National Hydrogen Strategy Issues Papers

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Daniel Brass

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Mondo Power

Issue 7: Hydrogen to support electricity systems

1. How can hydrogen production best be integrated with current electricity systems (for instance, should large-scale hydrogen production be connected to current electricity systems)? Are there barriers or risks to integration that need be addressed in the Strategy?

How can hydrogen production best be integrated with current electricity systems (for instance, should large-scale hydrogen production be connected to current electricity systems)? Are there barriers or risks to integration that need be addressed in the Strategy?
Large scale hydrogen production connected to the electricity grid could have benefits to the electricity
network, provided that the following conditions are met.

Firstly, the point of connection to the grid needs to be such that either there are sufficient local generation
sources, and/or sufficient network capacity to bring in remote generation sources. By achieving better
balance between local generation and demand, issues associated with poor loss factors could be
addressed.

The second condition to be observed is that hydrogen production should be able to be curtailed when necessary, either due to supply deficiencies, or network considerations. Ideally, curtailment should be feasible at very short notice, and be able to be sustained for periods of several hours or even days. If the production facility can meet certain curtailment conditions, it may be able to participate in the frequency control ancillary service markets as well as network support services.

If these conditions are met, then it is conceivable that hydrogen production integration with the electricity system could have a beneficial impact.

2. What, if any, future legislative, regulatory and market reforms are needed to ensure hydrogen supports, rather than hinders, electricity system operation and delivers benefits for consumers (for example by reducing demand during high price events)? What is the timeframe, and priority, for these changes?

What, if any, future legislative, regulatory and market reforms are needed to ensure hydrogen supports, rather than hinders, electricity system operation and delivers benefits for consumers (for example by reducing demand during high price events)? What is the timeframe, and priority, for these changes?
The current regulatory arrangements should in broad terms, be sufficient to attract hydrogen production facilities at the right locations, and to provide incentives for load curtailment. There are current regulatory changes proposed regarding loss factors and local regional pricing which could have an impact, but these should provide greater incentives for large scale flexible loads.

3. Do current market frameworks incentivise the potential value of hydrogen to support electricity systems? What initiatives or changes required?

Do current market frameworks incentivise the potential value of hydrogen to support electricity systems? What initiatives or changes required?
Existing frameworks provide a variety of options to incentivise the potential value of hydrogen to support the electricity system.

As a source of electricity, a hydrogen generator can participate in the NEM and ancillary service markets (FCAS) in much the same way as traditional gas generators. As a load, hydrogen electrolysers can also provide FCAS as well bidding into the electricity market to take advantage of low wholesale prices. Hydrogen electrolysers may also select to access the wholesale market value by providing demand response. We note that the Australian Energy Market Commission (AEMC) is currently considering a rule change which would make this possible.

While the electricity market frameworks do not pose significant barriers to realising the potential value of hydrogen, we note that the capital cost of electrolysers does. It may therefore, be appropriate to consider interventions which reduce the cost of electrolysers for trial projects.

4. Do current market frameworks allow for sector coupling and interactions between different markets that may result from hydrogen production (such as the interplay between gas, electricity, and transport sectors)? If not, what changes are required?

Do current market frameworks allow for sector coupling and interactions between different markets that may result from hydrogen production (such as the interplay between gas, electricity, and transport sectors)? If not, what changes are required?
The current rules and policy for gas, electricity and transport are not well integrated, and could not be described as being coupled. With regard to hydrogen at least three areas of sector coupling are noteworthy:
• Gas distribution networks & gas fired generation
• Transport
• Industrial (Chemical processing)

The coupling of each of these sectors and hydrogen would be enhanced by considering and aligning the technology roadmaps in each sector. This would identify emerging sector interfaces and the regulatory, market and technology factors which impact sector coupling.

In relation to gas fired generation, there has been a recognition that better alignment of the national electricity rules and the national gas rules is warranted and that this would benefit gas fired generators. Advancing these reforms would also help coupling of the electricity and hydrogen sectors, since hydrogen generators will face many of the same issues as traditional gas fired generators.

5. What factors should be considered when selecting pilot and demonstration projects? How can government best support pilots and demonstrations?

What factors should be considered when selecting pilot and demonstration projects? How can government best support pilots and demonstrations?
Ideally, government should draft clear long-term goals and objectives which have been agreed through consultative processes. Once these long-term goals are in place, it would then be clearer what pilot projects should be supported – i.e. those that deliver discrete advances in technology, commerce or policy which also move the sector toward the agreed long-term goals.