Risk hydrogen target will impose costs on WA consumers

The peak body for electricity retailers and generators, the Australian Energy Council, has raised a note of caution over proposed state targets for renewable hydrogen and hydrogen blending in the gas network.

The AEC believes the targets could impose costs on WA electricity consumers who would end up subsidising projects that won’t benefit them.

Energy Policy WA is undertaking design work on a renewable hydrogen target which is expected to be finalised by the end of 2022.

The Council has written to Energy Policy WA expressing its concerns and urging it to undertake a thorough review of the merits of a renewable hydrogen target, which would be paid for by the energy companies and their customers and assess if there are sufficient cost benefits.

The AEC’s WA Policy Manager, Graham Pearson, said: “There’s a real risk consumers will subsidise hydrogen projects that do not benefit them and are instead developed for things like the export market.

“Equally, the timeline being proposed is very ambitious and if this was to proceed there should at least be a clear end point for the target.

“Implementing the Renewable Hydrogen Target and having renewable projects operational to provide hydrogen to retailers by the end of 2024 is not likely to be feasible with the current lengthy timeframes to develop projects and existing transmission limitations.

“Everyone wants hydrogen to succeed because it’s seen as a very promising technology, but it is still some way off and needs to get over a number of significant hurdles to be economically viable. Processes from production, to compression, storage, transport are challenging, as is its use in current generators and industrial processes.

“We need to carefully consider the cost benefit of a renewable hydrogen target. That should include costs to consumers, the supply chain costs, the costs of storing and transporting hydrogen, the costs of using it in existing gas generators, as well as the costs on energy market participants.

“If hydrogen is not financially viable why should the electricity sector and ultimately electricity end users be required to support the costs of developing the hydrogen sector.”

The Council has also questioned why hydrogen has been chosen to receive a subsidy over other emerging and needed technologies, such as dispatchable long duration battery storage, which would support more renewables, but which are not commercially viable with the current revenue opportunities in the Wholesale Electricity Market (WEM).

“If a renewable hydrogen target is justified on the basis of a detailed review, the best mechanism to support the sector also needs to be carefully considered.

“We feel signals to encourage entry of new technology should come through market mechanisms in the WEM, like the reserve capacity mechanism, essential system service and energy markets.

“There are already cost pressures through Western Power’s Access Arrangements proposal and big increases in the market operator’s fees with the WA Economic Regulation Authority seeing that ‘the pass through of these increases will be particularly acute, given current cost of living pressures experienced by consumers’.

“We have to be careful not to add to those costs and ensure there are realistic benefits.”