied hydrogen export pilot project, and investigating supply chains with Germany.1

Recognising the role it has in commercialising the hydrogen sector, the government recently announced it will invest in four regional hydrogen hubs, bringing the total to five.

A hydrogen hub involves co-locating industries that will produce, consume and export hydrogen. In its report on the 2021-22 Federal Budget, the CommBank Global Economic and Markets Research team said co-location was crucial to establishing scale in order to bring down clean hydrogen costs. Co-location also reduces transport and CO2 intensity of hydrogen production, potentially even storage costs, which can be significant in the hydrogen supply chain.

The main hub contenders are: Bell Bay (Tasmania), Pilbara (WA), Gladstone (Qld), La Trobe Valley (Vic), Eyre Peninsula (SA), Hunter Valley (NSW) and Darwin (NT).

“We think the Hunter Valley in NSW is the most promising hydrogen hub proposal. The region faces the most immediate stranded asset risks given the Port of Newcastle is one of the world’s largest thermal coal export hubs. Thermal coal trade faces significant downside risks as the world looks to decarbonise,” the Budget report says.

“What makes this area so good for green hydrogen is that it’s also a key source of coal power generation for east coast Australia. So we know green hydrogen production is incredibly power intensive, but with four major coal power plants retiring in the Hunter Valley in the next two decades, there should be sufficient spare power transmission for green hydrogen,” adds Dhar.

To learn more from leading experts about what’s important to business and the economy visit CommBank Foresight™ – insights for future-facing businesses.

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