Deep Cove in Fiordland

What is Green Hydrogen?

  • Green hydrogen is a clean fuel which can be used to replace fossil fuels in a range of uses including land transport, shipping, industrial processes and electricity generation. It can also be used to create agricultural fertiliser. It can be stored and transported as a gas or as a liquid or in the form of ammonia.   

  • Almost all hydrogen fuel is currently produced using fossil fuels and is known as ‘grey hydrogen’. There is also ‘blue hydrogen’, which involves capturing and storing the carbon produced in the process. When hydrogen is produced using electricity from renewable sources such as water, wind or solar, it produces green hydrogen which has virtually no emissions. 

  • Green hydrogen is generating strong interest globally because of its potential to help countries decarbonise their economies, particularly the ‘hard to abate’ sectors such as heavy transport, shipping and some industrial processes. There are also trials underway in Japan and other countries using imported green hydrogen as a clean fuel to generate electricity.  

Why are Meridian and Contact investigating the production of green hydrogen in New Zealand? 

  • A significant amount of renewable energy is likely to become available in 2025 following the announced closure of the NZAS aluminium smelter in Southland.  Meridian and Contact are investigating the use of this energy to give New Zealand a leadership role in the emerging global hydrogen economy.  

  • Governments and the private sector around the world are very enthusiastic about the potential of hydrogen as a fuel for the future. Over 30 countries have developed hydrogen roadmaps and billions in investment have been committed to date. 

  • Meridian and Contact are investigating New Zealand’s opportunity to export green hydrogen and kick-start domestic use applications. A major green hydrogen plant in Southland has the potential to produce and supply green hydrogen at scale from the mid-2020s. 

How does the McKinsey report say New Zealand could benefit from producing green hydrogen?

  • Investment in a green hydrogen economy could generate significant decarbonisation, energy security and economic benefits for New Zealand.  

  • Green hydrogen has the potential to mitigate 23-53% of New Zealand’s long-lived greenhouse gas emissions, including through use in sectors such as heavy transport, agriculture and steel production which currently have no clean fuel alternative.  

  • Green hydrogen production could support our transition to a 100% renewable electricity system by providing a cost-effective method to mitigate dry-year risks through flexible demand response. This involves reducing or pausing production based on New Zealand’s electricity needs. 

  • The development of a hydrogen economy in New Zealand could generate economic benefits to New Zealand as it adjusts and recovers from the impacts of Covid-19.  Constructing a 600 MW green hydrogen export facility in Southland could add up to $800 million to GDP and up to 13,000 job years as a one-off benefit, and add up to $450 million a year to GDP and create up to 6,000 job years on an ongoing basis, according to modelling work undertaken by McKinsey. 

What are some specific use cases for green hydrogen in New Zealand? 

  • Investments in pilot use cases of green hydrogen are already underway in New Zealand, with trials of hydrogen-powered trucks and buses.  The fertiliser sector is also exploring hydrogen as an alternative feedstock to natural gas to produce urea, following the announcement of the ban on offshore gas exploration.  

  • Other industries with realistic use cases for green hydrogen are chemicals, steel production and shipping, all of which could achieve deep decarbonisation across their operations in New Zealand.  

How much green hydrogen could we produce?  How much could we use and export? 

  • To put the opportunity into perspective, the volume of electricity currently consumed by NZAS could be used to produce 70 kilo-tonnes per annum of liquid hydrogen or 450 kilo-tonnes per annum of ammonia.

  • While it is difficult to forecast future demand in New Zealand, McKinsey has modelled 140 kilo-tonnes per year of hydrogen demand in South Island heavy transport and national fertiliser use cases by 2030.  

  • Global demand for lower carbon intensity hydrogen could be as high as 553 million tonnes by 2050 – (with demand growing by 7 per cent per annum from 2020) creating a significant opportunity for export to Asia before 2030.

What are some concerns people have about green hydrogen?

  • One challenge of developing a hydrogen economy is that green hydrogen is a low-density fuel, making it difficult to store and distribute. One of the strengths is that it can be shipped – the only way to transport renewable electricity overseas.  Because of this, the bulk transport of hydrogen will require dedicated pipelines, which will require significant investment to build, pressurising the gas, or cooling it to a liquid.  Specialised infrastructure will also need to be built at ports and hubs throughout New Zealand.  

  • Another concern about green hydrogen is cost.  Green hydrogen is currently not competitively priced compared to grey hydrogen.  However, costs for electrolysis and other processes involved in production are decreasing rapidly just as carbon costs are rising making fossil fuels more expensive, and it is expected that green hydrogen produced in Southland will be cost-competitive with grey hydrogen by 2030 once rising carbon costs are factored in.  Domestic distribution and international shipping costs are also projected to fall rapidly over the next ten years.  

  • Concerns have also been raised about the safety of adopting hydrogen as a widely used fuel throughout the economy.  While hydrogen has known safety hazards, it also has properties that should make it safer to handle than conventional fuels like gasoline and diesel when handled responsibly.  

Why would we export green hydrogen from Southland rather than supplying domestic customers?

  • Securing an agreement to export green hydrogen will reduce the investment risk required to accelerate New Zealand’s hydrogen economy over the longer term.  Early export may even cross-subsidise the costs of establishing the domestic market.  At the same time, it will be important to balance the allocation between hydrogen for export and domestic applications.  

How much will it cost to enable a hydrogen economy in New Zealand?

  • The McKinsey report estimates that to meet a domestic demand scenario of 140,000 tonnes of hydrogen per annum that NZ$2.7 billion of capital investment would be required across upstream (hydrogen production), midstream (hydrogen distribution infrastructure) and downstream (end-use specific equipment) to enable the development of a hydrogen economy in New Zealand.

Where will this capital investment come from? 

  • Funding for capital investment will be raised through domestic and international partners, and from offtake agreements for green hydrogen exports.  

What other challenges will need to be overcome to develop a hydrogen economy in New Zealand?

  • Government policies and regulations will be needed to stimulate demand and investment where it is most needed.  This may include subsidies to fund the development and take-up of hydrogen-based technologies.  Monitoring of regulatory environments in target export markets will also be necessary to understand how demand may evolve and where New Zealand should focus supply. 

What are our likely key export markets for green hydrogen?

  • Japan and Korea represent the most significant opportunities for future New Zealand green hydrogen exports.  Both governments and the private sectors in these countries are making large investments in hydrogen projects, and both have scarce renewable energy resources, making them likely to be major net importers of green hydrogen.

  • New Zealand and Japan have already signed a Memorandum of Cooperation on Hydrogen, which signals New Zealand’s interest in working in partnership with Japan to develop hydrogen technology as we move towards a low carbon economy.

What are the alternatives for the renewable energy available from 2025?

  • Another planned use for renewable energy in Southland is for low carbon data centres.  The region is well suited to becoming a global hub for data centres due to the availability of land, renewable energy and because of its climate which makes data centres more cost-effective to cool.  Global companies such as Google, Facebook and Microsoft are increasingly requiring their data to be stored in green data centres rather than in countries that power them with fossil fuels.  

  • One hyperscale data center is already in the planning phase to be constructed in Makarewa, near Invercargill.  The amount of energy required for such a data centre is small enough for this use to exist alongside the large-scale production of green hydrogen.