The Green Hydrogen Revolution in Australia and the Emerging Challenges for EPC Contractors

Oct 23 2023

The idea of using surplus renewable energy to create hydrogen gas for storage and later use has been flagged as a potential game-changer in the global energy complex. Australia has made a commitment to establish a robust and internationally competitive green hydrogen sector by 2030. Currently, Australia generates approximately 0.6 million tonnes (Mt) of hydrogen from natural gas, primarily employed in oil refining and ammonia applications.

In 2022, a significant milestone was achieved with the successful completion of the Hydrogen Energy Supply Chain (HESC) Pilot Project, valued at AUD500 million. This project marked the world’s first liquid hydrogen carrier ship, the Suiso Frontier, departing from Victoria with a cargo of liquid hydrogen and safely delivering it to Japan. Similar to Japan, neighbouring countries such as South Korea and Singapore are also considering the adoption of imported hydrogen to decarbonize their economies.

According to The Commonwealth Scientific and Industrial Research Organisation (CSIRO), an Australian government agency, there are currently a total of 114 of the different stages of hydrogen projects across all states in Australia. However, only one of these projects has been completed, which is located in Victoria. The under development phase reveals that a significant number of 84 projects are still in the developmental phase, while 15 projects are currently under construction, and twelve projects are already operational.

Australia’s strategic advantage lies in its abundance of solar and wind resources, which can be harnessed to produce green hydrogen through the process of electrolysis, effectively splitting water into hydrogen and oxygen. This approach starkly contrasts with the more common ‘grey’ or ‘blue’ hydrogen, primarily derived from natural gas and coal, associated with substantial greenhouse gas emissions. Consequently, green hydrogen has the potential to play a vital role in Australia’s transition to a low-carbon economy, offering a clean energy alternative for industries and processes that are challenging to decarbonize, including maritime and aviation transport, long-term energy storage, oil refining, petrochemicals, and steel manufacturing.

As the momentum surrounding this exciting technology continues to grow, Engineering, Procurement, and Construction (EPC) contractors find themselves responsible for bringing these green hydrogen projects to fruition. However, the progress of the green hydrogen revolution has introduced a continually evolving set of risks and challenges in uncharted territories.

In our previous articles, we explored “The Challenges for EPC Contractors in Renewable Energy Projects in Australia”. Building upon these discussions, our forthcoming article, titled “Mitigating Risks in Renewable Energy Projects: Strategies for Success,” seeks to provide valuable strategies for risk mitigation. However, it has become evident that the topic of hydrogen risks deserves dedicated attention due to its distinctive characteristics and rapid development. This article aims to dissect and identify the inherent risks associated with hydrogen projects, acknowledging their fast-paced evolution, based on LW’s Teams extensive risk assessment.

One of the foremost risks for EPC contractors engaged in developing green hydrogen projects in Australia pertains to the maturity of the technology. While hydrogen production through electrolysis is not a novel technology, producing it at a scale suitable for profitable commercial applications represents uncharted territory. This risk is exacerbated by the rapidly evolving technological landscape surrounding green hydrogen production, storage, and utilization. Some projects aim to run two 5MW electrolysers to deliver 4.3tpd of Green Hydrogen. However, uncertainty arises from the limitations of the current off-take agreement, particularly its inability to facilitate sufficient drawdown during nighttime when the solar array is inactive. This ambiguity affects the specifications of the electrolysers, compressor and storage sizing, and supporting infrastructure.

Another significant risk revolves around safety and regulation. Hydrogen is an extremely flammable substance, necessitating stringent safety measures during its handling. Ensuring compliance with legislation and safety codes is imperative, particularly in the case of high-pressure gases. Adherence to safety standards, such as the Workplace Health & Safety Act, is paramount. Compliance with AS/NZ Standards is vital but may pose challenges, including non-compliance or “Gold-plating.” Failure to meet these standards can result in delays, cost overruns, reduced quality, unsafe practices, and compliance breaches.

In terms of project financing, the risk is equally significant. Currently, the production of green hydrogen is more costly than its fossil fuel-based counterparts. . Challenges emerge from assumptions within the business model, such as a sales price of $15/kg against the market value of $6/kg. Ensuring a profitable business model is of paramount importance, and assumptions regarding market response to Green Hydrogen supply and its impact on the freight and mining sectors must be rigorously scrutinized. As a result, EPC contractors are likely to explore diverse financing models and innovative pricing and risk allocation structures, with the hope that the cost trajectory will mirror that of renewable energy technologies, declining significantly as innovation, economies of scale, and operational experience increase.

In relation to location, many of these projects are located in remote areas, adjacent to rivers, and have local road traffic during operations, which pose environmental and societal challenges. The potential for local objections may be heightened due to the presence of high-pressure gas and increased road traffic, necessitating careful consideration and community engagement. Location factors, including surveys, natural hazards, and contamination, may influence construction and design. Careful assessment and mitigation strategies are required.

It is worth considering that the project sites might be vulnerable to heavy rainfall and potential flooding. Solar radiance levels can also impact commissioning timeframes, as observed in previous projects.

Risk factors associated with insurance, construction, and ongoing operations encompass elements such as fire detection and firefighting requirements. Given the history of fires, it is essential to thoroughly explore insurance conditions and options before finalizing the project’s design.

Collaboration with third parties, such as Western Power and Arc Infrastructure, for infrastructure upgrades and operational agreements introduces an additional layer of complexity. Managing these third-party agreements, particularly when their terms are challenging, demands diligence.

The connection to the Australian Energy Market Operator (AEMO) introduces its set of challenges, including delays and uncertainty in the connection process. Streamlining the connection process is essential, as it may still take up to 24 months, impacting project timelines.

In conclusion, the green hydrogen revolution in Australia offers EPC contractors a remarkable opportunity to reshape the energy infrastructure. Nonetheless, building a strong green hydrogen industry comes with its set of obstacles, including technical intricacies tied to the emerging technology, safety and regulatory issues, and uncertainties around project funding.

As Australia navigates its path towards a green hydrogen future, it becomes crucial to gain a comprehensive understanding of these challenges and effectively address them. Through the strategic implementation of proactive risk management, we not only address potential challenges but also unlock avenues for innovation and collaboration.

These initiatives are at the heart of Lewis Woolcott Team’s commitment to shaping a dynamic and prosperous future for renewable energy in Australia.

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The Green Hydrogen Revolution in Australia and the Emerging Challenges for EPC Contractors