Transcript – Andrew Dickson Energy Insiders podcast

This is a lightly edited transcript of the Energy Insiders podcast

Giles Parkinson  00:04

So Andrew Dickson, thanks very much for joining the Energy Insiders Podcast once again.

Andrew Dickson  00:10

Good day Giles!

Giles Parkinson  00:11

Look, you were one of the many visitors or speakers at the Smart Energy conference last week and it was quite fascinating to see that there was actually a whole tent or a whole sort of section given over to hydrogen plus storage, but really, it was mostly about hydrogen. I mean, the interest and the number of projects, both the number and the scale of them have just grown enormously in the last couple of years.

Andrew Dickson  00:39

No question. I mean, there’s enormous buzz around hydrogen. Yeah, many countries, many states are coming out with their strategies. But from my perspective, a massive part of the hydrogen future is actually an ammonia future. And so that’s, that’s what we’re pursuing through the Asian renewable energy hub.

Giles Parkinson  00:57

David, just wait for two seconds. So ….

Andrew Dickson  00:58

Haha…Give me give me two questions….

Giles Parkinson  01:02

And then you can jump in. So just just for the benefit of our listeners, the ammonia thing I think, was the question I was going to get to next. The Asia Renewables Energy Hub, of which you are one of the major partners along with Intercontinental, a European based company, which incidentally, emerged as a major shareholder in a 25 gigawatt play in Oman, which is quite fascinating, so not the only one. Now, just for the benefit of listeners, yours is now a 26 gigawatt project, 16 gigawatts of wind, 10 gigawatts of solar plus a massive electrolyzer plant. Tell us why, beyond the original idea of a cable, secondary ideas of exporting green hydrogen, why ammonia has suddenly come to form a major part of the picture?

Andrew Dickson  01:52

Okay, so the last time we spoke on this podcast several years ago, we were still planning to export electrons with subsea cables. We’ve always been conceived as a large scale energy export project, the question is how to do that . We pivoted towards hydrogen because, and then ammonia, because we can scale and we can increase the amount of decarbonisation that’s possible, and also, it opens up a much bigger base of customers. So once you load a chemical or a molecule, a fuel effectively, onto a ship, you can send it in theory anywhere in the world. So it increases the number of customers. And also, we’re not constrained anymore by linear infrastructure that has a certain capacity constraint. And therefore, we scaled from a six gigawatt project to a 26 gigawatt project.

David Leitch  02:44

So, Giles and I think alike, because I was going to ask more or less exactly that question. But can you explain for our listeners, why ammonia rather than hydrogen?

Andrew Dickson  02:57

Yeah, okay. So hydrogen is, I mean, in an ideal world we would stop at hydrogen. Hydrogen is a master molecule that can be used for many things. For, you know, hydrogen fuel cell vehicles, for direct reduction of iron ore to produce steel, to combust for power generation. However, it’s a very tiny molecule, it’s number one on the periodic table. And it’s a sneaky little atom that can penetrate and change the materials that it is stored in. So for example, if it’s stored in certain types of steel, it can embrittle the steel because it’s so small it changes the material structure. And to transport a lot of it you need to liquefy it, just like liquefying natural gas to produce LNG.

However, LNG needs to be minus 160 degrees Celsius, roughly, to be liquid, but hydrogen needs to be minus 253, which is almost absolute zero. So that’s a massive challenge. And it takes a lot of energy. Whereas ammonia only needs to be minus 33 degrees. And all the technology risk with you know, storing hydrogen at minus 253 is not an issue at all with ammonia, because it’s been produced and traded for almost 100 years. So yeah, large existing market, future enormous markets opening up for ammonia as ammonia. So yeah, that’s why we’ve we’ve pivoted to ammonia.

David Leitch  04:22

Yeah, so I guess the the cost of shipping and the landed cost in a destination country, like Japan, for instance, or somewhere in Asia, would be a lot less than the landed cost of hydrogen produced in Australia. Is that right?

Andrew Dickson  04:39

That’s correct. I mean, all of this stuff is changing. You know, there are various different carriers or vectors for hydrogen. One of them is liquid hydrogen, one is ammonia, liquid organic hydrogen carriers like methylcyclohexane, methanol. The technologies are all evolving very quickly. But it’s not just shipping. It’s also storing and handling in the host country. But you know, ammonia has been around for a long time. There are, you know, there’s over 120 ports around the world equipped with ammonia terminals. There’s many production sources around the world. So it’s an existing supply chain that can be repurposed away from just fertilizers to power generation and shipping fuels.

David Leitch  05:21

So I guess Andrew, and I hand back to Giles after this one,  I guess we started initially, your project was exporting via electricity through a cable and the market for that. And the decarbonisation market is very obvious. I mean, every country has lots of electricity. The markets for hydrogen are sort of embryonic. There is there’s a market for ammonia, but not at large scale, decarbonisation market, if I can put it that way. So won’t you have to convert the ammonia back to something else? And I kind of know the answer to this question, but, or can you use the ammonia, tell us about the end market in power generation, how we get there?

Andrew Dickson  06:10

Okay, most people who think about hydrogen, think about fuel cells for mobility. Like the, you know, Japanese and Korean vehicles that that have gaseous hydrogen, that’s not what we’re talking about. We’re talking about ammonia as a fuel that can be used to power ship engines, or can be co-fired in thermal power stations. So there’s been a lot of activity in Japan in the last almost decade looking at how to decarbonize their power system. After Fukushima 10 years ago, Japan pivoted back from nuclear generation to a large extent to coal and gas. But you know, at the cost of emissions. So they did a lot of research on how to use hydrogen and derivatives like ammonia to reduce emissions in their thermal power stations.

So you know, I think where this will start is shipping fuels, but also co-firing ammonia in coal fired power stations. So this, I mean, it’s kind of counterintuitive for a renewables guy to be contemplating selling to combust a fuel in a coal fired power station. But it’s actually quite technically easy. And it’s quite scalable. So Japan can ratchet up its decarbonisation by implementing co-firing in coal fired power stations at 20%, co-firing rate, and then ratcheting up 30/40/ 50%. And thereby, you know, having very considerable scaled emission reductions in Japan.

Giles Parkinson  07:42

From that 20/30/40/ 50%, you actually get the equivalent reduction in emissions from the coal generation?

Andrew Dickson  07:48

It totally depends on the type of ammonia. So this is the key. One of the key inputs to ammonia is hydrogen. Ammonia is NH3, so you need both nitrogen and hydrogen. But there are different ways of producing hydrogen. And you may have heard that, you know, the terms Brown, blue, and green. So one of them uses fossil fuels, the other one uses renewable energy. So it totally depends on the carbon intensity of the hydrogen that then determines the carbon intensity of the of the ammonia produced with that hydrogen.

Giles Parkinson  08:23

So just to clarify then, just to make it absolutely clear in my mind, and then hopefully, the listeners mind. So to create this hydrogen, and then this ammonia, you’re basically using your wind and your solar and you’re using that to sort of drive the electrolyzers, which creates the hydrogen, basically cracking water, splitting water into oxygen and hydrogen. And then you’ll be then using that green hydrogen to mix it in with nitrogen to make the ammonia.

Andrew Dickson  08:47

Okay, so I’ll talk you through how the processworks…

Giles Parkinson  08:50

I knew it was too simple.

Andrew Dickson  08:53

I wish I could show you visually, but basically, we have wind and solar at a huge scale over a very big side that generate, that turns the wind and sun into electrons. Yeah. And then we use the electrons for a bunch of what we call downstream processes. So initially, we desalinate seawater to produce fresh water. We then run electrical current through that freshwater called electrolysis, to split off the hydrogen from the oxygen, and we capture the hydrogen. Then we distill nitrogen from the air, about 78% of the air we breathe is nitrogen. So we distill that and then we combine hydrogen and nitrogen to form ammonia, NH3. So that’s the process and each step of that journey, you know, these are all proven technologies, but they’re being combined in a new way to produce green ammonia.

Giles Parkinson  09:41

I’ve just got one other question before heading back to Dave. I’m just wondering about the scale of this thing. We’ve got these sort of breathless press release from the South Australian government this week talking about the country’s biggest electrolyzer so far started operations. 1.25 megawatts, you’re talking about electrolyzers of 14,000 megawatts? How quickly can we scale from 1.25 to 14,000.

Andrew Dickson  10:03

Okay, the first thing to bear in mind is that with projects like ours, we’re not going to build it all in one go. We’re going to build it in phases over around a decade. So we’ll start construction in around 2025/ 26. And we’ll finish construction in the mid 2030s. So I mean, we have enormous wind and solar generation projects. And, I mean, what they are is replicating standardized modules.

You know, 1000s or millions of solar panels, 1000s of wind turbines, it’s exactly the same but also now with electrolyzers. You’re right, though, that electrolyzers are at the very early stages of ramping up in production. Arguably they are where solar PV was maybe 13/14 years ago. There isn’t the capacity currently to do what we need to do. But you know, demand from projects like ours will drive a dramatic increase in production of electrolyzers, which we need, both the large numbers and to drive down the costs.

David Leitch  11:02

So Andrew, I’d like to come back to the costs, because you know, even the desalination process is reasonably energy intensive, and might reduce the economics of the project compared to other ones. And I also want to talk about scale and capacity utilization, if we get time. That’s the costs. But let’s work back to that. Obviously, to get a project like this going, you have to have customers. I mean, I know as an investor or an analyst, that the first thing you look to in say an LNG project is the quality of the revenue, you know, and the customer. How are you going with marketing this? And you mentioned shipping in the first instance. I mean, is, do you think this, what’s the indications of the demand for the project?

Andrew Dickson  11:45

Okay, so all of this is moving very, very quickly. At the moment, the main markets for ammonia are fertilizers and explosives. I mean, at the moment, I mean, ammonia is the it’s the second most commonly produced chemical in the world behind sulfuric acid, almost 100 million tons per year. But almost all of it goes into fertilizers and explosives. What we’re now talking about is ammonia energy. So you know, currently ammonia  NH3, hydrogen is a carrier for nitrogen, nitrogen is what you want for plant growth. Now, we’re kind of pimping it, we’re changing it so that nitrogen becomes a carrier for hydrogen, and therefore ammonia becomes a fuel. And if it’s produced from renewables, as we propose, it’s a clean fuel.

So at the moment, that market doesn’t exist, but it is emerging quickly. So I mentioned Japan.

They just starting their first implementation at a coal fired power station called Hakkinan. It’s a 4.1 gigawatt coal fired power station with five boilers. This year, they are starting to implement in one of the boilers, a one gigawatt boiler, 20% cofiring of ammonia. And then they’ll run a trial for three years. If that is successful, if it works as they hope, then JERA, the biggest generator in Japan, with over 70 gigawatts of capacity, they have a roadmap to roll it out in all of their coal fired power stations starting at 20% and then increasing 30/ 40/50. And that is one of the ways that they will achieve their net zero commitment by 2050.

David Leitch  13:17

Yeah, I read about that project. And it’s interesting. I am guessing that the ammonia they’re using at the moment is not obviously green ammonia, but it’s just ammonia. And I guess an ammonia molecule doesn’t know where it came from. But, and also, I guess there’s a huge cost differential at the moment between dirty ammonia and clean ammonia. So that will kind of preclude for the time, without a big carbon price, using clean ammonia in the fertilizer and explosives industry. Is that a reasonable comment?

Andrew Dickson  13:52

So ammonia prices are have been historically low for the last decade or so. I mean, there was, there’s an overproduction of ammonia, but it’s changing. It’s starting to increase in price. At the same time as green ammonia producers will drive down the cost of green. So green gets cheaper and cheaper over time as wind and solar and electrolyzer scale and decreasing cost. So it’s a very different proposition. And then of course, there’s the issue of carbon pricing. Ammonia is a highly carbon intensive product if produced from fossil fuels. One tonne of ammonia from coal or gas will produce two to three tonnes of co2 at the point of production.

So, but whereas green ammonia has zero, has zero carbon. So as we start factoring in the cost of carbon, bringing in the externalities, fossil fuel based ammonia and hydrogen is very vulnerable. So yeah, the dynamics we expect will shift quickly. But of course markets will start with fossil fuel approaches because they’re available today. And they are currently cheaper. But over the next decade we expect those dynamics to dramatically change.

David Leitch  15:03

Yeah, and I could point for those people that don’t realize that that Japan’s announced this target of, I think, a 45/ 46% reduction in emissions from 2013 levels by 2030. Now, no one’s got a clue how they’re going to achieve it. And you can either believe it or disbelieve it. But if you take the Japanese Prime Minister at his word, then you’d think they’d get cracking very quickly. Can we just come back and talk a little bit about cost sort of things?

I mean, I think we’ve talked a little bit before that one of the key cost drivers for green ammonia is the electrolyzer utilization. You can’t really use the grid to produce green ammonia, because it’s nearly always got a fossil fuel or something in it. Maybe down in Tasmania you could have a go at it. So you, it’s essentially for green ammonia, it’s an off grid application. And then you run into the variability of the wind and solar, can you just talk a little bit about how your project approaches that issue?

Andrew Dickson  16:09

Now, you’re right, the biggest cost contributor to the cost of ammonia is the cost of energy. So that’s both the raw cost of the electrons and the capacity factor at which they’re available. So in our case, I mean, every project is different, but for our project, about 49% of the cost of ammonia is the cost of energy. And so it’s really important to have, you know, as cheap electrons as possible, but also to have the electrolyzers running as much as possible. Because the downstream infrastructure, including electrolyzers, more capital intensive than the upstream, the wind and solar.

So you want to crank the downstream as much as you can. In our view, that means having massive scale, and also having sites that have both wind and solar, where it’s windy at night and sunny during the day. So that’s, that’s really, you know, a key part of our project, we spent a year looking for the best site that had enormous scale, and also had the right combination of wind and solar.

David Leitch  17:10

And I think you’re talking about a capacity factor utilization as high as 70% or something.

Andrew Dickson  17:16

Yeah, we can, we will, we expect to have a utilization factor on our electrolyzers of around 72%. Yep.

David Leitch  17:26

I’ll just hand you back to Giles and after this one. Some projects I’ve seen have tried to approach this by putting a battery in or something to use the excess production, because sometimes the wind and solar will be in excess of the electrolyzer capacity, and you can, I mean, you can run a battery to keep it going when the, say at nighttime or something, is that how it works?

Andrew Dickson  17:46

So bear in mind the scale that we’re dealing with, we’re going to be generating around 98 terawatt hours per year. So batteries are just a drop in the ocean at that scales. Effectively we’re storing energy in chemical form as molecules. So initially we store it as hydrogen, and then we store it as ammonia in large tanks. And that’s what we’re transferring to other countries. The benefit of fossil fuels is, I mean basically fossil fuels are just energy storage. That’s all they are. They just happened to have downsides of being finite and being dirty.

So were turning wind and sun into your new types of fossil fuels, effectively new types of liquid fuels that you can store and transport easily just like fossil fuels. So yeah, batteries will be part of the mix, but probably at a small scale. The key here is actually how you combine a variable wind and solar upstream generation with a downstream process ammonia production that wants to typically operate in steady state in the fossil fuel world. How do you combine variable  upstream with steady state downstream? That’s the challenge.

Giles Parkinson  18:58

That 98 terawatt hours, just to put that in context is equivalent to one half of the output of Australia’s electricity grid. I’ve just got one very technical question here. You talk, you’ve got a diagram from your presentation, 16 gigawatts of wind, 10 gigawatts of solar equates to roughly 14 gigawatts of electrolyzers. Is that kind of like a simple formula? Sort  of electrolyzer capacity will roughly equal half of the wind and solar capacity? Or is that just kind of how you’re in particular intending to sort of, sort of set it up?

Andrew Dickson  19:29

Yeah, I think the latter Giles. I mean, every site will be different. We performed a feasibility study for a whole year in 2019 running through hundreds and hundreds of scenarios of different capacities. You know, wind, solar, electrolyzers, how to lay them out, which technologies to use? And what sort of came out of that study was that mix. So 16 gig of wind with 10 gigawatts of solar power and 14 gigawatts of electrolyzers. But every site will be different.

Giles Parkinson  19:58

And producing about 10 million tonnes of green ammonia. So how much does ammonia sell for a tonne?

Andrew Dickson  20:03

So currently dirty ammonia is, the spot sort of price is sort of mid $200 US per tonne. Green will be a little bit more expensive, not that much more. But yeah, it’s, that indicative numbers. So between sort of two and $400 a tonne.

Giles Parkinson  20:22

I’ll try and do some mental calculations later on to see what sort of  revenue you might be getting out of this investment, but just on this, I mean, we were hearing a lot more about the sheer scale of investments. The hydrogen minister in WA, yes they’ve actually got one, was talking about 100 gigawatts of wind and solar capacity by 2020. Now, we’ve heard of Andrew Forrest talking about his own plans in the Pilbara and other people for the South, in the Murchison, in the Midwest, etc. are you all going to be, is there going to be room for you all? Possibly eventually, but maybe is there a bit of a race amongst you to get in there first? How are you sort of, how important or how worrying is all this competition? Or maybe it’s all just very good?

Andrew Dickson  21:02

So I think of it from a global decarbonisation perspective and a team Australia perspective. So firstly, you know, we’ve got an enormous challenge ahead of us to decarbonize the world in the way that is needed to limit runaway climate change. So we need a rapid transition away from fossil fuels. And ammonia energy is a really key way to do that at scale. So we need lots of projects like ours. We want others to succeed. Obviously, at the moment I mentioned before, the markets are emerging, but they could come on quite quickly.

So you know, we need lots of scale, lots of projects to feed into that global market. Australia has lots of competitive advantage. We’ve got lots of land, we’ve got lots of sun and lots of wind. And we’ve been doing renewables successfully for several decades. And we’ve been, you know, developing and exporting fossil fuels and other commodities for decades. So I think, you know, we’re really in a great position as Australia to play a big part in this future decarbonized global supply chain.

David Leitch  22:04

Andrew, I’ve got a couple of questions and I don’t want to finish on a down note. But I do want to ask about one thing that I think is an issue in using ammonia, particularly when you try to use it instead of gas in a gas style generator, and that is nitrous oxide emissions. Can you just talk a little bit about that?

Andrew Dickson  22:21

Okay, no that’s a good point. That is the challenge in some uses of ammonia. I mean, you know, no fuel is perfect. Ammonia is certainly not perfect. It’s a noxious gas that you know, you don’t want to go breathing large concentrations of it. And it does if it’s burned at a high temperature, without controls, it can produce nitrous oxide, which is a bad greenhouse gas, and causes acid rain. So in coal fired power stations, where this will probably start, ammonia is already used to deNOx the emissions of the coal fired power stations. Now instead of just using it to clean up the emissions, it’s going to be used as a fuel. Within boilers the  temperatures are not high enough and the combustion can be controlled enough to contain the NOx. So the Japanese are leading this work, and they are very confident that NOx emissions will not be a problem in coal fired power stations. It will be more of an issue in gas turbines.

So they’re developing ammonia gas turbines that operate at much higher temperatures and do create more NOx emissions. However, they are confident that within sort of four or five years ammonia gas turbines will be commercially ready that do contain NOx emissions to acceptable standards. But the next market is shipping fuels again, you know, ship engines that burn ammonia, combust ammonia, are under development right now. They should be ready in three or four years. And the OEMs are very confident that NOx emissions will not be a problem.

David Leitch  23:53

That’s great. I’ll just ask one more question. And so before I do that, it’s been a fantastic and clear explanation. And I love hearing about these projects, even while recognizing just how ambitious they are. You know, probably few people have such well developed models as you, or at such scale, to actually talk about the cost of the hydrogen and indeed the cost of the wind and the solar that will go into the making of the hydrogen. What about this two Ozzie dollar target that the Australian Government’s talked about for hydrogen, and you know, is this your electricity price that you kind of imagine for the wind and solar, if you look at that, are we talking about something that starts with a three or a four?

Andrew Dickson  24:37

So, yeah, it’s a timing issue, really. So I think we’ll be very close to that target. We’re certainly you know, well less than $2 US. $2 Australian is difficult in the very short term in the medium term, definitely. As I mentioned earlier, you know, the cost of green ammonia just goes down and down over time, as wind and solar and electrolyzers go down in cost over time. So it’s a timing issue. But yeah, I won’t get any more specific than that.

Giles Parkinson  25:06

Andrew, I can certainly testify to the issue about the the fumes from the ammonia, at my first job after school was shoveling chicken shit on a poultry farm, and 10 million tonnes of this stuff is a little overwhelming. Congratulations on the sort of the scale of your ambition. What’s the next thing that needs to fall into place for you to move forward to, at least sort of kicking it off, I mean, you’re not going to build 26 gigawatts in one go, but you’re going to start, you have to start building in 25/26, but there’s a few ducks you need to line up before then. Principally, what are they?

Andrew Dickson  25:39

Okay, so firstly, we’ve been doing this for a long time. We started six years ago. Late last year we achieved our first environmental approval for 15 gigawatts of wind and solar, then we started our approval process for 26 gig of of wind and solar and all the ammonia production and export. So approvals is the first thing, then obviously progressing to detailed engineering, and then procurement and then financing. So you know, each of those steps is non trivial.

So realistically, our first export phase should reach an investment decision in 2025. And then, you know, our first export should start in around 2028. So, obviously another key part of that is, you know, signing off contracts. You know, like any renewable project or any commodity project, you know, without sales, you have no revenue and you can’t, you know, finance it and construct it. So, yeah, we’re progressing with the development and obviously, we’re in active conversations with potential customers.

Giles Parkinson  26:39

Well, good luck with that, Andrew, and thank you very much for joining the Energy Insiders Podcast.

Andrew Dickson  26:44

Great. Thanks, gents.