Tim Buckley: Why New Zealand could be one of the winners in the green hydrogen race
Despite a crowded field and a challenging course, New Zealand has a valuable head start in the global race to build the long-promised hydrogen economy.
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If Sydney-based Tim Buckley was a betting man, he’d put his money on New Zealand building a green hydrogen economy sooner than his native Australia.
Buckley, who lives in Sydney, is the director of energy finance studies at the Institute of Energy, Economics and Financial Analysis (IEEFA), and has worked at the intersection of climate, finance and energy for eight years. IEEFA is a global organisation which examines issues related to energy markets, trends, and policies, with the aim of accelerating the transition to a sustainable energy economy.
According to Buckley, circumstances have now aligned for zero emissions green hydrogen to present a “major” economic opportunity for New Zealand to build the first truly world scale project, well ahead of the many competing proposals globally.
He says “despite the many technical, engineering and financial challenges, the country’s high level of low-cost renewable generation and political leadership provide a valuable head start in the global hydrogen race. The pending Tiwai Point aluminium refinery closure at the end of 2024 could prove the catalyst for a major new zero emissions export opportunity.”
New Zealand’s renewable advantage
"The fossil fuel industry has been trying to take us off on a tangent for a couple of decades, dissembling and obfuscating the reality of the science of climate change."
Buckley says while Australia also has the potential to become a world-leading green hydrogen and ammonia producer by the end of this decade, the reality is that today Australia is one of the world’s three largest exporters of fossil fuels.
“The problem I see in Australia, both at the political and the corporate level, is the inertia and regulatory capture by the incumbent industry.
“The Australian Government has fallen for the fossil fuel industry spin, to say that we’re transitioning from grey hydrogen and brown hydrogen to green hydrogen via blue hydrogen.
“But absent a price on carbon and a strong independent policy framework, blue hydrogen is really simply a fig leaf of the fossil fuel industry in a likely futile effort to prolong its social license to operate.”
Tim believes moving straight to green hydrogen is far more effective.
“The fossil fuel industry has been trying to take us off on a tangent for a couple of decades, dissembling and obfuscating the reality of the science of climate change. In my view, it’s trying to distract governments and extract yet more subsidies - something they’re very good at doing.
“New Zealand is free of that baggage. Australia’s percentage of renewable generation is approaching 30 per cent, while New Zealand’s is approaching 90 per cent. This makes the New Zealand market one of the most advanced nations in the world for achieving full decarbonisation,” Buckley says.
New Zealand’s policy advantage
Tim says that New Zealand’s current leadership also puts it at an advantage compared to Australia.
“We’ve recently seen the Australian Federal Government score a massive own goal by rejecting the application of the biggest wind, solar and green hydrogen and ammonia project in the world, the Asian Renewable Energy Hub. The government has given a preliminary rejection on environmental grounds even before the environmental impact statement has even been prepared. This will likely prove a minor delay overall, but it shows the lack of political ambition.
“To put this into perspective, the rejected renewable energy project plans to be 40 times bigger than the project being proposed in New Zealand, which at 600MW is itself 30 times bigger than the world’s largest operational green hydrogen project in the world today, which is that being Air Liquide’s 20MW Canadian facility, which opened in February 2021,” Buckley says.
Facing the challenge of scale
Tim says that factors like economies of scale, distance to market and supply chains will influence how New Zealand can produce and export green hydrogen.
“Australia has one of the lowest population densities in the world, as well as some of the best wind and solar resources. That means Australia has three of the world’s largest hydrogen projects in development, and we are talking about a scale in the tens of gigawatts of capacity, compared with the New Zealand opportunity which is up to 600 megawatts.
“So within five to six years, New Zealand could become the world’s leader in terms of commercial green hydrogen or ammonia production and deploy a project 30 to 60 times the size of the largest producers that exist today.
But five or 10 years down the line that will likely be challenged by the scale of the opportunity that Australia has, particularly as solar deflation continues at the current pace” Buckley says.
"Within five to six years, New Zealand could become the world’s leader in terms of commercial green hydrogen or ammonia production."
Overcoming distance to market
Tim acknowledges that the ability to export green hydrogen is largely hypothetical for now, so for New Zealand to capitalise on the export opportunity, it would likely kick off with the exporting of green ammonia, a readily traded product today.
“Australia and New Zealand also both have issues with distance from the end market, so the key market I would focus on is Japan. This is a high-income country with an aggressive decarbonisation strategy, with a recent commitment to a 46 per cent emissions reduction by 2030, led by Prime Minister Suga. Japan has long identified that green hydrogen and green ammonia will play a central role in this if Japan is to deliver on its strategy.”
“New Zealand is a long way from Japan, so it’s likely that green hydrogen will be beaten by green ammonia in this space in the medium term, because it’s far more commercially viable to export and ship than hydrogen is,” Buckley says.
Tim says that the Japanese government has set an ambitious climate change reduction strategy, which they are now working out how to enact.
“To me, one of the biggest developments has been the announcement that the number one buyer of LNG and thermal coal in the world, JERA of Japan, has said they want their coal-fired power plants to be converted to use 100 per cent green ammonia by the early 2040s. To me, that sets the magnitude of opportunity in both Australia and New Zealand.
“The reality is that it’s a technology race, but when you’re replacing an industry the size of LNG and coal combined within the next 20 to 30 years, there’s more than enough opportunity for everyone,” Buckley says.
"New Zealand does have a first mover advantage, but it takes courage to strike out five or 10 years ahead of the world leaders."
Calculating the economic opportunity
Buckley says the billion dollar question is whether the economics of green hydrogen or ammonia stack up for New Zealand.
“Hydrogen is an industry that the International Energy Agency says could be one of the top sources of energy for the world within 30 years. But we're talking about a massive scaling up, replicating the multi-decade expansion of solar to be now the lowest cost source of electricity supply in an increasing number of countries around the world today.
“This is an industry that's going from effectively a cottage industry start-up to a global scale. So there's going to be enormous learning by doing requirements, which brings enormous technology, engineering and financial challenges.
“That is both an opportunity and a risk. New Zealand is proposing to be the most advanced green hydrogen country in the world within five to six years at a scale that's unprecedented today. That's amazingly ambitious and positive, but it does come with financial risks.
“New Zealand does have a first mover advantage, but it takes courage to strike out five or 10 years ahead of the world leaders,” Buckley says.
“My view is that it's critical that New Zealand partner with the right world leaders here, and by that I'm talking about corporate leaders charting an aggressive path to decarbonisation, as well as obviously the Japanese Government.
“It’s critical that New Zealand understands the world-leading nature of this initiative, and it will need political support from the New Zealand Government as well given the strategic nature of this investment and the dry year weather constraints, but I'm certain that will be there,” Buckley says.