National Hydrogen Strategy Issues Papers

The National Hydrogen Taskforce is working on developing a strategy for a potentially huge hydrogen export industry. That is, generating hydrogen in Australia for export to our neighbours in Japan and South Korea, for example. To achieve this, it will be necessary to install equipment for the generation, transmission and export of hydrogen. Given the scale of the potential markets, large capital equipment will be required, and it is likely that most of this will be assembled if not completely manufactured in Australia. The establishment of manufacturing and assembly of green hydrogen equipment should also enable Australia to export the technology itself to other regions that have wind and solar resources, thereby creating another revenue stream from technology export.

It is also essential that Australia develops its own domestic market for hydrogen energy. Indeed, why would any nation want to invest in Australia if it did not have the confidence of supplying hydrogen that we generated within Australia country to our own consumers?

There is a general acceptance amongst proponents of hydrogen energy that increasing the scale of equipment manufactured will decrease the capital cost per kW. This is evident in recent presentations by NEL and ITM-Power, for example, who have invested significant funds into building larger factories in their home countries. The reality is that the benefit of scale is not uniform. For example, the proportion of the cost of control equipment is highest for small installations, making the cost per kW for such systems proportionately larger than for large installations. However, the cost per kW for large electrolyser stacks can be expected to level out once a certain level of scale is reached. The same will apply for compression stations and compressed storage systems. What will have higher impact is a lower capital cost even at small scale brought about by significant technical advances in the technology. This could apply to electrolysers, to compression equipment incorporating advances such as ionic compression, and alternative storage methods such as chemical hydrides.

As an example, Ethical Developments is working with overseas partners to commercialize a hydrogen generation system that, though the conversion efficiency is comparable with that of conventional alkaline or PEM electrolysers, offers a significant reduction in capital cost. We are aware of other technologies that are also at the R&D stage that could similarly leapfrog the existing PEM and alkaline systems.

Australian governments could support technology research, demonstration and development of game-changing technologies to remove or lower barriers to market entry and reduce investment risk. Australian governments could also support international collaborations to effectively build on and commercialise overseas developments. An important aspect of risk sharing is to bring together the technology providers, funding agencies, and end-users, to form consortia that can attract higher levels of funding than would be available to single companies or organisations.

In the early days, it is unlikely that all the skills necessary for the development of a hydrogen industry will be available within Australia. It has been recognised that some skills will already be in place in the natural gas industry, for example. Nevertheless, experience with the few hydrogen systems established in Australia so far (e.g., the Sir Samuel Griffith Centre in Brisbane) suggests that it will be necessary to bring skilled workers from overseas as a first measure. Governments could provide favourable migration terms for such skilled workers. Similarly, travel grants could be made available for suitably qualified people within Australia to attend training courses and events overseas.

Rob O’Byrne of the Logistics Bureau* has described seven properties that are to be found in successful supply chains:

1. Strategy

According to a 2012 report into corporate insolvencies by the Australian Securities and Investments Commission, 44% of businesses in Australia failed because of poor strategic management. Supply chain strategy is critical to business success, but companies often underestimate its importance and hence pay it less leadership attention than other areas of operation.

2. Design

Note that many industries have established international supply chains. This will almost certainly be the case for the new hydrogen industry. Therefore the industry has to understand the full implications of reliance placed on overseas suppliers. Design also includes the establishment of warehouses for outbound distribution and the need to hold replacement parts for capital equipment. Electrolysers from European suppliers, for example, will need a significant base in Australia, and ideally will carry out final assembly and integration, even some aspects of manufacturing in Australia. Rapid response to equipment malfunction will be essential in a system as wide-reaching as the new hydrogen industry, to avoid public disappointment.

3. Service Performance

Poor performance by the supply chain can include:

• Slow time to market for new products
• Long delivery lead times
• Delays in response to customer service requests
• Poor order fill and on-time delivery performance
• Inventory shortages
• Poor product or service quality

To reward good performance The Carbon Trust Standards have been in place for the past 10 years and have helped various sectors scale up their supply chains. The standard have provided recognition for organisations that take a best practice approach to measuring and managing their environmental impacts, achieving real reductions in these year-on-year. The Carbon Trust provides a framework for organisations to enhance their operational sustainability, improve efficiency and resource management at the same time as cutting costs.

4. Costs

Many factors need to be considered with costs, including those associated with manufacturing the equipment, transport and logistics, and cost of warehousing. For an Australian hydrogen industry to reach its full potential, each cost must be addressed. Ideally equipment should be manufactured in Australia, and several suppliers have already indicated that they will at least carry out system integration within Australia even if all of the component parts of a system are not manufactured here. Distances in Australia are great and could contribute to high costs; perhaps there is an argument in having distribution centres in all the major states and territories, for example.

5. Supplier Performance

Collaboration between an organisation and its key suppliers is the only sure protection against supply bottlenecks and inventory shortages, both of which can otherwise get in the way of business success. In Australia, Governments should provide incentives and assistance for international collaboration with suppliers, to ensure that the industry has a credible chance of successful growth.

6. Ethical procurement and corporate responsibility

Organisations can fail due to unethical behaviour amongst suppliers. For the new hydrogen industry, it will be essential that suppliers maintain a high level of responsibility in terms of safety. It will be essential that international suppliers provide equipment that is compliant with the relevant international (and Australian) standards. It will also be essential that any supplier claiming that hydrogen is green, be held to account and provide the necessary guarantee of origin.

7. Inventory management

Inventory management can dramatically affect working capital and potentially, cash flow. It therefore has a direct impact on company profitability and can help in terms of measuring supply chain growth.

When should the various activities needed to prepare for hydrogen industry scale-up be completed by? What measures and incentives are needed to achieve these timings?
Early demonstrations of hydrogen production facilities can be expected to be set up in Australia within the next 18 months to 2 years. By then it will be necessary to have some skilled workers available for the installation, commissioning and maintenance of equipment. A priority therefore should be to establish a means of training Australian workers and providing them with certification to ensure that they have the necessary competencies required for the new industry.

* https://www.logisticsbureau.com/7-reasons-why-the-supply-chain-matters-to-business-success/

Existing funding from ARENA will not extend beyond 3 to 5 years and the level available will be unlikely to support more than a few demonstration project. The recent ARENA A-Lab showed that there is already a willingness on the part of industry and enterprises in Australia to do more than this, e.g., one suggestion was the roll-out of 100 fuel cell buses around Australia within the next 2-3 years based on success over the past 10 years in London alone. Note that the operator of the London buses is Transit Systems, which is an Australian company.

If experience in Europe is taken as a guide, most of the support for the development of hydrogen within leading countries such as Germany and the UK, has been a direct result of a commitment of the governments to reducing greenhouse gas emissions. As signatories to the COP21 and other international fora, these countries see the introduction of hydrogen energy as one of the methods of achieving the targets that have been set and agreed to internationally. This approach is sadly lacking in Australia. Without a change of the fundamental position on climate change, it is very difficult to see how any measures proposed by the government are going to influence the development of a hydrogen industry here. We therefore need a robust climate change policy lead from the Federal Government to give credence to the efforts of ARENA and others to fulfil their role in promoting renewable and hydrogen energy.

A policy on climate change will have a benefit in terms of encouraging uptage and acceptance of hydrogen energy as an alternative to fossil fuels. In the short tem, grant funding will benefit developers, in the medium term measures such as tax incentives and subsidies for the adoption of hydrogen could be used (as has been successfully applied to the solar industry). In the longer term, governments should focus on measures that will continue to stimulate the markets.

Expertise in installation and commissioning of green hydrogen production (electrolyser) technology needs to be supported and at a national level. A national curriculm for training would be one avenue worth pursuing. This would include training for supporting local generation for transport applications (onsite electrolysers for service forecourts, especially long-haul trucks and buses). Also hydrogen generation for niche markets such as forklift trucks, and marine craft such as ferries (especially e.g., in Brisbane and Sydney).

Buses have successfully propelled hydrogen energy in other countries, and continue to do so. In Australia long-haul buses, and possibly freight trains, could also have a significant niche benefit.

Buses are a great application of hydrogen energy, especially bus services on municipally operated routes. Buses are highly visual and can assist in assuring the general public isa safe and clean alternative to fossil fuels. At the same time, councils can realise significant positive feedbac, by reducing emissions by adopting hydrogenfuel cell buses to replace retiring diesel buses. Establishing filling stations for buses could have a dual use for early adopter fuel cell cars, likely to be council fleets in the early stages of adoption.

The Australian public needs to commit to reducing carbon emissions. Once on board, the adoption of hydrogen as an alternative to fossil fuels will readily be accepted. We only need to look back at the adoption of the internet. Today it’s hard to imagine life without email and Google.

Hydrogen Refuelling infrastructure overseas has largely been established by major fuel companies often in partnership with equipment suppliers – e.g., Shell in partnership with Linde and ITM-Power, with significant funding from respective country governments. This approach now enables, for example, the ability to drive from Norway to Germany with sufficient stops along the way.

Australia’s approach must give priority to the heavy vehicle sector which is essential to the national economy. A comprehensive strategy is needed to engage the heavy vehicle sector.

A sensible approach would dictate that the Inland Rail project should mandate hydrogen rail and in doing so, facilitate the adoption of hydrogen as an alternative to fossil fuel throughout regional Victoria, New South Wales and South East Queensland.

There is competition starting to evolve in the supply chain. It is important that consideration be given to the procurement process and that no one technology dictates the mandate across the country. A consortium approach therefore is problematic at this early stage.

The Federal government should support the endeavours of local and state governments who are keen to support and enable hydrogen consortiums to come together to establish infrastructure for hydrogen refuelling. However, bus and ferry operators will take time to swap out their fleets for fuel cell alternatives, so the journey to transition will take time, easily more than a decade. In this time, costs will come down as the world transitions and the technology will improve. Awareness of green hydrogen and what it means, will drive consumer demand for zero-emissions product. The market will make its own way, however governments at all levels must be prepared to support the emerging hydrogen industry every step of the way.

Getting fuel cell cars, buses and ferries into mass operation is therefore is not a simple exercise. We need to consider water requirements for green hydrogen generation in terms of local availability and purity requirements, and establishing the appropriate renewable energy sources as well.

Early adopter customers must have the confidence that they will be able to fuel their vehicles on-time and safely. This is not necessarily the work of government; however, government must clearly support the industry to assist in the early establishment of hydrogen supply and to provide the necessary market confidence the industry needs to move forward quickly.

Government can support private investment through tax exemptions and incentives for the purchase of Hydrogen equipment and vehicles.

Overseas, numerous countries have used incentives for early adopters such as free tolls, registration and parking. These sorts of incentives get people talking and companies, in particular freight companies are always looking at their bottom line. Australia needs to grab this opportunity with both hands and just do it.

At the same time up skilling for the emerging hydrogen industry is particularly important and costly for hydrogen equipment suppliers during establishment. Incentives to up skill Australian employees would be particularly attractive.

Hydrogen fuel cell vehicles are currently being manufactured by all of the major brands. In a very short time, fuel cell vehicles will not be “new technology”. They will improve and evolve for sure.

By government committing to purchase or assist in underwriting the purchase of vehicles, we will see more fuel cell vehicles on the road. Pricing will go down as more vehicles are manufactured. The industry will evolve, and consumers will have more choice as to where they can fuel and the type of hydrogen fuel they purchase (green or blue).

The only choice the government and industry has is to recognize the emerging global hydrogen industry and support a new industry sector for Australia, embracing the vehicle manufacturers and suppliers as they transition to hydrogen fuelled vehicles.

Supporting local councils financially in the adoption of hydrogen vehicles for public use would be a huge leap forward. Australia already has a bus, ferry and train manufacturing capabilities. Financial incentives to encourage the early adoption of fuel cell transport would be a hands down winner.

• Fuel Cell buses could be realised within 12 months.
• Fuel Cell passenger ferries within 2 years.
• Fuel Cell heavy trucks, trains and long-distance shipping are already in use overseas in small numbers.
• Forklifts are already manufactured and available and need refulling options.
• Fuel-cell vehicles such as light duty vans are already being manufactured.
• Emerging technologies include hydrogen-fuelled drones which are being developed by several companies. The key driver for adoption in transport applications is reliable fuelling options. Collaborations in this regard could see early adopter use within 2 years.