Hydrogen - House View - Making a positive contribution to New Zealand - Z Energy
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House
View
August 2019
Hydrogen
Making a positive contribution
to New Zealand
Photo: Nikola Motor Company
Z Energy House View: Hydrogen 2
Summary
House View
A substantive hydrogen A number of large-scale
1 Hydrogen is technically ready, 5 economy would require 9 transport related asset
and manufacturing scale-up
can occur if market conditions interventions such as an export replacement decisions (ferries,
are right. However, it currently commitment, regulatory support trains and buses) present
has significant economic and or industry led establishment of opportunities to transition away
affordability challenges. a mega-scale production facility. from fossil fuels.
2 Green electrolysis of renewables 6 Exporting hydrogen could be 10 Conclusion: It is too soon
and blue reforming of natural challenging given NZ’s relative to commit to hydrogen as a
gas (see below) are the most competitiveness. decarbonisation option, but
likely pathways for hydrogen neither should we dismiss it.
production. 7 Different transport use case
needs may lead to a broader
There are a wide range of views range of fuel solutions in a
3
on the applicability of hydrogen decarbonised world.
for New Zealand.
Hydrogen (or a derivative fuel
Electrification is still
8 such as ammonia) is a real option
4
the dominant theme of to meet the needs of transport
decarbonising in many use cases. operators for certain use-cases
but it will take some time for
cost-effective hydrogen fuelled
vehicles to grow to material
volume.
Common terms used in this document
Fuel Cell Electric Vehicle (FCEV) most common hydrogen fuelled commercially available powertrain.
Fuel cell converts hydrogen to electricity which is often stored short term in a
small battery. Motive power through electric motors.
Battery Electric Vehicle (BEV) vehicle with onboard battery storage powered via electric motors
Internal Combustion Engine (ICE) typical petrol / diesel fuelled engines
Green Hydrogen hydrogen produced from renewable energy
Blue Hydrogen hydrogen produced from hydrocarbons, but with a high degree (typically 90%) of
carbon capture and storage
Brown Hydrogen hydrogen produced from hydrocarbons, with CO2 emissions to atmosphere
Carbon capture and storage (CCS) capture carbon either from the emissions of an industrial process (e.g. power
generation, chemicals processing) with reinjection into suitable underground
geological structures or depleted gas fields
Use Case description for the way in which a customer will use a product to achieve an outcome.
Z Energy House View: Hydrogen 3
Hydrogen is technically ready,
and manufacturing scale-up
can occur if market conditions
are right. However, it currently
has significant economic and
affordability challenges.
Hydrogen is used in a wide variety of There are a number of projects globally New use case examples include:
industrial applications today, including investigating various uses of hydrogen • Hydrogen as a fuel in combustion
at Refining NZ and the Ballance urea in different parts of the economy, such processes (such as power
plant in Kapuni. Production, storage Port Lincoln Green Hydrogen Plant generation) would require
and distribution are relatively mature in South Australia. In other countries, investment but the obstacles can be
technologies, even though the subsidies and/or different market resolved.
solutions are designed for current signals, such as substantially higher • Commercial transport use (heavy
demand use cases. costs of mineral diesel, are stimulating transport) is technically feasible and
early investments in hydrogen, such hydrogen vehicle manufacturing
Hydrogen can also already be used as as the Hynor Project that will provide is transitioning out of pilot phase
an “energy carrier” without additional a “hydrogen highway” in the heart of on the promise of a decarbonised
technology R&D, such as by blending Norway. energy future.
into pipeline gas.
While these use cases can be met
with hydrogen today the economic
Green and blue hydrogen can signal to use hydrogen (or alternative
decarbonisation options) results in low
refresh those parts of the energy or no uptake.
system transition that electrification Z’s view of what would be needed to
encourage hydrogen uptake in new
cannot reach. Dr Angela Wilkinson, Senior Director,
Scenarios and Business Insights,
use cases such as transport include:
• New regulations, particularly around
World Energy Council June 2019 ensuring safety requirements are met.
• Technology adaptation, for example
modification of equipment to use an
“Hydrogen and fuel cell technologies have experienced cycles of high alternative fuel.
expectations followed by impractical realities. This time around, however, • Achieving economies of scale to
falling renewable energy and fuel cell prices, stringent climate change drive down cost.
requirements and the discrete involvement of China are step changes. • A carbon price that would improve
The combination of these factors is leading to realistic potential for the affordability of hydrogen against
hydrogen’s role in the Grand Transition” fossil-fuels.
World Energy Council 2019
The Government is currently working
on a national green hydrogen strategy
due for release in the second half of
2019, which will likely provide some
economic and regulatory signals.
Z Energy House View: Hydrogen 4
Green electrolysis of renewables and
blue reforming of natural gas are the
most likely pathways for hydrogen
production in New Zealand
Renewable electricity can be used is a by-product and is emitted to the gas field is used to store natural gas
to produce hydrogen by a process atmosphere. This is known as “brown” extracted from other gas fields in
called electrolysis, resulting in “green hydrogen. Taranaki, to provide flexibility in dry
hydrogen”. The technology has The CO2 can be captured, although hydro years (like a large battery or
been around for a long time, and capture rates are not yet 100%, and the lake). The storage part of CCS would
with renewed interest is attracting costs of doing so can be significant. be similar, except that the CO2 would
significantly more investment which Hydrogen produced through this be stored permanently.
makes its costs likely to fall. method is known as “blue hydrogen”.
However, there are currently significant It’s better than brown, but not as good CCS involves capturing CO2
energy losses in the process which as green, provided the electricity released by industrial processes,
means the cost of producing hydrogen used to manufacture the hydrogen compressing it and then
is high. While the capital costs of is renewable. A new engineering transporting it to an injection
site to be sequestered deep
equipment (electrolysers) and their technology, called the Allam Cycle,
underground for safe, long term
efficiency will no doubt improve, claims to be able to fully capture
storage in suitable geological
there will still be a significant cost carbon, but that is not yet proven at
formations – similar to the way
disadvantage for green hydrogen vs commercial scale. oil and gas has been stored
other means of producing hydrogen. CCS is receiving significant investment underground for millions of years.
Industrial process in New Zealand globally as it is seen as an essential
and globally typically use steam transition pathway for a number of Both the International Energy
and a catalyst to process natural economies as they move from coal to Agency and Intergovernmental
gas (methane, CH4) into hydrogen, gas for power production. Panel on Climate Change believe
at very large scale and lower cost that CCS can play an important
There are no CCS projects in New role in helping to meet global
than green hydrogen. However, the Zealand, although there is a similar emission targets
downside is that carbon dioxide (CO2) project where the depleted Ahuroa
Z Energy House View: Hydrogen 5 There are a wide range of views on the applicability of hydrogen for New Zealand As a result of interviewing customers, that they see significant lead times as ideal, blue is seen as either an participation in various working groups before real options exist to purchase acceptable transitional compromise or and meeting with sector participants, alternative hydrogen fuelled vehicles. a potential distraction that may derail Z’s view is that level of knowledge, Customers indicated they are generally a transition to a fully renewable energy awareness and understanding of not keen to pick winners but are open source. hydrogen as a fuel is varied across to options, whether they be electric, Z’s view is similar to the most common government, industry and customers. hydrogen fuel cell or biofuel-based view of green hydrogen being Z’s customers, particularly commercial alternatives. Customers have also preferred, but that blue hydrogen, if customers, are keen to find out more indicated strong interest in biofuels as proven to be low emissions and cost about alternatives to hydrocarbons a transitionary fuel because it reduces competitive through effective carbon and are genuinely considering their emissions, and doesn’t require specific capture, is an acceptable source of fuel own role in decarbonisation their infrastructure, vehicles or significant while the hydrogen market is being businesses. Common themes were changes to operating practices. established. that New Zealand is a technology A wide range of views exist on the taker, has unique issues (e.g. specific acceptability of brown, blue, or green heavy transport vehicle configurations produced hydrogen. While most see required for local conditions) and brown as unacceptable and green
Z Energy House View: Hydrogen 6
Electrification is still the
dominant theme of decarbonising
many use cases
Electrification is becoming the Z’s view is that electrification will Heavy transport vehicles use more
dominant “alternative fuel” choice as it dominate the light vehicle fleet in NZ. energy, and coupled with longer range
can utilise established infrastructure, Range anxiety issues are expected requirements, would result in a battery
and considerable investment is to be overcome with the newer that would have a significant weight and
resulting in rapidly growing availability generations of electric vehicles with space penalty impact on the transport
of vehicle options and increasingly significant improvements in range. A operator.
energy efficient battery technology. number of electrified light commercial Hydrogen is one of many alternative
Direct use of electricity does not require vehicles and short-range electric buses options for these applications. Others
new handling infrastructure that would are becoming available that are meeting include biofuels (biodiesel, bioethanol,
be required with hydrogen, and is more the needs of transport operators and biojet), biogas (biomethane, gasified
efficient on a “well to wheels” basis (at business owners. biomass), and synfuels (synthetic fuels
least twice as efficient as hydrogen, due That said, it is uncertain whether cost produced to similar specifications to
to lower conversion losses) and weight improvements will be existing liquid-based fuel).
Globally, significant investment is sufficient to enable electric vehicles Hydrogen carriers, such as ammonia
directed towards electrification backed to meet the needs of marine, aviation, and methanol, can also be combusted
by renewable energy. Investment in heavy transport and some materials directly or converted to electricity at the
hydrogen is substantially lower. handling use cases. point of use.
Hydrogen can be used to couple different energy systems (e.g. natural gas,
electricity, renewables). It can act as a storage mechanism, storing surplus
energy from one energy system (e.g. renewable energy) and converting it
back to electricity at a later stage, similar to batteries.
While technically possible, more work needs to be undertaken to fully
develop the understanding of the economics and practicality of doing this
(such as the cost of storage and the impact of conversion losses), similar
to activity being undertaken to determine the role of batteries in the
electricity system.
Z Energy House View: Hydrogen 7 A substantive hydrogen economy would require interventions such as an export commitment, regulatory support or industry- led establishment of a mega-scale production facility Hydrogen may have a role in some specific uses, but it is unlikely to have a widespread role in New Zealand in the short term unless there is a large-scale intervention. The factors which support this view Where hydrogen may have a role A large-scale hydrogen economy include: include: would need to be stimulated by: • Hydrogen is an energy carrier • Specific direct uses such as process • Establishing an industrial scale that has a high cost of production, heat or reducing or replacing coking facility that can produce large storage, distribution and would coal in steel production. volumes of hydrogen at low cost. require significant investment to • Blending hydrogen into existing gas • Government led export market; establish a new New Zealand wide networks (to reduce overall carbon for example, exporting low cost supply chain intensity of delivered energy). hydrogen from hydrocarbons (with • Light vehicle transport is likely • Transport applications where carbon capture) or from green to be electric, given the weight payload, range and utilisation hydrogen produced from renewable of investment from all the major factors give hydrogen a distinctive energy. manufacturers globally and the advantage over an electric • Government led legislative and speed at which they will come to alternative, such as longer-range policy interventions that create market. Even if hydrogen was buses, forklifts, long haul heavy a requirement for hydrogen, for comparatively efficient to electricity transport, rail and some marine example minimum blend rates in for light vehicles, electric vehicles applications. gas networks or acquisition of FCEV will be reaching market at scale a vehicles for public transport. number of years ahead of hydrogen vehicles and will not require major new refuelling and supply infrastructure. “Hydrogen can help tackle various critical energy challenges. It offers ways to decarbonise a range of sectors – including long-haul transport, chemicals, and iron and steel – where it is proving difficult to meaningfully reduce emissions” The Future of Hydrogen, International Energy Agency, June 2019
Z Energy House View: Hydrogen 8
Export hydrogen could be
challenging given New Zealand’s
relative competitiveness
Decarbonisation efforts are gaining momentum internationally and hydrogen
is becoming a component of several countries’ energy strategies
Decarbonisation efforts are gaining hydrogen-based supply chains to meet While hydrocarbon resources are out of
momentum internationally and the potential demand of energy poor favour, New Zealand still has significant
hydrogen is becoming a component of nations. gas resources. Should carbon capture
several countries’ energy strategies. New Zealand would need to compete and storage be utilised effectively,
Energy importers such as Japan, with countries with lower land hydrogen could be produced at
South Korea and China have limited costs, larger projects sizes, superior competitive prices as an export fuel.
local low-carbon energy sources and resources (such as all-year-round solar This may then enable a domestic
there is reliance on importing energy production) – all of which result in use for hydrogen as it would likely be
– resulting in demand led strategies. lower production costs. produced at substantially lower cost
Hydrogen becomes a candidate where than “green” hydrogen, but with a low
Large scale onshore and potentially
electrical interconnection (such as carbon emission footprint.
offshore wind development will
through undersea cables) is not viable. require public acceptance which may
In response, a number of energy be challenging, especially if these
exporters (Australia, Middle East, resources were developed only for
South America) have supply led energy export.
strategies, and are establishing
Photo: Kawasaki Heavy Industries
Z Energy House View: Hydrogen 9
Different transport use case needs
may lead to a broader range of fuel
solutions in a decarbonised world
These are no “one size fits all” decarbonisation options. Even with hydrocarbon derived transport
fuels in use today there are a range of derivative products for various segments – Jet fuel, aviation
gas, fuel oil, diesel and petrol, and LPG
We believe that the future of
goods and passenger transport in
the city is electric.
Joachim Drees, Chairman of the
Executive Board at MAN Truck & Bus AG
Z Energy House View: Hydrogen 10
While electrification can technically meet the needs of all sectors, there are currently economic and practical
limitations that restrict uptake. Typical demand and user profiles are summarised below:
Demand & User Profiles Use case Issues / Opportunities Customer Benefits
• 4m light vehicles growing to Fleets and Sufficient refuelling • Range
4.8m vehicles by 2040 private vehicle infrastructure • Faster refuelling time
• Average car usage ~10,000 ownership Residual values if a niche than EV
km/year2, FCEV’s travel technology without • Better low temperature
around 150km/kg-H2 nationwide usability performance
Logistics carriers and courier Fleets large and Focussed refuelling • Lower noise and air
business. Metro delivery small infrastructure (e.g city pollution in city centres
services refuelling hubs) • Lower range requirement
200km range meets 97% use • Fast on-trip refuelling
cases
8 hours service in 1-3 min Warehouses, Hydrogen storage Avoids long overnight
recharge time logistics, required on-site charging
10,000 in operation globally construction Potential self-sufficiency +30% operating range
sites, with onsite renewables
Deployment in high and low
manufacturing
temp environments Additional on-site
High availability (24x7 infrastructure
operations)
Inland and coastal ports Cranes, reach Forklifts have higher Significantly reduced noise
24x7 operation, fast refuelling stackers and TRL and could be benefits to community and
time, no operational changes yard tractors deployed early. Port employees
ecosystem can be
assembled over time.
Potential refuel site for
others
6,000 buses, 2,000 urban, 2,000 City, school, Refuelling infrastructure • Urban air and noise
school, 2000 charter/coach charter, coach can be depot based – quality
operators but high cost of H2 • Suits longer bus routes /
Major city depot focus coach services that BEV
Refuelling sites for other unlikely to meet
users
150k trucks, ~7% total vehicle km Intercity Specific NZ • Similar operating
travelled and >25% of national freight, regional requirements and small characteristics to diesel
carbon emissions transport market (range, refuel time)
Average usage ~40k km/year, Back-to-depot single
H2 use o 12km/kg-H2 ~3.3 shift operations
tonnes-H2/yr/vehicle.
• 4,128km of track, 2,328km is Freight and Volume of hydrogen • Enhance value
freight-only. Majority of 163 passenger required proposition for low
locomotives are diesel-electric. transport Refuelling locations carbon modal shift from
• 15% of the freight (by km- can form hubs for other road
tonnes) by rail transport modes • Avoid electrification
• Wellington and Auckland have infrastructure
110 and 67 trains respectively
250kg/km
Z’s view is that:
• hydrogen is more suitable for decarbonising high utilisation long-range use cases such as trucks, ferries, trains and buses,
while battery electric will be the better choice for the shorter-range fleet.Z Energy House View: Hydrogen 11 BEV’s are expected to outperform FCEV’s due to efficiency, where long range or payload isn’t a requirement.
Z Energy House View: Hydrogen 12
Export hydrogen could be
challenging given New Zealand’s
relative competitiveness
Hydrogen is a real option to meet the needs of transport operators for certain use-cases, but it will take some
time for cost-effective hydrogen fuelled vehicles to grow to material volume.
While Z believes that hydrogen (or a Bloomberg New Energy Finance track the production of FCEV’s each year, and
derivative fuel such as ammonia) could the following charts demonstrate how far ahead the BEV product is currently:
help meet the need for a low-carbon
solution in certain use cases, the
expected lead time until cost effective
hydrogen fuelled vehicles are available
is significant
The lead times we have already seen
for BEV’s give some insight into the
challenge for fuel cell electric vehicles
making it to market in significant
volumes.
In the light passenger Other OEM’s may have vehicles by manufacturers offshore.
vehicle market, global FCEV earlier, but still expect at least New Zealand is therefore a
cumulative sales total 10,000, ~3-5 years until customers can technology taker, and with
compared to around 2,000,000 commence purchasing in any significant limitations on
BEV’s and 5,000,000 Plug in scale. Z’s discussions with availability of vehicles, it is
Hybrid (PHEV’s). some heavy transport operators expected that transport use
indicated that they didn’t see will incrementally grow over
In the heavy vehicle market, themselves having the option to the next decade.
serial production (mass purchase fuel cell trucks for up
producing vehicles on a to 10 years. Small commercial Even in markets where fuel
production line) is not expected vehicles may be available sooner, cell passenger markets are
until 2021/2022 and in some but potentially at a premium to better suited (e.g. Japan, South
cases leading manufacturers internal combustion equivalents. Korea), targets are relatively
(Nikola) production is already low, and battery-electric have a
sold out for ~8 years (e.g. New Zealand’s market is small high market share.
2030). and is reliant on developmentsZ Energy House View: Hydrogen 13
Country/ Targets by Year
Source 2022 2025 2030 2050
Japan n/a 3% Passenger vehicle
sales FCV
30% BEV’s
South Korea 65,000 FCV, 0.3% of fleet
China 100,000 fuel cell 500,000 fuel cell
stacks produced. Fuel systems produced, total
cells in commercial cost of ownership parity
vehicles, introduction to for internal combustion
passenger private use
Hydrogen 3% Global vehicle sales 35% global vehicle sales
Council FCV’s FCV’s
Honda 67% electrified (plug-in
hybrid, FCV and BEV’s).
Breakdown not provided
Hyundai Production capacity 500,000 FCV’s
40,000 FCV’s per annum
Toyota 30,000 FCV sales per 5.5m electrified FCV and BEV 10% of
annum drivetrains, of which sales
4.4m are PHEV’s and 1m
are FCV’s / BEV’s
Source: Bloomberg NEF. FCV = fuel cell vehicle (hydrogen fuelled). BEV = battery electric vehicle
In addition, customers are expected to need time to familiarise and gain
confidence before committing to total fleet conversion.
“At the end of 2018, there were about 10,000 fuel cell vehicles (FCVs) on the road globally. We do not expect fuel cell
vehicles to gain any significant share of the passenger vehicle fleet over the next two decades. We see a growing role
for fuel cells in long-haul, heavy-duty trucking but scaling up the required infrastructure and bringing down the cost
of clean hydrogen production will mean that progress is slow.” BNEF, Electric Vehicle Outlook 2019
Z’s view is that:
• For the light vehicle market, hydrogen
fuel cell vehicles are likely to be niche,
require dedicated and specialist
infrastructure and likely to be
supported by limited manufacturers.
• Heavy transport manufacturers are
significantly behind light vehicle
manufacturers in prototyping and
deployment.
• Heavy vehicle transport operators
may invest in fuel cell vehicles where
there are limited other options to
decarbonise. Shorter asset turnover Photo: Nikola Motor Company
rates present the ability to adopt fuel
cell vehicles much more quickly than Enabling hydrogen to fuel part of the heavy transport market is likely to be achievable
the light passenger fleet, but it will with a small number of dedicated refuelling sites – limiting the need for producing a
take time for fuel cell options to reach full national scale infrastructure – and may enable the transition to a low carbon fuel
the market. more quickly.Z Energy House View: Hydrogen 14 A number of large-scale transport related asset replacement decisions (ferries, trains and buses) present opportunities to transition away from fossil fuels. In many cases battery storage and electric drives will service the shorter range/lower utilisation ferry, train and bus transport segments. For example, the East by West electric ferry in Wellington, and investment in electric buses across New Zealand. However, based on Z’s understanding As these vehicles and vessels reach full For example, smaller, and more efficient of operator requirements, electrification replacement or half-life replacement, Z “range extended” diesel engines might will not be universal for other longer expects that consideration of hydrogen be coupled with onboard batteries and range or higher utilisation segments of and fuel cells will be considered and electric motors to provide a balance heavy transport, given the current cost may be retrofit options. between efficiency, acceleration and and performance (energy stored per Z also expects that technology torque without sacrificing payload. kg) of battery technology. Overseas developments might result in “hybrid” pilots show that hydrogen can be a solutions servicing the heavy transport viable technology for these segments market, similar to what is occurring in especially where they have back-to- the passenger market where hybrid base or back-to-port routes, resulting in drivetrains bridge between pure fossil a centralised refuelling facility. fuel and fully electric drivetrains. Z’s view is that: • All major asset replacement decisions should explicitly seek to replace vehicles and vessels with lower carbon solutions, as opposed to replacing like for like.
Z Energy House View: Hydrogen 15 Conclusion: It is too soon to commit to hydrogen as a decarbonisation option, but neither should we dismiss it. Z believes that there is no single “silver bullet”, and that we should continue to investigate multiple options to meet our emissions reduction goals, and that urgency is required. While we will be reliant on large scale manufacturing capacity of FCEV’s to ramp up across all transportation segments, we can actively learn and experiment now, so that we are ready to adopt when the timing is right. New Zealand is also a superb test bed of technologies with early adopters often establishing projects in our market, which presents opportunities to work with international suppliers. Z is all about solving what matters for a moving world, and we believe that the future of transportation will involve different fuels for different uses amongst our customer base. We want to actively partner with our customers and suppliers to be at the forefront of decarbonising and reducing harmful emissions from New Zealand’s transport sector.
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