National Hydrogen Strategy: issues papers

The scale required to overcome cost barriers for some hydrogen production technologies could be significant, however the sound approach to deliver the most efficient and cost effective product is to let the market decide. Currently the international and domestic market for hydrogen is small. Identifying ‘a scale’ required to reduce cost barriers and framing policies to create that scale could lead to perverse market outcomes. A more reasonable and cautious approach is to allow the domestic and international markets to emerge and let relevant technologies compete to provide the most cost-effective product. Fortunately Australia is in a strong position to cater for such a market.
There are a number of barriers to the realisation of a hydrogen-based economy including: production at scale, infrastructure, investment, bulk storage, distribution, safety considerations and how to grow simultaneous demand and supply for hydrogen technologies. However, even considering these barriers, Australia’s competitive advantage in natural resources puts the nation in a strong position to take advantage of any scale of hydrogen demand now and into the future.
The Royal Society has assessed four groups of hydrogen production technologies in order of technology readiness:
1. Fossil fuel based hydrogen production including coal gasification and steam methane reforming from natural gas. These technologies are well understood and operate on an industrial scale around the world. Carbon capture, utilisation and storage will be essential if this method is to be used to produce low-carbon hydrogen.
2. Electrolysis: This process separates hydrogen from water using electricity in an electrolysis cell. It has a high efficiency though many current facilities are small.
3. Biological methods: These technologies relate to a variation of anaerobic digestion that uses microbes to convert biomass to hydrogen instead of methane. According to the Royal Society these microbial processes are being developed at both laboratory scale and at demonstration level and have potential to make a small but valuable contribution to the hydrogen economy.
4. Solar to fuels: This technology uses sunlight to split water into hydrogen and oxygen. This method is in a basic research stage with elements undergoing technological development.
Based on the guiding principle of technology neutrality all four areas should be considered for Australia, however it is clear that some technologies will not be available to produce hydrogen at a commercial scale for some time.
Australia has significant coal and gas resources and substantial carbon capture, utilisation and geological storage options. The opportunity to use this competitive advantage should be given strong consideration in order to create benefit for Australia through impactful science and innovation while allowing Australia to continue to derive economic benefit from developing its vast energy resources in a carbon-constrained world.
The National Hydrogen Taskforce Issues Papers highlight that the cost challenges of production can be significant. So pragmatically scaling up needs to take account of the most cost-effective technology that can currently achieve the scale requirements. This is currently coal with CCUS, a technology that is already at scale. Its cost can be further reduced by increasing the penetration of CCUS in all relevant industrial processes.
Clean hydrogen produced from black (and brown) coal when compared to other production alternatives already presents as a very favourable opportunity for Australia to be a leader in large scale hydrogen supply. Clean hydrogen from black coal today is $3.45/kg compared with CSIRO’s estimate of ~$11/kg from dedicated renewables.
COAL21 notes that the cost of hydrogen produced by renewables highlighted by the Taskforce does not include the capital requirements for the wind or solar generation and is 3-13 times more expensive than fossil fuel production methods. While a large international market could improve the cost competitiveness of electrolysis technologies, it is unlikely to happen rapidly. Staged coal-to-hydrogen with CCUS projects are therefore an important low-risk stepping stone that could align with market demand and build the foundations of a potential hydrogen production industry for domestic and international markets.

In regards to coal gasification, Australia is fortunate that significant and world leading infrastructure already exists for the supply of coal across Queensland, NSW and Victoria including mining, rail and ports. This is supported by clear regulation at state and Federal levels providing investors with certainty regarding the extraction and use of the resource.
Low emissions coal gasification requires CCUS. The Taskforce should recognise that Australia and its jurisdictions have well regarded onshore and offshore greenhouse gas storage legislation to provide a framework for investors, de-risking the environment for emissions abatement proposals. Minimal scale up is required for coal based hydrogen production. The technology exists at scale with the only development required being the deployment of CCUS.
More specifically, a CCUS Hub could effectively leverage existing infrastructure, share risks and benefits and assist scale-up efforts when the market requires it. The CCUS Hub concept has been investigated in Australia and overseas. A CCUS Hub essentially brings emitters and users of CO2 together to prevent the emission of CO2 from a variety of industrial sources from entering the earth’s atmosphere.
COAL21 with the assistance of Glencore and Bridgeport is investing in the creation of a CCUS Hub in Queensland’s Surat Basin. This Hub centres capturing CO2 from a variety of industries and transporting these emissions via a common use pipeline to a large, commercial scale storage opportunity within the Precipice Sandstone in the Surat. The captured CO2 will also be utilised for enhanced oil recovery opportunities of declining oil fields in the region.
The Surat Basin is a strong candidate for a CCUS Hub as it hosts Australia’s newest supercritical coal power stations, which will operate until at least the early 2050s, has already identified CO2 storage areas within existing exploration permit areas and has existing pipeline network easements for natural gas that could be utilised for hydrogen. The large coal deposits within the Surat are not export quality and therefore other opportunities to monetise the resource are being investigated.
Capturing CO2, storing it or using it for enhanced oil recovery or storage is the current focus of the Surat Hub. However there is significant potential for the addition of other new and existing emissions intensive industrial processes such as hydrogen production from black coal gasification. Once in place, the existing infrastructure in the Hub may attract other industry to the region to take advantage of the storage opportunities available, enabling decarbonisation of industrial processes that may otherwise go unabated.
In terms of transporting hydrogen, the Surat Basin is within economic proximity to the domestic market of South East Queensland and also the well-established industrial port facilities in Brisbane and Gladstone. Both ports are well connected to the Surat with both pipeline easements and road transport routes.

It is vital that this question is cognisant of the broader issue of what the needs of the Australian workforce of the future will be.
In regards to hydrogen production from coal gasification, Australia is fortunate that it can leverage the inherent skills base within its world-leading mining and engineering design and construction workforce. This industry encourages innovation and technological advances to deliver an ongoing, globally competitive sector that delivers fulfilling careers in high-pay, high-skilled jobs.
This has underpinned Australia’s international competitiveness in mining and minerals processing for decades. It will be an important basis for the skills requirements of the future, including greater degrees of task-creative intelligence, social intelligence and perception and manipulation to enable evolution and resilience to the impacts of technology and automation.
A regional coal based clean hydrogen project or industry would result in a permanent lift in skills which are expected to be in heavy demand in the future. These skills can be transferrable to other positions within the mining and LNG industries already existing in the region, and deepen the technical skills base, especially in vocational and engineering professional and para-professional roles.
The minerals industry will help Australia evolve with the shifting nature of the skills required into the future and the development of new industries (including hydrogen and carbon capture, utilisation and storage) because it:
• Employs a high-skill, high-wage workforce that is better-paid, better trained and has a much higher share of apprentices than other sectors in the economy, with average full-time weekly pay of A$2,610, being 67 per cent higher than the all-industries average.
• Has a high proportion of its workforce that is university educated or holds an advanced tertiary certificate or diploma. Average earnings in the Australian resources sector are around A$140,000 a year. In the Australian coal industry they are even higher, being around A$155,000 a year5. The high wages reflect the high skill levels of the mining workforce and the innovative technologies that are used by Australian resources companies.
• Adopts and adapts technological innovations that continually change the nature of work in mining and therefore the skills requirements. For example, increasing automation of mining and logistics is moving some coal mine employees from mine sites to operational centres in cities or towns distant from the mine
The current and future minerals workforce will continue to evolve with the increasing need for technical skills in data analytics, robotics and artificial intelligence. In this it will build on Ernst and Young’s Skills Map for the Future of Work, commissioned by the Minerals Council of Australia. This report identifies 77 per cent of jobs in Australian mining will be enhanced or redesigned due to technology within the next five years.6
A regionally based hydrogen facility coupled with a CCUS hub would deliver local and national economic benefits by maximising the contribution of the resources sector to the export economy while supporting local manufacturing. The construction and operation phases present significant job opportunities, directly and indirectly, with the Hub resulting in a permanent lift in the local, regional skills base.

It is vital that the COAG Energy Council, in developing its National Hydrogen Strategy, recognises and endorses the view that competitive markets with little interference from governments are the preferred option for allocating resources in this country.
At the core of the approach will be the need for ongoing consultation and building supply chains based on sound economic principles for common user infrastructure. With this in mind the economic regulatory framework should be efficiently structured and administered. It should not be adversarial, cumbersome, complicated, time-consuming, inefficient and subject to gaming by participants. Too many regulators and regulatory issues slow down investment.
The fragmentation of regulation, the extent of the powers vested in regulators and the scope for inconsistency in the exercise of those powers create uncertainty for businesses investing in new industries and infrastructure, increasing the level of risk to which otherwise efficient investments are exposed.
The paper uses the analogy of the LNG and CSG industries. These are poor analogies as the market for gas existed before the LNG and CSG technologies surfaced. All these technologies allowed were transportation and lower cost production for an existing supply chain. A more realistic analogy is the introduction of the automobile and the development of the petroleum market.

In line with previous responses, the scale up of activities should be driven by the market and its timing. At this stage the domestic and international market for hydrogen is hard to predict and thus significant caution should be applied before considering measures and incentives to meet such demand by an arbitrary timing.
When considering measures and incentives, the Taskforce should also be cognisant of the responsibilities of government in industry policy. A fundamental role of the government is to facilitate high levels of sustainable growth, ensure sound macroeconomic management, effective institutional and regulatory settings, and an ongoing commitment to broadly based microeconomic reform. Within such a framework, the role for special industry programs or assistance is limited.
All industry programs considered or initiated by the government should be evaluated solely in terms of market failure criteria. In this regard development of the National Hydrogen Strategy should have regard to broad threshold questions for government intervention:
• Are there externalities, information deficiencies or policy impediments that warrant government involvement?
• Are there significant costs if nothing is done and do they exceed the costs of government intervention?
• Is an industry program or policy the only, or the best, way to address the problem?
If intervention through measures and incentives is justified on market failure grounds, such intervention should not be viewed or officially documented as assistance. This intervention is aimed at improving the efficiency of competitive markets. All other business programs should be classified and documented as assistance. Assistance detracts from the efficiency of competitive markets.

As CCUS is a necessity for coal-based hydrogen the Taskforce should refer information in the ‘CCUS Roadmap for Australia’ produced by the University of Queensland in 20177 to identify pathways to enable hydrogen production. The Roadmap is helpful resource on how ensure CCUS is an option for commercial scale hydrogen production in Australia and also provides an example of how to commercialise this style of industry.
The key elements of the CCUS Roadmap include:
• Building investment-ready confidence in storage resources;
• Aligning legal and regulatory frameworks and stress testing them;
• Monitoring and participation in international projects;
• Completing techno-economic studies along the full
• CCUS value chain and establishing appropriate investment incentives;
• Securing continuing support through public engagement and storage demonstration projects; and
• Analysis and planning of full value chain CCUS systems.
Additionally, the Australian CCUS Network, an affiliation of industry associations, advisors and research organisations with an interest in advancing the technology, have recently outlined three measures that could support the availability of CCUS in Australia and provide the long term policy certainty on which to base long-term investments in CCUS. These three recommended policies are:
• Evaluating the introduction of a tax credit scheme for the permanent geological storage of CO2 like the US 45Q tax credit scheme.
• Encouraging deployment of CCUS through the development of a new Emissions Reduction Fund methodology crediting CCUS Project related emissions reductions as Australian Carbon Credit Units (ACCU’s).
• Reintroducing the Clean Energy Finance Corporation Amendment (Carbon Capture and Storage) Bill into Parliament as a priority with the objective of removing the arbitrary prohibition on investment in CCUS by the CEFC.
These recommendations would enable CCUS deployment that would support an emerging hydrogen industry.

See above answers to questions 4 and 5 in Strategy Paper 1.

See above answers to questions 4 and 5 in Strategy Paper 1.

See above answers to questions 4 and 5 in Strategy Paper 1.

See above answers to questions 4 and 5 in Strategy Paper 1.

The best approach is to allow the market to respond by freeing up any barriers to the development of a hydrogen industry. Governments are historically ineffective at “picking winners” and should not seek to choose which industries and technologies to protect, subsidise and develop unless there is clear market failure issues involved (also see above answers to questions 4 and 5 in Strategy Paper 1).
Australia should appeal to all hydrogen markets to ensure the broadest supply chain potential through a technology neutral approach. This would include green to brown hydrogen and all in between. Australia is in a position where it maybe able to supply all options. Dictating to the market is likely to result in longer-term failure.
Governments can use existing international technology, energy and resources bi-, pluri- or multi-lateral arrangements to explore options to advance activities of mutual benefit. Austrade can also assist here through its global network.

Clean hydrogen produced from black (and brown) coal when compared to other production alternatives already presents as a very favourable opportunity for Australia to be a leader in hydrogen supply. Clean hydrogen from black coal today is $3.45/kg8 compared with CSIRO’s estimate of ~$11/kg from dedicated renewables.9

Also see answer to Strategy Paper 2, Question 1 regarding government policy support for CCUS.

More specifically, governments can support and promote the development of CO2 Hubs such as in the Surat Basin to enable CO2 industries using the CO2 offtake from the production of hydrogen (EOR as an example but storage as well). The development of the CO2 Hub in the Surat basin will also enable a CO2 solution for other CO2 intensive industries.

Governments could ensure that there is a level playing field for all forms of hydrogen to be considered. Establishing such a framework will make available a competitive market for producers and consumers at a scale that meets supply and demand. Governments can encourage offtake agreements at arm’s length but should leave commercial negotiations to the relevant parties.
Please also refer to the response to Strategy Paper 2, Question 1 regarding the CCUS Roadmap on how to commercialise a similar industry.

As an aspirational target, this is helpful, but ultimately governments’ role should be to provide the framework by which firms can compete on an equal basis in providing the commodity, no matter what the scale is or the technology that provides it. Additionally, Australia should be cautious not to put too much emphasis on one or two markets. If the market provides it, customer diversity is more attractive.

In the Issues Paper ‘hydrogen’ refers to ‘clean hydrogen’ and is defined as being produced using renewable energy or using fossil fuels with carbon capture and storage (CCUS). This definition reflects the principle of technology neutrality set by COAG Energy and Resources Ministers. Such an approach is supported.
Australia should aim to export all cost-competitive origins of hydrogen to enable the widest possible market penetration. In this light, the guarantee of origin is a hindrance to the development of a hydrogen market unless all forms of hydrogen can utilise the same market framework and infrastructure. The various sources would need to account for the amount of hydrogen entering the transport infrastructure and be compensated commensurate with their origin of source. At the same time, the customer would need to pay for the hydrogen representing the origin of source they require. Systems can be implemented that allow all sources to use the same infrastructure no different to green electricity today.

Refer to answer to Q1.

Refer to answer to Q1.

Refer to answer to Q1.

Refer to answer to Q1.

The broader issue is that government could provide improved technology neutral policy in regards to emissions reduction. Regulatory and market approaches follow from that. The primary policy mechanism is the Emissions Reduction Fund and the Safeguard Mechanism. The Facilities Methodology within the ERF effectively excludes CCUS but industry is encouraged that there is a review of the Facilities Method which may consider a specific CCUS method.
The current Safeguard Mechanism is more likely to result in many smaller players having an emissions profile of less than 100,000 tonnes of CO2-e per year. Commercial scale CCUS projects are generally above 500,000 tonnes of CO2-e per year. For example, the CTSCo/Surat Hub demonstration project would capture approximately 120,000 tonnes per year, but the full scale commercial Hub could capture up to 14.3 million tonnes per annum, reducing Queensland’s emissions by up to 27%.
Further discussion on government mechanisms to manage carbon emissions through CCUS is at Strategy Paper 2, Question 1.

There are some concerns that CCUS is ‘new’ and ‘unproven’. This is false. CCUS has been utilised for decades as demonstrated by Norway’s Sleipner project. CCUS makes use of commercially available proven technologies. There are 21 commercial scale CCUS projects globally and a healthy pipeline of projects under construction. Governments and industry could facilitate improved confidence through public messaging on the technology readiness of CCUS.
Domestic demonstration projects such as the CO2CRC’s Otway project and the Callide Oxyfuel Project are important but their successes have been largely undersold by governments and industry. Public messaging could be improved by focusing more on the outcome of emissions abatement and all approaches to achieve it and less on particular technologies that may assist.
Trust in governments and industry is an ongoing challenge in modern economies. Credible third-parties, particularly the scientific community can greatly assist the community acceptance of CCUS.
The University of Queensland and COAL21 show that factual information alleviates the concerns of most communities. Increased understanding of the technology and processes enables increased acceptance.10
More specifically, community concerns relate to the safe, permanent storage that does not impact water quality or other aspects of the environment.
Injection into deep underground geological structures currently offers the best prospects for CO2 storage given the quantities of gas involved. Various other options for CO2 storage including biological means are also being explored.
CO2 and numerous other gases/substances are managed on a regular basis as part of current petroleum and resource-extraction activities. Capture and transport of CO2 is also not a new technology or idea. Specifically:
• Large quantities of CO2 streams are safely transported by pipeline every day without any adverse consequences
• Immense quantities of extracted natural gas are stored in the subsurface in many parts of the world
• There are massive quantities of gas (including carbon dioxide) trapped naturally in the subsurface under parts of Australia which are not regarded as constituting a safety hazard to the general public
• Fluids are injected into the subsurface every day throughout the world. These projects have provided a knowledge base for the regulatory control of the injection of fluids into the subsurface.
While many of the pieces of a CCUS regulatory regime are already in place and longstanding within the Australian petroleum and minerals industry, the development of an Australian regulatory and approvals system for CCUS will be underpinned by key requirements. These are that the regulatory system should be:11
• Focussed on safeguarding public interest, particularly to minimise risks to health, safety, environment, economic consequences and government accountabilities
• Based on sound risk management principles, be science-based and rigorous yet practical in approach
• Clear and consistent in laying out rights and responsibilities of participants
• Efficient (cost-effective) from participant, government and community viewpoints
• Timely and comprehensive in considering planning and approval requests
• Adaptable and learning-oriented to leverage experience in future developments in technologies, markets and institutional arrangements
• Flexible to allow for future government decisions regarding possible greenhouse policy measures
• Consistent with obligations under international law.
Adherence to these key guidelines in the development of a regulatory and approvals framework for CCUS will help gain community confidence and also provide a sound basis for industry investment. Such a framework will need to take into account the entire life cycle of a CCUS project.
Some common questions regarding CCUS are:
Has successful storage been achieved and is it safe?
Yes, the Sleipner project is the best, long term example. It has been storing approximately 0.9 million tonnes of CO2 per year in a deep saline formation under the North Sea off the coast of Norway since 1996.
Importantly, CO2 is a stable substance and, provided the well-established industrial safety protocols are followed, the injection process can be conducted without any threats to the health and safety of workers or the public.
Who is involved in CCUS around the world and where are the projects taking place?
There are currently 21 large scale CCUS projects in operation or under construction around the world, with a combined capacity to capture around 40 million tonnes of CO2 per annum. Several other large scale projects are in various stages of planning.
The first commercial CCUS project in the power sector, SaskPower’s Boundary Dam project in Canada, began in late 2014. The second, Petra Nova’s coal-fired power plant located near Houston, Texas, began in 2017. These are of global significance as they show CCUS operating in the power sector.
In the Middle East, the Abu Dhabi Carbon Project is the first commercial CCUS project in the iron and steel sector.
Does carbon dioxide leak from its storage site?
No, CO2 will not leak from the storage site provided it is established and operated correctly.
There are examples in nature where large volumes of CO2 have been trapped in geological formations for millions of years without leakage. However, replicating this natural process is a relatively new practice and it is being developed with appropriate precautions.
Prior to injection commencing, the geological formation in which the CO2 is to be stored is exhaustively studied to ensure its suitability. This includes establishing the boundaries of the reservoir, which provide an effective seal to prevent leaking, either to the surface or to adjacent geological formations.
Throughout the period of injection, and for many years after injection ceases, the CO2 is carefully monitored to ensure any undesired events are detected early so that effective remedial action is promptly taken.
Please also refer to answers to Question 8.

Electricity cost and availability. There are also associated issues including grid-based emissions and waste from desalination plants.

Land use requirements for coal to hydrogen are relatively small compared to other production methods, particularly if the activities are at existing coal extraction sites. Regulations for the land use at these sites is well established in each relevant jurisdiction.

(a) What approaches could help to manage these approvals to facilitate industry development while providing suitable environmental and natural resource protections and managing community expectations?
For projects at existing coal extraction sites, all approval approaches should be cognisant of existing resource extraction regulatory and approval approaches and ensure no duplication or excessive red tape. Additionally, the Productivity Commission is now undertaking a 12 month review on the approvals process of mining proposals. The findings of this review may have broader consequences for the energy and resources industry.
13
In terms of CCUS, Australia and most jurisdictions already have regulatory frameworks that will cater for capture, transport and storage proposals, including long-term liability arrangements. The appropriateness of these existing frameworks should be the starting point for any consideration of the need for additional regulation and approvals.
See answer to Strategy Paper 5 Question 2 regarding managing community expectations through using credible third parties.
(b) When do these approaches need to be in place by?
The community and industry require as much certainty as possible, so any project and environmental approval processes should be in place as early as possible and well before Final Investment Decisions are considered.

Safety is paramount in all resource and energy industries. The focus should be on safe handling and transport standards for hydrogen.

Regional communities have a strong focus on job creation and related economic benefits that stay within the region. A number of regions in Australia have a global competitive advantage through the availability of significant coal resources which are either currently exported, used for domestic purposes or not currently extracted due to commercially viability. These regions are acutely aware of the need to maximise the use of the resource to create a sustainable future for the relevant communities and this has also included investigating new uses for coal such as hydrogen production.
A regional clean hydrogen facility based on coal will create new jobs is likely to be a project which calls for early and extensive stakeholder engagement in order to ensure that any issues are clearly and adequately communicated to interested and affected parties in a timely manner.
To effectively manage engagement with the community and stakeholders, there needs to be consideration for the different issues that each stakeholder group would be concerned with. Engagement with stakeholder groups is recommended to confirm actual issues rather than the perceived issues. Example of stakeholder categories and issues (see attached document)
COAL21 has undertaken a number of projects that require community engagement. In regards to the Surat CCUS Hub, COAL21 with the assistance of AECOM13 has developed the following broad principles for stakeholder engagement for a CCUS project that would also be applicable to a coal-to hydrogen project:
• Open, transparent, objective and accountable engagement with all stakeholders;
• Ensure access is provided to up-to-date information;
• Provide opportunity for two-way information exchange;
• Engage early and often;
• Avoid single issue messaging;
• Present information in different formats to suit the various stakeholders (i.e. the way information is presented to the public will be different to how it is presented to government agencies);
• Present information in a way that is understandable to the layperson and government personnel;
• Ensure consistent messaging across the different organisations who are undertaking research and projects in the region; and
• Ensure stakeholders know who they can contact if they have issues.

As an overall principle, legislation and regulation for hydrogen production projects should be treated like any industrial process. This provides investors with confidence based on existing tested frameworks and reduces regulatory burden on both industry and governments. Where there are clear gaps of governance driven by an emerging technology there will of course need to be particular regulations. But where possible, existing regulations based on known industrial processes should be used.

The Australian minerals industry is a partner with host communities helping to support economic development and is adopting new approaches that ensure social investment supports local values and long term community resilience. This partnership should be considered by the Taskforce as a model that can be used for any element of the hydrogen supply chain that develops in regional Australia.
The contribution of mining extends beyond the mine, as skills and experience are transferrable to other parts of the community. All governments have an important role to play in building community confidence in regulation and maximising the shared benefits of mining. The mining industry supports the Council of Australian Governments’ agenda to raise community awareness of the benefits of mining and effective regulation.
The Australian Government should use existing research to create a modern regional development and sustainability framework to help leverage the economic stimulus and social investment of minerals development and target investment into opportunities for economic resilience and diversification.
In regards to royalties, the mining industry supports a more equitable re-investment of royalties and taxes paid by the mining industry into the revenue-producing regions. This should be at the forefront of governments’ considerations in developing any new industry based on resource extraction.

Reliable and affordable energy is central to Australia’s economy and prosperity. However, over the past decade, Australia has moved from having some of the lowest to some of the highest energy costs in the developed world.
The key principle underpinning energy policy should be technology neutrality. This means avoiding providing subsidies, quotas or other non-market-oriented interventions to favour specific technologies. A technology neutral approach should be applied to all low emissions energy sources. If hydrogen production needs to be integrated within current electricity systems, the approach of technology-neutrality to providing the power for that production must not be followed. Additional intervention will result in perverse market outcomes and a continuation of policy uncertainty.
Coal gasification does not necessarily need to be connected to the electricity grid. However, if the gasifier includes a power island it can also generate electricity from the gasified coal providing dependable synchronous generation increasing the grid’s system strength.
Regarding renewables to hydrogen, South Australia has shown that higher levels of non-synchronous generation need to be backed up by synchronous generation to keep the grid stable. As highlighted by the Australian Energy Market Operator14, low system strength which can result from a lack of synchronous generation can be a significant issue.
Renewable and electrolysis based systems will not be able to provide an inertial response, only fast frequency response at best. As such, renewables and hydrogen are unlikely to support the expansion of a competent strong grid. 15, 16 The following figure from AEMO’s Power System Requirements provides an overview of the necessary service to maintain grid stability and the timeframe required.17
While the electricity system components are ever changing, the physics services that underpin an electricity grid do not. To maintain an adequate, reliable, secure and operable grid during this transformation, AEMO needs to manage the acceptable trade-off between the system costs and providing the grid services highlighted in the above figure. The ability to set and the maintain its operating frequency within desired limits is fundamental to the operation of an electricity grid.
Synchronous power generation in the form of thermal and hydro plant are currently the only available source of inertial response. If non-synchronous generation displaces synchronous generation, the total system inertia is reduced. This causes a higher Rate of Change of Frequency (RoCoF) and decreases system stability; slowing and arresting the RoCoF is the first critical response to restoring grid frequency. After this initial response, primary, secondary and tertiary frequency control measures are then available.

As highlighted in the answer to Strategy Paper 7, Question 1, a key principle to energy policy is technology neutrality. Any legislative, regulatory or market reforms for hydrogen must be based on this principle to avoid market distortions and policy uncertainty that have plagued Australia’s energy policy for a decade.

For low emissions coal gasification projects, CCUS is a necessity. Therefore, any pilot, demonstration or commercial project must consider proximity to coal resources and carbon sequestration options. Australia is fortunate to have significant coal resources that are close to existing infrastructure. Additionally, Australia has significant onshore and offshore storage options including the Surat Basin in Queensland.
Governments’ role in encouraging coal gasification and CCUS should consider the strategic advantage, regional development opportunities and the technical readiness to meet future demand that coal gasification can provide. This is central to the approach of the Victorian and Commonwealth’s support of the Hydrogen Energy Supply Chain project.
Government and industry have done the preliminary work to enable a CCUS Hub in the Surat Basin through the CTSCo and UQSDAAP projects. This aligns with governments’ theoretical role in research, development and deployment. Further government support for a pilot CCUS demonstration in the Surat would also align with this rationale, providing an emissions abatement solution to enable the monetisation of significant coal resources in the Surat. This would allow continued regional development and favourable economic prospects for the region.
Government’s consideration of providing direct support, such as grants, should be based relevant government guidelines such as the Commonwealth Grants, Rules and Guidelines.18. Such guidelines generally adhere to generic rules that government support is efficient, effective, economical and ethical. They should also align with prescribed policy priorities for the particular activity. In the case of hydrogen, this would need to align with the government’s policy of technology neutrality.
Importantly, any government support must be clearly aligned with the outcome that government is intending to achieve. Not only does this provide clear criteria by which to allocate that support, it provides government with a more useful platform to measure the effectiveness of that support.
If the outcome sought from the National Hydrogen Taskforce and related strategy is to:
• Build a hydrogen industry and
• Position Australia’s hydrogen industry as a major global player by 203019
criteria for government support must focus on the most effective way of meeting those objectives. Given the cost effectiveness of coal gasification, government support of such projects and their related CCUS abatement solution should be seriously considered in meeting these objectives.

See answers to Strategy Paper 2, Question 1 and Strategy Paper 8, Question 5.