Lending Association

Green hydrogen faces challenges

Australia’s ambitious plans to replace gas exports with green hydrogen could be hindered by the immense scale of transmission lines required to establish a thriving renewable export sector, warns the Australian Energy Market Operator (AEMO).

The success of transforming Australia’s abundant solar and wind energy into hydrogen exports or reviving downstream resources processing, such as aluminum production, largely depends on the price and stability of the power grid. However, AEMO’s latest draft integrated system plan, scheduled for release on Friday, paints a daunting picture. It suggests that billions of dollars must be invested in transmission infrastructure to connect renewable energy zones to production hubs near major ports if Australia is to harness green energy’s potential for boosting the national economy.

The report advances AEMO’s predictions for the decline of coal in the National Electricity Market (NEM) by five years compared to the 2022 system plan. It underscores the need for a rapid acceleration in the deployment of new renewable energy generation, firming options, and transmission infrastructure to meet the federal government’s ambitious target of achieving 82 percent renewable energy by 2030.

According to the report, approximately 6 gigawatts of new renewable energy must be added to the NEM in the coming decade to replace coal generation, representing a 50 percent increase above the current rollout rate. AEMO also suggests an increased requirement for rapid-reaction gas turbines, with the draft 2024 ISP raising its forecast for backup gas-powered generation capacity to 16 gigawatts by 2050, up from the 10 gigawatts projected in the 2022 ISP.

However, the report also highlights the risks associated with delays in constructing the new transmission infrastructure essential for connecting renewable energy zones to the grid and replacing coal-fired generators. It emphasizes the need for a careful balance between ensuring a stable power supply and rushing the transition process. Market rules, global supply chains, policies, and community engagement must align to ensure the success of Australia’s energy transition.

Already, the installation of new high-voltage lines across farmland in New South Wales (NSW) and Victoria has faced opposition from farming groups and is emerging as a contentious political issue in the lead-up to the next federal election.

The challenges are considerable, with the 2024 Draft ISP estimating that nearly 10,000 kilometres of transmission will be required by 2050. Approximately 5,000 kilometres of this transmission must be implemented in the next decade, including around 4,000 kilometres of new transmission corridors and the upgrade of about 1,000 kilometres of existing lines. To support green energy exports, this infrastructure will need to more than double its capacity and be rolled out at a significantly faster pace.

Under AEMO’s green energy export model, renewable energy generation must increase to 550 gigawatts by 2050, with around 200 gigawatts expected to come online quickly enough to see the last coal-fired power station exit the NEM by the early 2030s.

The modelling also suggests that green hydrogen hubs at major industrial sites may struggle to secure affordable energy if the substantial generation capacity required to support hydrogen production and cost-effective manufacturing cannot be connected to the grid in a timely manner. The inability to access affordable green energy recently influenced decisions by Fortescue and Incitec, who postponed their investment plans for green ammonia production.

Simultaneously, Fortescue has decided to move forward with a small hydrogen production plant in Gladstone, Queensland, where Powerlink has recently upgraded transmission infrastructure, providing a glimmer of hope amidst the transmission challenges that Australia’s green energy ambitions face.