'Huge interest' in Southland green hydrogen, but talks not yet down to price

Monday, 27 September 2021

At Glenbrook, south of Auckland, a small facility makes low-emissions hydrogen gas.

Meridian and Contact Energy say a proposal to build “the world’s first large-scale green hydrogen plant” in Southland has met with strong interest from domestic and international businesses.

A hydrogen plant could potentially provide an alternative use for all of the electricity currently used to power the Tiwai Point aluminium smelter, depending on its scale, should the smelter close in 2024.

However, discussions about the possible venture remain at an early stage.

Meridian said the companies had not yet addressed the issue of the price at which the operators of a plant would to be able to buy the power firms’ electricity.

* Green hydrogen interest started as soon as talk of smelter closure

Meridian and Contact Energy are looking for interested parties to set up the world's first large-scale hydrogen plant in Southland.

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* Contact and Meridian seek partners to investigate world's largest green hydrogen plant

A green hydrogen plant in Southland would use renewable electricity, primarily from Meridian’s Manapouri hydro scheme, to split water into hydrogen and oxygen, with the hydrogen used as a fuel.

Robert Holt from Callaghan Innovation explains how its hydrogen BBQ works.

Meridian and Contact said in a joint statement that more than 80 potential suppliers and partners responded to an invitation to register their interest in the concept, but they would not name them because of confidentiality agreements.

Meridian generation manager Guy Waipara said the quality of responses was high and some were from partners that expressed interest in using all of the power currently used by the smelter “and some that would take that and ask for more”.

But Meridian had not indicated the price at which it might be willing to sell power to an operator, and neither had it canvassed the interested parties on what they might be prepared to pay, he said.

“It is an unreasonable question to ask until there is more detail,” he said.

At present, the economics of green hydrogen remain challenging for all but some niche applications, but interest in the fuel is expected to grow as carbon prices rise.

Meridian is believed to be selling power to the Tiwai Point aluminium smelter for about 3.5 cents per kilowatt-hour after agreeing to drop its prices from about 5c/KWh in order to persuade the smelter’s majority-owner Rio Tinto to commit to keep the smelter open until the end of 2024.

Aluminium prices have since jumped about 50 per cent to close to an all-time high just under US$3000 (NZ$4280) a ton, creating expectations that a further deal could be struck to keep the smelter open for a longer period.

Power companies haven’t been acting as though they expect the Tiwai Point aluminium smelter to close at the end of 2024, Genesis chief executive suggested in May.

Genesis Energy chief executive Marc England said in May that power firms, in their investments, were behaving as if the smelter would stay open beyond 2024, though he noted there was no certainty of that.

The smelter has no contractual right to power beyond the end of 2024, meaning in practice that it would need to strike a new power-supply deal with Meridian and Contact, potentially at a higher price.

Meridian and Contact could potentially hedge their bets by planning a smaller-scale hydrogen plant in Southland while entertaining an extension of their power supply agreement with the smelter.

The choices they faced about what to do with their power were “not just about price”, Waipara said.

“Other elements include having something in which you've got long-term confidence which is actually quite valuable,” he said.

Meridian remained open-minded about whether it might simply sell power to a green hydrogen operator or become a part-owner of a plant through some form of partnership, he said.

“’Normal business’ is Meridian and Contact selling electricity and other people using it.

“But in this case, given where hydrogen is at in its development cycle, we are open-minded to potentially a joint venture or other partnership.

“The more different parties have got ‘skin in the game’, the more comfortable they may feel about stepping into a little bit of the unknown.”

Meridian chief executive Neal Barclay said in a statement that the “diversity” of responses the two companies had seen to its green hydrogen proposal showed there was a huge appetite to replace fossil fuels throughout the economy.

“Green hydrogen has the potential to abate Aotearoa’s long-life greenhouse gas emissions by more than 20 per cent. It’s exciting to see so much interest in domestic applications alongside the export opportunities,” he said.

Barclay said interest in the proposal suggested that the domestic uptake of hydrogen as a clean fuel could happen “sooner and faster than we expected”.

Contact chief executive Mike Fuge said the fact that international companies were looking at business opportunities in New Zealand’s domestic market, in addition to international opportunities, was very promising.

“New Zealand has a stable political environment and a realistic and rising price on carbon. These are good incentives for people to dial down fossil fuels and convert to cleaner alternatives, so the fundamentals are there for hydrogen to take on fossil fuels in a range of sectors,” he said.

The 80-plus responses included “a large number” from engineering and technology companies interested in developing the infrastructure needed to produce and transport hydrogen from Southland.

The next step for the Southern Green Hydrogen project would be a series of more formal discussions with shortlisted parties, followed by the release of a “request for proposal” to determine key partners and build out the wider supply chain and end-use customers, the companies said.

That process was expected to be completed by March, they said.