State Energy Bank of South Australia?

The South Australian Labor Party has announced its first major policy in the run up to the next state election. It is going to build a giant electrolyser and next door to it a power station that will run on hydrogen. It will also build a big tank to store the hydrogen in liquified form for when the power station needs it. The idea is that the electrolyser can help boost demand to match the solar output in the middle of the day (when wholesale prices are typically negative) and then the power station can provide firm supply when renewables output is low. Sounds great, right? Or could there be a catch…?

Well, it turns out that the SA ALP is confidently pronouncing it’s going to build something that’s not yet been built. There are a range of proposed projects to run gas turbines on hydrogen, including a 440MW converted gas fired turbine in the Netherlands. This will be reliant on hydrogen sourced from methane conversion. A retrofit of an Ohio gas turbine is purportedly incorporating 5 per cent hydrogen in its fuel mix when it comes on line at the end of 2021.

While electrolysers are a fairly mature technology and liquefaction of hydrogen for storage is an established process – space rockets have been running on it for decades – the scale is novel. On the storage front, the planned 3,600t storage facility would need the entire current global liquefaction capacity to run flat out for ten days to fill it. Storage of hydrogen as a liquid requires cryogenic temperatures because the boiling point of hydrogen at one atmosphere pressure is −252.8°C. So, it’s also energy intensive: the current benchmark is 10KWh/kg, although 6KWh/kg is a near-term target. Even at that lower figure, the energy cost of filling the giant tank would be 21,600MWh.

It’s also a bold step for a (potential future) government to be setting itself up as a commercial energy company, a quarter century after the SA government privatised its state energy business. Where is that commercial expertise going to come from? True, the previous Labor government bought a couple of large emergency generators after the black system event in 2016. But having an emergency generator on standby isn’t the same as being in the market day in day out. Could it be a money spinner for the state? Possibly. Or it could be the next State Bank of South Australia.

After all, it’s largely playing the role currently played by SA’s gas generators, such as Torrens Island, Pelican Point and Osborne. Most of these are predicted to close down once Project EnergyConnect the SA-NSW interconnector, is built. This is because NSW will be like a battery on steroids for SA – soaking up cheap excess renewables on sunny/windy days and pumping in electricity from coal plants or Snowy 1 and 2 at other times. The arbitrage opportunity that SA Labor has apparently spied is in plain view for anyone else to see – so maybe it just doesn’t pencil out to build a new peaking-type plant right now.

So maybe it’s not meant to be commercially viable. This could mean SA taxpayers are on the hook for propping it up indefinitely. Such an approach would definitely scare off private providers of firming capacity – it’s one thing to go toe-to-toe with a competitor whose behaviour you can infer because you know they’re trying to make money too, it’s quite another to do it against one that the state government is happy to prop up in exchange for lower prices (an $8/MWh saving is promised to South Australia’s commercial and industrial users).

Naturally, the real clincher for this bright idea is all the jobs it will create. The 300 jobs estimated for building the power plant is a reasonable estimate – probably an underestimate given the novelty. For some reason, the ALP document doesn’t include job estimates for the rest of the precinct (electrolysers, liquefaction facility, storage tank). More speculative are the 10,000 jobs that will arise from “unlocking the renewables pipeline”. Given the 250MW plant will probably not even be enough to firm up rooftop solar (1.2GW and growing in SA) it’s not clear what it can do to support utility-scale developments. Finally, the 900 jobs from the hydrogen export industry that will also spring up turn out to predicated on SA being able to grab a third of the Australia -wide total jobs forecast by ARENA because it will be a “first mover”. The drawback in this assumption is that every other state and territory in Australia thinks it is also going to be the first mover.

All in all, there’s more in this proposal for the average SA voter to be worried about than excited. Even inveterate champions of state planning such as WA and Tasmania are expecting private sector investment to do most of the heavy lifting in their burgeoning hydrogen industries. Perhaps the SA ALP should be casting around for a sympathetic billionaire to underwrite this plan for them. Perhaps Sanjeev Gupta, who has already invested a lot in the state…oh, but wait…Has anyone got Twiggy’s number?