Hydrogen Headstart risks increasing carbon

I want to talk about the federal government’s Hydrogen Headstart project and how it risks dramatically increased carbon emissions.

https://consult.dcceew.gov.au/hydrogen-headstart-program-consultation

A crucial aspect of hydrogen produced by electrolysis is that is generates more emissions if the power used comes from fossil fuels.

Hydrogen produced by steam methane reforming (SMR) of natural gas releases 9kg CO2/kgH2 according to the IEA. Meanwhile making hydrogen via an electrolyser consumes about 50kWh/kgH2. The carbon intensity of Australia’s black coal fleet comes in at around 0.9kgCo2/kWh. So Hydrogen electrolysis powered purely by black coal would have a carbon intensity of 45kgCO2e/kgH2, about 5 times worse than steam methane reformation.

Another way of saying that, is that if electrolysis causes additional coal generation for any more than 20% of the time it’s operating, then it would be more polluting than the status quo of grey hydrogen.

And of course, it is marginal emissions that matter. If a new load is added to the grid, and there is no change to renewables, then coal and gas generation will increase. Hydro doesn’t count for marginal emissions calculations, because more hydro now means less hydro later (and vice versa). More coal and gas generation = more emissions. Much more.

So new electrolysis load must be matched by new renewables investment if it is to be climate positive.

But the Hydrogen Headstart program creates no linkage to additional renewables. Projects must surrender LGCs, or Renewable Energy Guarantee of Origin certificates (REGOs) (from a yet to be created scheme). There is no requirement that those certificates must be created from new renewables projects. I’m actually not too concerned about that as more demand leads to higher prices leads to more renewables.

But, it’s important to note that simply annually matching the volume of energy used by electrolysis with new renewables is not necessarily enough. Jesse Jenkins and the ZERO lab cover this in much more detail when analysing the carbon impacts of hydrogen electrolysis in the US. https://engineering.princeton.edu/news/2022/12/20/without-guidance-inflation-reduction-act-tax-credit-may-do-more-harm-good

Basically, there will be periods in each region, when wind, solar and energy storages are low, and coal and gas will be meeting incremental demand.

Ideally, Hydrogen electrolysers would flex downwards in these price periods to save on cost and emissions, but the Hydrogen Headstart program will actively distinctivise flexibility. Hydrogen Headstart proposes to pay project a “‘Hydrogen Production Credit’ (HPC) for each kilogram of renewable hydrogen”. So hydrogen projects will be getting a highly valuable payment that will allow them to pay top dollar for electricity. Projects will be incentivised to have a high capacity factor to maximise that HPC, meaning they will rarely curtail outside of price spikes. If we design our Hydrogen infrastructure to operate baseload, we will have to build more power storage .

A simple fix is to issue the HPC only for hours of the year when fossil fleet utilisation is below average.

Electrolysis could still operate at higher than 50% capacity factor, if they could justify the cost of doing so. But electrolysers would be much more price-responsive in project design phase and in operations and would act in a way that actually helps absorb renewables in the grid and lowers emissions rather than creating a need for more firming which often comes from fossil fuels.

Other policy solutions exist, but for now the marginal carbon impact of electrolysers is not even considered as a risk or an objective in the policy conversation.