Late last year, as the world spiralled deeper and deeper into health crisis, Australian iron ore magnate Andrew “Twiggy” Forrest wasn’t moping about at home waiting for a vaccine like the rest of us. He was dashing around the planet on a private jet, hunting for green electrons.
His audacious Odyssey took he and his 50-strong team to almost 50 countries, where he met politicians and businesspeople to talk about potential renewable energy projects. In the process he caught COVID-19 and spent three days on oxygen in Switzerland. But he insists it was worth it. His plan is to make his company, Fortescue Metals, a pioneer of cheap green hydrogen, and given the pace of change in this industry, he judged he had no time to lose.
His ambitions sound almost absurdly grandiose. He now says he is aiming for an astonishing 1,000 gigawatts of zero emissions energy through projects all around the world. That’s nearly 20 times more than Australia’s total grid capacity, including from coal and gas plants.That emissions-free energy could be used to manufacture green hydrogen on site all over the planet, including in the Pilbara in Western Australia, where he plans to develop 40GW of renewable capacity.
If successful, it would make Fortescue one of the world’s biggest energy companies.
Forrest acknowledges there are naysayers everywhere, but he seems to really believe he can do it. Last month he gave a lecture on the ABC in which he painted himself as a man of destiny descended from a long line of Aussie underdogs who dare to take on the big players and achieve the impossible.
“Eighteen years ago, I was just a young upstart trying to set up Fortescue. Everyone told me I was crazy to take on BHP and Rio Tinto,” he said, striding about the stage like the Outback’s answer to Steve Jobs. “They had a stranglehold on the Pilbara. Almost everyone I met in the industry said it was impossible. But we did it. And in the process, we reduced costs from around US $48 to $13 per tonne.”
While Forrest’s Napoleonic conquest during a global pandemic may be the more dramatic part of the tale, it is this proven ability to cut costs that may be his greatest asset (as any financial analyst will tell you, cost cutting is where business gets really sexy).
Hydrogen’s natural abundance and carbon-free combustibility have made it the holy grail of clean fuels for decades. But while it is the most common element in the universe, it is highly unstable, and left to its own devices always bonds to other elements. Getting hold of it in its pure, useful form, is labour- and resource-intensive and expensive, especially if you want to do it with zero emissions.
Forrest faces at least three huge cost challenges: making hydrogen cheaply using renewably-generated electricity; storing it cheaply and safely; and exporting it. The key is for green hydrogen to be cheaper to produce, store and transport than key competitor fuels or energy stores, such as coking coal, natural gas and lithium-ion batteries.
In theory it is possible. Bloomberg New Energy Finance last year published a report which painted the most optimistic picture yet of green hydrogen’s potential. It argued green hydrogen could fill up to a third of the purposes currently filled by fossil fuels.
However, it must see the cost of production cut from around $US5 per kilogram to less than $US2. That would almost certainly require a price on carbon. Bloomberg NEF says at least $US50 a tonne would be needed to make it competitive with coking coal; $US78 to make it competitive with natural gas in ammonia production; and a whopping $US145 a tonne to make it a competitive shipping fuel.
The term “carbon price” remains taboo in Canberra, but in Europe carbon is currently trading at around 38 euros, or $US46. That’s just $US4 short of where it would need to be to make hydrogen competitive as an alternative to coking coal in the steelmaking process. The EU is already planning to introduce carbon border taxes for countries without carbon pricing. If that takes off in Australia’s most important export markets, it could conceivably force an about-face on carbon pricing in Canberra.
That would be good news for Forrest, who wants to turn the Pilbara into a green steelmaking region, using the iron ore it digs up in that region, and the hydrogen manufactured down the road by the massive 40GW of wind and solar power he says Fortescue is planning. He claims he does not need carbon pricing to make it viable, but it would certainly help.
It should be noted the Bloomberg NEF study is much more bullish about the potential for green hydrogen than others. UK-based climate publication Carbon Brief last November reviewed a number of views about the role hydrogen will play in the net zero economy. The general consensus was that green hydrogen would be a secondary technology to supplement widespread carbon-free electrification.
Forrest is more bullish than that. He seems to believe hydrogen fuel cell vehicles, for example, will be a genuine competitor to lithium-ion battery electric vehicles, a view most experts reject, and which Tesla boss Elon Musk has dismissed as “mind-bogglingly stupid”.
Forrest’s answer to Musk is something along the lines of, “No, you’re mind-bogglingly stupid.” But at this point it is very hard to see the economics changing to the point that hydrogen beats battery EVs for cars. But on the steel front, he is surely onto a winner. Hydrogen is the great hope for zero emission steelmaking as there are no obvious alternatives other than coal. And demand for steel won’t diminish in a net zero world.
Climate policy guru Ross Garnaut and the Grattan Institute’s Tony Wood both back turning Australia into a green steelmaking nation, and have laid out plans to do so (Wood says the Hunter coal region in New South Wales is a more appropriate place to build green steelworks than the Pilbara because it has a higher population and a workforce that could be repurposed as coal jobs dry up).
Forrest seems to relish the challenge of making this happen, and his language began to soar at last month’s lecture as he imagined the process of cutting costs and out-competing the fossil fuel sector.
“We nudge the wheel, make sure our systems work, reduce costs, free up capital and create demand. Then we encourage that momentum and reduce costs further, creating an even larger, more reliable supply, that again creates more demand.The flywheel begins to spin, on its own, faster and faster. Now, we’re building – at global scale – the flywheel of green energy.
“But let’s not underestimate the challenge,” he warned. “The fossil fuel sector will react to falling green hydrogen prices by slashing the cost of oil and gas until it’s almost zero. At the end, it will be grim – think of a knife fight in a telephone box.”
It’s a knife fight Forrest intends to win. Having a ruthless fighter – and a giant ego – like Twiggy in its corner may be just what green hydrogen needs.
James Fernyhough is a reporter at RenewEconomy. He has worked at The Australian Financial Review and the Financial Times, and is interested in all things related to climate change and the transition to a low-carbon economy.