National Hydrogen Strategy: issues papers

AusNet Services gas transmission and distribution business services over 700,000 customers across the west of Victoria, including the outer northern and north-west metropolitan area of Melbourne. The gas network consists of approximately 11,700 kilometres of gas mains operating at different pressures. Over 90% of the gas networks operate at high pressure, of which over 75% is polyethylene pipe.

Over 75% of our high-pressure network consist of polyethylene pipework of varying grades and age profile. The majority of the recent installations (both new and upgrades) consist of the latest generation of polyethylene which is deemed to be suitable for use with low levels of hydrogen blending. Further assessment and analysis is required to ascertain suitability of older generation polyethylene with hydrogen blend within the distribution network.

Our distribution network covers the high-growth areas of Western Melbourne and Geelong where tens of thousands of new customers have been connected to our network via 100% polyethylene distribution networks to new estates.

The blending of 10% hydrogen with natural gas is currently considered as a safe upper limit based on recent work undertaken by the Energy Pipelines CRC. This research confirmed testing at these levels of hydrogen blending has no effect on the suitability of existing HDPE distribution systems. Trials in a South Australian gas network are currently being implemented to blend 5% hydrogen into the gas distribution network.

As a safety driven Initiative, AusNet Services implemented a mains replacement program in 2003. Subject to continued regulatory support, this program is on track to replace aging and leak prone low-pressure mains with latest generation polyethylene pipework operating at high pressures by 2027. However, we own and operate 185 km of transmission pipelines are not likely to be 'hydrogen ready' in short to medium term.

We therefore contend that the focus of any hydrogen blending trials be prioritised initially in the areas of the network where the majority of the infrastructure is hydrogen ready. We also highlight the need for ongoing education and advocacy from trusted parties such as regulators and government agencies to give confidence to customers and communities on the potential for hydrogen to become a feature of the Australian energy landscape. This would be supported by industry messaging and will ensure that the social licence to pursue hydrogen opportunities is a key element of any approach arising from the National Hydrogen Strategy.

Gas meters within our gas networks are categorised as diaphragm, rotary and turbine meters and for large industrial and commercial customers are accompanied by telemetry equipment (e.g. data loggers and flow correctors).

It is expected that diaphragm meters typically used for residential and small commercial customers are ready for hydrogen blends up to 10%. However, further testing, assessment and consultation is required to confirm the use of diaphragm meters with hydrogen blends exceeding 10%.

Rotary and turbine meters (and telemetry equipment) installed at industrial and commercial premises will need further testing, assessment and consultation to determine capability with various hydrogen blends and any accuracy issues.

Furthermore, we support the proposed work plan initiatives outlined in Table 2 (table of proposed timetable of activities to support hydrogen blending in Australian gas distribution networks) to review technical challenges and harmonize standards of all aspects of metering reticulations including meters, regulator, fittings, and valves.

Between 2014 and 2017, AusNet Services has connected the regional centres of Huntly, Avoca, Winchelsea and Bannockburn to our natural gas distribution network under the Victorian Government “Energy for the Regions” program in addition to regional centres connected earlier under this program. These are some of the newest towns in Victoria to be connected to natural gas and the associated distribution infrastructure is more hydrogen ready than other established areas of the network.

In the same way, that there has been financial and policy support from government, combined with community support to extend natural gas to these regional centres, it is also feasible to use this model to consider candidate regional centres to become 100% hydrogen. In fact, the regional centres connected to natural gas under the Victorian Energy for the Regions, or towns that wish to self-nominate may offer the potential to be “hydrogen pioneers” given the natural gas infrastructure in these centres is some of the newest in Australia.

Rather than a single site selected nationally, there is merit in several sites being selected across different gas distribution networks and states. Involving different and diverse communities will be important in establishing a broad social acceptance of hydrogen. We also encourage that a cross-industry governance model be introduced to maximise lessons across any such industry trials that are funded via any future innovation funding mechanisms.

Criteria for selection of such sites should consider the broader hydrogen related value stream opportunities that could be leveraged. For example, the production of hydrogen could be aligned to a regional centre where there is support for hydrogen mobility solutions and other emerging hydrogen use-cases and end use opportunities. For example, a mobile electrolyser could improve loss factors in a region where there are renewable generators and the production of hydrogen could be used to power trucks in the region and hydrogen also available for blending in the local gas distribution network. In relation to criteria for selecting regional centres, we also encourage economic development and participation in the national renewable economy are key criteria combined with community support and relevant suitability of existing infrastructure to manage hydrogen blending at low to medium levels.

AusNet Services is monitoring for opportunities to participate in a trial involving the use of up to 100% hydrogen in an isolated gas network. We seek to understand synergies that provide the capability to store energy from electricity networks that would otherwise be constrained or be subject to high transmission losses. To this end, we strongly support the development of “hydrogen opportunity maps” that show relevant gas and electricity network infrastructure along with a basic indication of existing hydrogen applications and production centres.

With the strong pipeline of decentralised renewable projects with a very low marginal cost of generation, shown in Figure 1 above, there is a need to monitor and plan to mitigate any current or emerging congestion issues. Figure 2 shows areas of the electricity transmission network with low Marginal Loss Factors (MLFs), and Figure 3 shows that many of these new projects and emerging MLF outcomes are geographically proximate to both AusNet Services’ gas and transmission network assets. These congestion issues and low MLFs could be improved by storing or consuming energy locally at peak generation times.

While new projects that unlock greater transmission capacity are planned and built, new renewable developments will increase the utilisation of other parts of the transmission lines resulting in new constraints and potentially decreasing generator MLFs in new areas.

An emerging opportunity to firm up new renewable generation capacity and avoid transmission losses at peak generation times could be created by converting electrical energy to hydrogen. The geographic overlap with the gas network in Western Victoria, shown in Figure 3, creates an opportunity to inject this hydrogen into the gas distribution network or to produce and store the hydrogen in some other fashion. Electrolyser infrastructure, which is expected to have a modest physical footprint and is modular in nature could be readily deployed to produce hydrogen and later relocated to a more constrained (or more saturated) section of the transmission network. Hydrogen produced from otherwise constrained or overly saturated electricity transmission could also fuel a range of local hydrogen projects or be blended into nearby gas distribution networks.

Government and industry have a major role in cooperating to advocate to our customers and the community more broadly on the benefits of transitioning natural gas to renewable gas sources as part of Australia’s overall least cost decarbonisation trajectory.

Essential in developing this renewable future is facilitating a level of innovation funding allocated across all gas regions in Australia. A failure to spread innovative success stories across different communities may hinder the development of broad social acceptance. Therefore, we recommend that innovation allowances are supported by the economic regulatory framework for gas networks to sponsor innovation related to hydrogen opportunities and that any such funding is allocated equitably across gas distribution networks to ensure a truly national approach to developing a hydrogen value chain.

Importantly, government has a role in providing incentives for businesses with regulated revenue to invest in innovation projects to develop capabilities to safely include hydrogen into gas networks and to demonstrate these benefits to communities (such as the ATCO trial). Currently, there is no specific network innovation incentive for gas distribution businesses within the regulatory framework to invest in developing these capabilities, and recent attempts by gas distribution businesses to secure funding for trials have been rejected. There is considerable international precedent for the use of incentives to facilitate the development of innovative network solutions.

We recommend work be undertaken to compare the environmental, economic and community impacts of a hydrogen future as it applies to reducing emissions from gas distribution networks. Further work in this area, as part of a National Hydrogen Strategy would reliably inform the public, industry and government of the environmental and community benefits of hydrogen as part of a least-cost decarbonisation trajectory for Australia and avoid negative perceptions affecting the development of hydrogen.

Missing in Table 2 (table of proposed timetable of activities to support hydrogen blending in Australian gas distribution networks) are significant activities from 2023 and going beyond 2030 that support the utilisation of gas transmission lines in the transition to a hydrogen gas network. Without such activities addressing the use of transmission lines for hydrogen Australia cannot use the full potential of existing gas networks to transport and store renewable gas.

The best integration of hydrogen with the electrical system will be facilitated by reforms that make the electricity system more efficient that provide greater rewards the flexible use of electricity for hydrogen production. Currently, the NEM electricity system does not provide options for dynamic intra and inter regional loss factors. Planned reforms such as the Coordination of Generation and Transmission Investment (COGATI) review are needed to introduce dynamic market arrangements are needed. These reforms will better reward the renewable generation infrastructure required to transform our economy to a renewable economy.

However even with the more efficient electricity market resulting from the above reforms, the production of most renewable generation will still be limited by the availability of wind resources blowing hard enough where the wind farms are located (e.g. it may be windy in South Australia, and calm in the NSW tablelands). The commonly understood solution for local and coincident generation that exceed the efficient transmission network capacity is to build more and more transmission lines either through a regulatory investment test process or an incentive scheme such as the network capability incentive parameter action plan (NCIPAP). There is potential for hydrogen production powered by these localised excesses of renewably sourced electricity. An incentive scheme similar to the NCIPAP (or eligibility in this scheme itself) would also incentivise new non-network solutions to further unlock transmission capacity. Energy stored could either be later converted to electricity power the National Electricity Market or transported in gas networks or as a liquid product.

Reforms are required to establish market arrangements for hydrogen and biogas injection and selling as facilitated physically by gas networks. Regulated gas networks have a strong interest in the viability for gas networks to participate in a fully renewable future and should not be prevented by ring-fencing arrangements from contributing to the transition to hydrogen. Reforms should allow gas networks to offset unaccounted for gas (UAFG) liabilities via hydrogen related initiatives with further work needed to support the development of market mechanisms to develop a price for hydrogen.

Jurisdictional renewable targets are driving significant growth in renewable electricity generation. The nature of renewable generation creates opportunities for rewarding flexible demand and hydrogen production. However, for greater scales of efficiency a national approach to hydrogen production, transportation and use would better utilise these resources. A national approach would avoid inefficient cross border selling arrangements and enable greater competition and reduce the need for regulation. There is currently limited support for projects (such as those discussed in relation to hydrogen) that leverage benefits between different regulated gas and electricity networks. Greater focus on sector coupling is needed to drive the development of hydrogen in Australia.

Network businesses, gas power generators and operators of electrolysers are affected by gas and electricity rules. This amplifies the level of regulatory uncertainty risk faced by operators of coupled gas and electricity assets. Rule provisions that give a formal recognition of these more integrated operations may be able to provide greater regulatory certainty.

Relevant factors to be considered include:

• The ability to align the pilot and demonstration project with the broader interests of local communities and proponents.
• Potential for project scalability by expanding the renewable resource generation sources available.
• The availability of the required infrastructure to move the hydrogen from production facilities (e.g. at solar farm, wind farm) to gas distribution networks, mobility fuelling or export facilities.
• The capability for hydrogen production facilities to be redeployed when the transmission or distribution lines powering the production no longer have excess amounts of renewable electricity.
• To avoid unnecessary duplication of hydrogen test pilots, a co-ordinating body could be formed to share findings from publicly-funded trials. This would serve to ensure that funding efforts are cumulative to the development of hydrogen in Australia.
• We also encourage economic development and participation in the national renewable economy are key criteria combined with community support and relevant suitability of existing infrastructure to manage hydrogen blending at low to medium levels.