Hydrogen power plant in South Australian would already be profitable, analysts say

A hydrogen production facility paired with a hydrogen fuelled gas generator would already be generating profits in South Australia, new economic analysis suggests.

Cornwall Insight Australia’s senior storage consultant, Benjamin Macey, said that a South Australian Labor party proposal to build a 250MW electrolyser to produce hydrogen for energy storage in the state could already be profitable at current targeted technology costs.

A year out from the next state election, the South Australian Labor opposition has promised a  to spend almost $600 million to construct a dispatchable hydrogen generator, including a $220 million spend on the construction of an electrolyser, $31 million on a liquid hydrogen storage infrastructure, along with a $342 million commitment to build a 200MW hydrogen fired gas turbine.

It differs from the current state Liberal government, which is seeking to encourage the development of three different hydrogen hubs for the state, largely drawing on private funds and with an eye to the export market.

Cornwall Insight Australia modelled the performance of a hydrogen generator during the past summer, finding the project could have generated a profit of around $47 million during the period if hydrogen was sold at the federal government’s target of $2 per kg and after the cost of energy and finance were accounted for.

Key to the project’s profitability would be the ability to provide dispatchable power, and for the hydrogen fuelled generator to participate in frequency control and grid stability markets.

“Our research shows that if such a plant were in operation at the stated capital costs, it could be profitable. In addition at the 20% utilisation factor, approximately 1,517 tonnes of hydrogen would have been effectively produced. This also could have been stored in the proposed storage facility,” Macey said.

“It should be noted that the financing arrangements using government debt make the project viable and would be difficult to finance on a commercial basis without a clear offtake market and incentive to invest.

“Additionally, the SA government value from job creation, economic growth and supporting the transition to cleaner fuels would not be considered in the benefits of a commercial business case.

It said that if Australia is to compete globally in hydrogen exports, governments will need to assist the industry and be a first mover.

“Similarities can be made to the support government has given to battery storage. We estimate there is now over 1GW of battery projects proposed in South Australia with at least seven virtual power plants in operation,” Macey added.

Interestingly, the analysis of current hydrogen production costs suggests that a hydrogen fuelled power station would be more profitable with a lower electrolyser capacity factor, with proportionately higher revenues being received by more lucrative FCAS services.

Hydrogen has rapidly emerged as a potential new option for storing and transporting energy produced from wind and solar projects – presenting a new opportunity for Australia to position itself as a global supplier of zero emissions energy.

South Australian Labor’s plan would effectively tap into the state’s growing supplies of wind and solar to produce hydrogen for energy storage. The Hydrogen Jobs Plan launched in March would include capacity to store 3,600 tonnes of liquid hydrogen, providing up to two months of supply.

The plan could provide an option for effectively using any surplus wind and solar energy, potentially helping to limit a requirement for rooftop solar systems to be remotely turned off by grid operators on particularly sunny days.