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What would it cost to run a city on hydrogen?

What would it cost to run a city on hydrogen?

Imagine a future where the most abundant element in the universe can be used as a zero-emission, renewable energy source to power an entire city. That future is closer than you think.

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James Arnott

Partner, Management Consulting

KPMG Australia

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Nighttime photo of Perth CBD

A renewable future

The most abundant element in the universe is hydrogen. Hydrogen is found in water (H2O), bio-waste, wood, as well as fossil fuels like coal, natural gas and oil. Today, 95 percent of hydrogen used for industry is extracted from fossil fuels.

The cost of extracting hydrogen from water, using electrolysis with zero carbon emissions, is declining. Electrolysis is a method of splitting water molecules into hydrogen and oxygen using electricity. When that electricity is generated from renewables, we get carbon emissions-free green hydrogen.

It is becoming so affordable that we can begin to theorise how much it would cost to convert and run significant aspects of a medium-sized metropolis on hydrogen – from the manufacturing plant, right down to the engine in your car.

Our new H2City report and tool, developed for ARENA in association with the CSIRO, allows you to estimate the costs of converting aspects of a community’s energy needs to hydrogen based on data provided by the CSIRO.

Let’s use metropolitan Perth an example.

Phase one: Transport

One place to start would be the conversion of the city’s transport fleet to hydrogen fuel cell electric vehicles. This can be done through building hydrogen refuelling stations across the city. Powered by solar panels, these stations would use an electrolyser to extract hydrogen from water.

It sounds far-fetched but other countries have already made progress in this area: Japan is on track to have 900 functioning hydrogen refuelling stations in 2030 and car manufactures Toyota, Hyundai and Honda offer a hydrogen-powered passenger car.

If we convert 8 percent of Perth’s passenger cars and buses to hydrogen fuel cell electric vehicles by 2030, which is in line with CSIRO’s projected adoption rates of the technology, we will need 430 megawatts of renewable energy capacity to produce the required hydrogen. At CSIRO’s projected prices, this will result in a per km cost of buying and running a hydrogen car of AUD 0.88 versus AUD0.65-0.80 for your standard internal combustion engine car.

As the hydrogen-powered car market becomes more competitive, adoption becomes more widespread and hydrogen extraction technologies become more efficient, we estimate that the cost gap will disappear by 2037. Based on this data, it could be feasible to have more than half of all vehicles in Perth hydrogen powered by 2040. With nothing but water vapour emitted out of the exhaust pipe – this would be a positive win for the environment.

Phase two: The gas network

More than half of Western Australia’s primary energy needs are met by natural gas. Converting Perth to a hydrogen-powered city necessitates converting the gas network to a hydrogen-enabled network.

To do this, we would need to produce hydrogen at an industrial scale somewhere in Western Australia. Currently, there are plans to create a renewable energy hub on the Burrup Peninsula, just North of Karratha, with solar-powered hydrogen production commencing as early as 2021.

Assuming we could have large-scale production of renewable energy at a cost of AUD20/MWh, and transport the hydrogen gas to Perth via pipeline, we could see a per gigajoule cost of AUD13 in 2035. This is compared to natural gas’s current wholesale price of AUD7/GJ in WA, but the wholesale price does not account for externalities like CO2 emissions, whilst the hydrogen price is emission-free.

Phase three: The electricity grid

Gas plays a huge role in generating electricity in WA. Forty percent of all electricity is generated from gas-fired generators. In a hypothetical scenario where Perth is a 100 percent renewable city, that gas fired power could be replaced by hydrogen with a combination of renewables like wind and solar making up the rest.

Assuming we build the Burrup Peninsula energy hub, in 2040 we can be producing electricity at a levelised cost of AUD72/MWh, compared to AUD85 MWh from natural gas, and AUD125 MWh from natural gas with Carbon Capture and Storage (CCS). This is a result of the anticipated dramatic drop in the cost of building and running hydrogen utility fuel cells, in conjunction with increases in their efficiency.

While it may take time to get there, but the projected lower levelised cost of electricity from renewable hydrogen, together with its lack of emissions and the ability to store energy over long periods of time, makes renewable hydrogen a very attractive energy source for communities looking to make long-term investments in a world increasingly turning to zero carbon solutions.

Within the next 30-40 years, half of Perth could be powered by hydrogen – but this is only the beginning. With many other cities and countries integrating hydrogen into their energy mix, there is potential for Australia to replace our current high-emission liquefied natural gas and coal exports with cleaner liquefied hydrogen.

If we play our cards right, hydrogen can help solve our internal and external clean energy problems and bring that world closer.

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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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