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Hydrogen plants could profit in South Australia

The South Australian Labor party has committed to building a hydrogen production, storage and electricity generation facility if elected at the next SA State election.

Their proposal includes a $220 million 250 MWe electrolyser, $31 million for 3,600 tonnes of liquefied hydrogen storage and $342 million for a 200MW CCGT power station.

Their plan highlights the 300 construction jobs that would be created, however, excludes details on how often the plant would run, how much hydrogen it would produce and how profitable the plant could be. For this week’s ‘Chart of the week’, we have analysed these factors over summer 2021.

Amazingly if the plant had been in operation this summer it could have made a profit of ~$2.3 million (assuming 100% debt financing from SA bonds at 1.75% and no equity returns). This is based on a 20% utilisation and includes the expected quarterly repayment on the $593 million of government debt with interest, operating costs, and the net cost of energy. If the plant was available last summer it could have made ~ $47 million in profit, opposed to a ~$2.3 million loss in summer Q1 2019.

Over each of the modelled utilisation factors, FCAS costs are relatively low compared to the possible FCAS revenues, highlighting how important it is for future hydrogen facilities to be FCAS suppliers. To understand a hydrogen plant and FCAS further please refer to our ‘Chart of the week’ issue 70.

For our model we have assumed the hydrogen will be sold at $2/kg, this aligns with the Australian Government Technology Investment Road Map goal of enabling clean hydrogen under $2/kg.

At the 20% utilisation factor approximately 1,517 tonnes of hydrogen would have been effectively produced which could have be stored in the proposed storage facility.

Based on this production the storage capacity seems suitable as a temporary holding facility before the hydrogen is exported or used by industry.

It should be noted that the financing arrangements using government debt make the project viable and would be difficult to finance on a commercial basis without a clear offtake market and incentive to invest. Additionally, the SA government value from job creation, economic growth and supporting the transition to cleaner fuels would not be considered in the benefits of a commercial business case.

If Australia is to compete globally in hydrogen exports governments will need to assist the industry and be a first mover. Similarities can be made to the support government has given to battery storage, we estimate there is now over 1GW of battery projects proposed in South Australia with at least 7 virtual power plants in operation.

Join us to learn more about the Hydrogen industry at our Hydrogen Forum on 14 April 2021. Please get in touch to at enquiries@cornwall-insight.com.au or +61 417 203 630.