Hydrogen: an emission-free, renewable energy source to firm up the electricity grid

As coal-fired power stations begin to phase out of the energy mix, governments and industry are turning towards emission-free energy sources to firm up the electricity grid.

This transition is changing the way the energy market operates. The traditional baseload/peaker system – wherein generators such as coal, hydro or gas provide a stable supply of energy into the grid, with occasional assistance from ‘peakers’ (short-term additional generators dispatched during peak demand) – is disappearing.

Increasingly taking its place is an intermittent/dispatchable system. This involves relying on dispatchable stores of energy (such as pumped hydro or batteries) to support intermittent renewable generators like wind and solar; this is known as ‘firming’ renewables. In the absence of firming, wind and solar would only supply energy when the wind is blowing or the sun is shining. Going forward, there will be increasing demand for a stable and predictable form of long-term energy storage, which can be called upon should demand start to exceed what the intermittent generators can supply – and hydrogen might be a key part of the solution.

The question is often asked – “why hydrogen”? Hydrogen can be stored as a gas or liquid for use at a later time. Unlike coal or gas, it is a green energy source when extracted by renewable electrolysis, which is a process where renewable energy is used to split water into hydrogen and oxygen gas.

The only other major reliable stores of renewable energy currently are batteries (electrical batteries being the most common) and pumped-hydro, but these tend to be shorter term (2-6 hours) storage solutions. Hydrogen on the other hand can be stored long-term (months) in the existing gas infrastructure and can then be dispatched to generate electricity either through hydrogen gas turbines or fuel cells.

Case Study – Grid Firming

The H2City tool, is a publicly available tool developed by KPMG for ARENA in association with the CSIRO. We have used the tool to determine the impact of the use of hydrogen as an electricity grid firmer.

The benefits are clear. For our analysis, we have used the State of South Australia from 2030 onwards as an example, given its electricity generation mix currently features a comparatively larger proportion of intermittent renewables and a comparatively lower quantum of dispatchable renewable assets. As a demonstration, we propose the following example scenario:

  • All carbon emitting generators in the National Electricity Market are shut down by 2030;
  • No connection between South Australia’s electricity network and the rest of the National Electricity Market; and
  • Occasional 3-week long wind droughts, affecting the state’s intermittent renewable supply.

Using these assumptions, the H2City Tool shows a 2031 – 2049 whole of supply chain cost of approximately $95 per MWh for hydrogen-generated electricity. This compares with South Australia’s current 2018 time-weighted cost of $98 per MWh[1]. Interestingly, when we account for the CSIRO-projected increases in small scale fuel cell adoption, lower cost of renewables, and a newer generation of cheaper, larger and more efficient electrolysers, the price of hydrogen generated electricity drops to as low as $27 per MWh in 2050.

The analysis shows that if investing in decarbonising the power generation sector is done at scale with appropriate policy incentives, hydrogen power generation could be a reality within the next two decades. In launching the National Hydrogen Strategy, the Commonwealth Government has raised the stakes even further by proposing cooperation between jurisdictions.[2] With all the talk about grid reliability, decarbonisation and the rise of renewables, hydrogen is Australia’s opportunity to produce a coherent, stable and forward-looking solution to climate change.

[1] https://www.aemo.com.au/-/media/Files/Electricity/NEM/Planning_and_Forecasting/SA_Advisory/2018/2018-South-Australian-Electricity-Report.pdf, pg 39.
[2] https://www.minister.industry.gov.au/ministers/canavan/media-releases/australia-be-world-leader-hydrogen
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