Green hydrogen

Green hydrogen

In the brightest day and the blackest night, no opportunity shall escape my sight.

Ok, bar the bad Green Lantern pun, Green Hydrogen is the superpower on everyone’s lips at the moment. From the USA releasing its draft National Clean Hydrogen Strategy and Roadmap a few weeks ago, to the announced changes in the Hydrogen regulation in Europe, even Queensland has jumped on the press release bandwagon, announcing it as a cornerstone within its new Jobs and Energy Plan.

But what is this superpower? How can it help and what does it really do?

Well let’s start at the beginning, what is Green Hydrogen, why is it different to Grey or Blue Hydrogen and why is that important?

Green Hydrogen is produced by electrolysis, by splitting water into its base elements of Hydrogen and Oxygen. The reason it is Green is this process is done using renewable energy. The most preferred approach is to have this PPA (green energy) onsite and therefore Behind the Meter, however it is equally classified, at the moment, from other sources, with both the PPA and electrolyser being grid connected. Noting that there are additional costs if this is not co-located BTM generation as Network costs come into play.

The differential between this and Grey and Blue Hydrogen isn’t the process, but the fuel used to power the electrolysis. Grey Hydrogen comes from Natural Gas and Blue is from Gas but that is coupled with Carbon Capture and Storage (a technology which has been the silver bullet since I was at Uni and despite millions being pumped into the technology remains uneconomic and therefore unused).

Why is this important – well to truly move towards a clean energy future, and for Hydrogen to play a large part in that, the technology used to create the hydrogen must be green, otherwise the end product (the hydrogen) is just an energy transition of the non-renewable source which was used to create it. This is why the Europeans (CertifHy) amongst others, will only allow Green Hydrogen certification from real PPA sources, not greenwashed with carbon credits, and certainly not from any other forms of electricity.

So how can the green hydrogen transform our supply? Well ignoring other uses of the fuel and export at the moment, transportation being a key area which could benefit as their fuel is hard to abate without a viable alternative as well as Ammonia and Methanol production. There is the obvious use if the fuel can be used for power supply.

This is moving closer with the planned Tallawarra B 200MW dual fuel power station (natural gas and green Hydrogen) due online in the summer of 2023/ 24. If this technology can be proven, this will be a huge source of clean energy which can be used for grid stability and baseload generation, it could also remove any bumps from the transition away from coal.

To give a sense of scale though 1KG of hydrogen is equivalent to about 33.3KWh of electricity. Last year the NEM supplied around 204TWh of electricity, so we would require around 6.2million tonnes (or 6.2billion KG) of Hydrogen to power the NEM.

Now the part to blow your noodle, to produce that 1Kg of Hydrogen we need to put into the electrolyser around 50KWh of electricity (taking a 67% efficiency rate for an Alkaline or PEM electrolyser, noting Solid Oxide electrolysers can have higher efficiencies.) Using this 67% efficiency rate we need to put in 310TWh of electricity to be able to produce the 240TWh required for the NEM. This is without factoring that Hydrogen which can be used for transportation and that which will be exported (with Japan underpinning many domestic projects how much will be available in Australia initially? But I said I wouldn’t be diverted to this today!).

This means the Hydrogen power industry alone has the capability to more than double the capacity requirements of the NEM. However, this requirement and thirst for power could be its real secret superpower.

Network constraints are the words every solar and wind operator hates, the renewable energy is being produced but either cannot be transported to the load centres or cannot be used in the local distribution zone and as such is wasted. Although the Hydrogen industry may not be able to use all this excess volume, especially in the near term, it certainly can absorb a large amount of it. Thus, reducing curtailment and increasing the renewable penetration to the grid.

But that isn’t its only superpower to assist with the balance of the grid, cast your mind back to this winter with curtailment being requested from every corner of the NEM. Rather than being the off-taker, the electrolysers can provide demand side management. They will naturally be programmed to react to the price and renewable energy generation signals anyway to be efficient. Therefore, turning up and down at these strained periods without needing market intervention will be a benefit we have not previously been able to tap into.

Hydrogen certainly looks to be the silver bullet this industry has been craving, and no one wants to be left behind when this train leaves the station. However, with so much in theory and nothing as yet proven to scale, we all hope that it doesn’t turn out to be the Aquaman of the superhero world.

Edge2020 provides energy management and advisory services to buyers and sellers of physical and financial energy products. We specialise in electricity, gas, renewable, environmental, and carbon products. Edge2020 can help ensure you achieve your business sustainability goals by supporting you with strategies that focus on minimising consumption and responsible purchasing of renewable energy. Reach out to our passionate team for support to improve your sustainability outcomes – email: info@edge2020.com.au 

 

International oil price fluctuations and the electricity market reacts

Organization of the Petroleum Exporting Countries (OPEC+), the intergovernmental organisation of 23 oil exporting nations mainly in the Middle East and Africa (with the original core 13 holding most power) is the body which is responsible for around 40% of the world’s oil production. In early October this group agreed to slash the output of crude oil by 2 million barrels a day. To put this in perspective Saudi Arabia produces on average 10 million barrels per day of the current, already reduced, 42 million barrels coming from the OPEC+ nations and this 2-million-barrel reduction translates to about 2% of the global oil supply. It is also worth noting in 2016 when OPEC became OPEC+ Russia joined the organisation and has held a strong voice ever since.

This reduction in production, shows a sign of deepening rifts between the Middle East and the US, and the cynic in me says may be more than slightly linked to the upcoming US mid-term elections where the democrats are already looking weaker than their GOP counterparts – not that those countries have ever influenced an American election in the past *Cough Trump Cough*.  But regardless of motives these new production limits will come into place in November and the impending reduction in production has repercussions which flowed through the broader Australian and global energy markets including oil, coal and gas.

Australian electricity prices are strongly correlated with the international crude oil price, particularly in QLD and NSW, the impact of Brent crude futures hitting a high of $US93.39 on Monday caused a rally on the Australian electricity market, with the Q123 QLD price rising 20%, as the effect of this increase translated to the domestic electricity market. Brent Crude being the international oil benchmark price.

However, OPEC+ are not the only drivers of the oil price, especially WTI and Brent prices. The US dollar, on the back of a fear of a global recession has been strengthening which has dampened the demand for their oil on the international stage. (Consider the FX implications of a strong dollar, if you are buying from Europe the same amount of crude oil now costs more as the number of Euros to achieve the same dollar amount has increased). So, a reduction in demand of America Oil due to FX and reduction in export from OPEC+ can only move the needle up in price regardless of source.

We also cannot ignore the ongoing COVID implications in Asia, especially China. Their glut of demand has not returned to anywhere near the pre-pandemic levels and as such that demand is not translating into a price war to ensure delivery of the commodity. Conversely to above this is actually holding prices lower and reducing the impact of the OPEC+ reduction.

But there is no ignoring the elephant in the room, the impact of Russia’s invasion of the Ukraine, which has led to global increases in commodity costs, has also acted as a buffer to the oil price despite the recession fears. As many countries imposed their own moral code and refused to buy Russian oil, other sources could benefit from the increase in demand. By the end of September this year Russian oil was trading at $20/barrel cheaper than its Brent counterpart. Some less scrupulous countries such as India and China, sought to benefit from this price differential and ignored the sanctions coming from the West and are now taking at least half of Russia’s oil exports. Further, Russia has now overtaken Saudi Arabia to be the biggest exporter of oil into China. Therefore, could the cut in reduction be as simple as the rest of OPEC+ looking to balance the loss in demand from the East by passing inflated prices to the West?

But back to Australia, we are obviously a commodity rich nation, however with our internal thirst for electricity and therefore generation linked heavily to the export price of that commodity, we are subject to these international fluctuations also. As the price of the oil increases, the global demand from that commodity shifts to other sources. Our gas and coal price domestically are therefore linked heavily to the price that exporters can achieve if they send our home-grown coal and gas abroad. So as the demand shifts from oil, to gas or coal so does the price. Hence the correlation described above with Brent rising and that coming into our domestic market.

Then for fun lets add in our own pressures, we are expecting another La Nina this year, last year’s summer La Nina brought low solar output coupled with flooding, wet coal stockpiles and just-in-time delivery delays due to the tracks being flooded and trains not able to deliver.

We also have an economy which is having increasing inflationary pressures. These inflation increases will flow onto the interest rates (including the interbank rates) and therefore commodity prices. How? Well, a retail return is based on 2 main drivers, network and wholesale costs, the latter we have covered above. But in isolation network costs will also increase, due to the inflation increasing the nominal value of the asset and therefore the increasing value of the debt as the interest rates increase also.

Further any investment required to transition our market to greener fuels will also be increased, as the levelized cost of electricity for these new assets is also increased due to cost of capital and higher interest rates feeding through. As such the ‘Energy transition’ will now cost more.

There is also a regulatory driver, with an impending price cap increase being fast tracked, this will allow system stability to flow through, as gas won’t withdraw at the $300/MWh cap as this looks likely to be increased to $500/MWh. Therefore, does that become the new ceiling of our market?

There is an old idiom that when China sneezes Asia catches a cold, I unfortunately think this now needs to be broadened to when any imbalance occurs the ripples will be felt globally.

The balance is so tight that without some easing of any fundamentals the shocks will continue. AEMO are acknowledging this, but despite acknowledging the issues they are desperately clinging to the hope a capacity market will be the silver bullet to system stability, backed by large synchronous generators, not that they have any benefit from that mechanism. However, I cannot agree, point in fact I point you to the black outs in the UK on August 9th 2019, a market which has had a capacity mechanism for many years yet in a moment of system instability these ‘capacity assets’ could do nothing and they experienced a blackout for 45 minutes and over 1 million people were affected.

What this means for us is without regulation around bidding behaviour based on cost of generation from hedges not advantageous forward prices, we are looking at another summer with uncertainty and volatility based on international fundamentals pulling the Australian market along for the ride.

She Can’t Dance

Back in the 90’s Genesis sang “I can’t dance.” I fear from the past week that there is once again a double standard being applied by the media to our leaders, as it seems this lyric only applies to women in politics. I am of course referring to the absurdity of the double standard being laid at the door of the Finnish Prime minister, Sanna Marin.

With too many examples to list, Boris Johnsons “party-gate”, David Cameron’s “Pig-gate’ and closer to home Don Harwin’s holiday home getaway, there are many examples of men breaking rules, and in some cases laws, with little more than slaps on the wrist and a 2-paragraph article on page 6, showing them up for their misdemeanours.

Yet, here is a woman who came from a broken home and was certainly not raised with the political or actual silver spoon in her mouth, yet she has not only successfully led her country through the COVID-19 pandemic but has navigated her way through a border with a country currently waging war on another. Many would play ostrich to this aggression from a neighbour, yet she has had the conviction to stand up for the same thing that landed the Ukraine in the gaze of Moscow, a NATO membership.

However, as the youngest head of state, she was elected at 34, one who is breaking the barriers of what is expected, attending music festivals and becoming a style icon and a mother, she is also balancing the tightrope of the Victorian era expectations of “how one should behave.” Regardless of how antiquated these opinions are, they have not disappeared, and the descendant, mainly male, voices are not missing an opportunity to shout down this young progressive leader.

Whatever your political leaning, you do not have to agree with her political views to surely agree, there is a significant double standard being waged here.

In a private moment, with supposed friends, she did not break the law, a point she is now taking a drugs test to prove, she did not endanger anyone with her actions, and she did not act in a way which would be seen to embarrass or lessen the position of Finland on the world stage. Yet, the nay-sayers are arguing, from their dusty robes and plaid studies, she is behaving inappropriately for a PM and wouldn’t be able to use sound judgement in the event of a sudden crisis. Yet this attitude from the crusty old relics in the corner does make me reflect on past leaders, no one questioned Churchill, who in an actual war would often be known for having wine with breakfast, whiskey for morning tea and Pol Roger champagne at lunch.

Maybe these nay-sayers should read a little Churchill as (to paraphrase) Yes, she was drunk, but you (and your opinions) are ugly. Tomorrow she will be sober, and you will still be ugly.

Fortunately for Churchill, and unfortunately for Marin, the world of social media is now too accessible. The “being in the know” or “having the skinny” no longer requires you to have been there but being on a friends Instagram account when they post a video of a private party and uploading that to a papers website. This lack of privacy is surely a wider point than a woman, enjoying a legal evening with friends in private?

To circle back to where we started Genesis also sang in their song “Gators getting close, hasn’t got me yet”. Unfortunately for women in the political sphere this is still the reality. Hopefully one day it will change, but for now I say, you can dance Sanna.