The important role of zero carbon molecules

Zero carbon electrons, produced primarily through wind and solar power, are increasingly helping consumers decarbonise their electricity use across Australia’s electricity markets.

It is easy to forget that many energy users, such as manufacturing, mining and long-haul transport (i.e. aviation, trucking, and shipping) simply cannot rely on zero carbon electrons to meet their long-term emission reduction targets.

This is why zero carbon molecules such as hydrogen are not just desirable, but essential in helping the world decarbonise its energy system. APA, through its Pathfinder program, works with customers to investigate opportunities to decarbonise their operations and hydrogen remains a particular focus in the development of these customer-led solutions.

The current reality, however, is that the renewable hydrogen industry is still in its infancy and that the cost of green hydrogen production is high. The cost of electricity, in particular, is still too high to bring hydrogen costs down to where they need to be.

To overcome these hurdles, continued government support is essential.

Similar to the success of the Commonwealth Government’s Renewable Energy Target in bringing down the cost of zero carbon electrons over the past 20 years, financial and policy support from governments will help bring down the cost of zero carbon molecules.

Today, APA and Wesfarmers Chemicals Energy and Fertilisers (WesCEF) published the key results from the Parmelia Green Hydrogen Project (the PGH2 Project) Feasibility Study.

Supported by funding from the Australian Renewable Energy Agency (ARENA), the study explores the potential to produce and transport green hydrogen via APA’s Parmelia Gas Pipeline to WesCEF’s ammonia production facilities at the Kwinana Industrial Area south of Perth (See Figure 1).

The proposed PGH2 Project offers the opportunity to deliver large-scale green hydrogen to Kwinana – a land-constrained established industrial precinct – and creates options for hydrogen use in industry decarbonisation and growth. The project also demonstrates how existing natural gas assets (i.e. APA’s Parmelia Gas Pipeline and WesCEF’s Ammonia facility) can support the energy transition.¹

The PGH2 Project is a prime example of how APA works with customers to develop future energy pathways and infrastructure through its Pathfinder program.

The role of hydrogen in decarbonising industry

Through the PGH2 Project and other studies, APA continues to improve its understanding of the market for clean hydrogen and its role in enabling hard-to abate industries to decarbonise.

In line with Australia’s refreshed National Hydrogen Strategy,² APA sees an important role for clean hydrogen in the manufacturing of sustainable metals such as iron and alumina. Clean hydrogen can also support the manufacturing of clean chemicals, such as methanol, and is currently the only viable pathway to decarbonising ammonia production and associated manufacturing of fertilisers and explosives.

The WesCEF ammonia production facility in Kwinana currently uses steam methane reforming and the Haber-Bosch process to produce approximately 290 kilotonnes per annum (ktpa) of ammonia. The ammonia is produced from ‘grey’ hydrogen, given natural gas is the original feedstock.

Green hydrogen from the PGH2 Project, on the other hand, would be produced from water, rather than natural gas. Renewable energy and electrolysis would produce green hydrogen and support the decarbonising of the ‘hard to abate’ WesCEF ammonia facility.

The successful conclusion of the PGH2 Project feasibility study brings the industry another step closer to producing green hydrogen at a commercial scale. One of the key objectives of the feasibility study was to understand the key factors that impact the levelised costs of hydrogen (LCOH) and to identify pathways to commerciality.

Levelised Costs of Hydrogen (LCOH) in the PGH2 Project 

The proposed PGH2 project is structured to allow for a phased increase in production, commencing with a 71.2 tonnes per day (tpd) hydrogen production base case and progressively expanding to 312 tpd to align with projected rising demand for green hydrogen in Kwinana Industrial Area.

Table 1 provides a breakdown of the project’s capex values for base, expansion and large cases. Electrolyser and Balance of Plant (BoP)³ costs are the biggest contributors to overall capex costs. Electricity costs are by far the primary opex driver (80–85%).

The feasibility study included development of a bespoke financial model to allow in-depth financial modelling, benchmarking and financial analysis of the project. When assuming a $80/MWh electricity price in the model, the LCOH for the project ranged from $9.80/kg (large case) to $11/kg (base case). Scale efficiencies reduced LCOH by $1.20/kg from base case to large case. These are largely driven by economies of scale for the electrolyser, cooling and BoP.

Electricity and hydrogen production facility (HPF) capex were the primary cost drivers for LCOH, accounting for approximately 43 per cent and 41 per cent of total LCOH respectively, as illustrated in Figure 2 below.

Both capex costs and the cost of electricity have increased over the duration of the feasibility study, which commenced in mid-2023.

Future phases of the proposed PGH2 Project will focus on developing strategies to reduce electricity costs, including further power supply optimisation studies, and reducing electrolyser capex, through wider vendor engagement and further analysis of technology learning rates.

Investments in projects like PGH2, located in key industrial hubs, are yielding important learnings and will help ensure that Australian hydrogen projects become more cost competitive and increasingly viable over time.

Continued government support, through initiatives such as grants and tax credits, will help narrow the cost gap between green hydrogen and current emissions intensive methods of production.

¹ APA’s Parmelia Gas Pipeline (PGP) Conversion Project, is seeking to enable the conversion of around 43-kilometres of the PGP in WA into Australia's first 100 per cent hydrogen-ready transmission pipeline at a significant cost and schedule advantage versus greenfield developments. See: ASX Release

² https://www.dcceew.gov.au/energy/publications/australias-national-hydrogen-strategy

³ Balance of plant (BOP) is a term generally used in engineering to refer to all the supporting components. In case of a hydrogen production facility these include a hydrogen vent, high-efficiency reverse osmosis water treatment, a nitrogen system for electrolyser purging, and a dedicated firewater system.