Australian Hydogen Conference, Adelaide Convention Centre

Anna Collyer, AEMC & ESB Chair

 

Thank you Fiona and good afternoon everyone.

I’d like to begin by acknowledging the Kaurna People of the Adelaide Plains, who are the Traditional Owners and Custodians of the land on which the Convention Centre is located.  I’d like to pay my respects to their Elders past, present, and emerging, and extend those respects to Aboriginal and Torres Strait Islander people present today.

I’m delighted to be able to speak to you in person as Chair of both the Energy Security Board and the Australian Energy Market Commission - of which I have the privilege of being the Chair for both.

It’s our job at the AEMC and ESB to help facilitate the rapid transition of the sector by reforming the rules so that markets, and consumers, can make the most of new technologies - and that includes hydrogen.

Hydrogen is fascinating from our perspective because of the way it uniquely intersects with both gas and electricity markets. It’s a future source of renewable fuel, but it’s also potentially the largest industrial customer for electricity in the NEM’s history, and a flexible customer at that, a customer that can give something back to the grid.

But for all the enthusiasm in the industry, there is also that uncertainty. Uncertainty around how hydrogen will be used, how it will be transported & how much it will cost – all these things are evolving rapidly, making it hard to gauge cost, risk, and return.

That’s why today, I’ve chosen to focus on the word “innovation”.

In each case what we want to do is provide the right settings to encourage investment and confidence and most importantly the innovation in both products and services that we’ll need to transform the sector.

Bearing all that in mind I’d like to address the big picture vision and hydrogen’s many future roles in any energy system on the road to decarbonisation, along with the steps we’re taking towards reforming the regulatory frameworks to enable this kind of innovation.

The latest ISP shows a hydrogen superpower scenario would require a seven-fold increase in the energy the NEM delivers. According to Dr Alan Finkel, we’d need an 8 fold increase in Australian electricity production if hydrogen exports are to match our LNG exports today, or a twelve-fold increase to match our coal exports across Australia. This would represent a transformational change in our energy landscape.

The interest in hydrogen is reflected in the level of investment in the sector already. Just in the past few months, we have seen a number of announcements in the Hydrogen space, including;

  • Fortescue’s announcement with the energy giant EON in Germany for 5 million tonnes of hydrogen by 2030
  • A renewable hydrogen refuelling network between NSW, Victoria, and Queensland
  • The NSW Governments Hydrogen strategy launch, including a target of 10% gas blending by 2030
  • Plans to have the first electrolysers coming off the factory floor in Queensland next year.
  • And here in South Australia, plans for a $600m hydrogen power station and storage facility in Whyalla.

In the future, we will no doubt see increasing demand for hydrogen as a feedstock for gas generators. And of course, there is the opportunity too for hydrogen to play a key role in providing system services like FCAS and flexible demand to the NEM. The system will need these services more than ever as it transitions to greater levels of renewable generation across a decarbonising network.

We can’t really predict what the future hydrogen industry will look like, but we do have some clarity about what the next steps are in terms of regulatory reform … and that’s where our role is crucial.

  • The AEMC’s hydrogen review, as well as the distributed connected facilities rule change, are critical first steps in the development of the industry. The changes to the rules will allow for low-level hydrogen blends as well as renewable gases in the distribution gas pipelines across Australia. They’ll help to create demand in the early stages of the market too.
  • The review is looking into what reform is needed so that those gases can be included in the energy framework….
  • And it also aims to enable the gases to be safely supplied through existing gas distribution pipelines - while retaining the operation of the current market arrangements.
  • The review is specifically looking at how these new gases are to be brought into the frameworks in terms of:
    • Participation in the facilitated gas markets and retail markets for gas
    • Pipeline regulations
    • Market transparency mechanisms, and,
    • Consumer protections
  • We aim to make recommendations and changes to the framework that will provide clear “rules to the game” for future potential investors, and pilot projects that are taking those key steps today. We want to ensure those investors can confidently make informed decisions that will in turn grow the sector, paving the way for a decarbonised economy.

In addition to blending hydrogen into distribution pipelines, there is also potential for our other workstreams to pave the way for growth and innovation within the industry. Let me give you some examples.

  • First, we are in the midst of a significant work program to ensure the system has the right amount of essential system services in the right places. One of the consequences of the transition to renewables is that it is leading to a reduction in these services in the system. It’s our role to define what we need in the way of regulatory frameworks which will allow emerging technology like hydrogen to provide these essential system services. For example: there is potential for electrolysers to provide essential system services. How? Electrolysers can change their output very quickly, allowing the supply/demand of the system to be kept in very close balance, which in turn stabilises the frequency of the system. We are also evolving the FCAS framework. In July last year we made a rule introducing new markets in fast frequency response and this year we are progressing the primary frequency response rule change. The existing frameworks and new rules will all have an impact on hydrogen facilities that can offer services to these evolving markets.
  • Transmission and the role hydrogen can play in addressing congestion on the grid will also be key. The ESB’s Transmission Access Reform work seeks to address increasing congestion in the grid. This work aims to provide better incentives for generators, storage, and flexible load such as hydrogen to connect to the grid and come online in a way that will help deliver new power supplies at the least cost and optimize the use we get from existing and new networks alike. It also means we maximise the utilisation of variable resources.
  • Recent rules in relation to demand response, integrating energy storage systems, and ongoing work on flexible trading arrangements as part of the ESB’s post-2025 reform process are important here too. They will also have an impact on hydrogen business models, that will interact with the grid as a customer and a supplier of demand response or energy. On that front - hydrogen can play a similar role to batteries in taking energy from the grid when it’s cheap and providing energy when it’s expensive.
  • And finally, there is the importance of hydrogen as a future source of firming capacity to the grid as we move to ever greater levels of renewable generation. Hydrogen and hydrogen-fuelled generators may play a key role in the future operation of any capacity mechanism in the NEM. This in turn would improve the reliability of the system. More work might be needed down the track around how the electricity and gas sectors intersect – specifically, understanding the role hydrogen can play in meeting peak energy requirements (and resilience in the provision of peak energy), in both markets at the same time.

To conclude, the AEMC is often at pains to remind people that we are technology agnostic – we don’t pick winners. And this is true. But putting in place market frameworks that encourage innovation has long been central to everything we do, both at the AEMC and the ESB.

And we know in the case of the development of the hydrogen industry here in Australia, frameworks that are enablers of innovation, investment, and growth will be essential, both to the development of a domestic industry and the future growth and competitiveness of Australian hydrogen exports in the global marketplace.

We are taking those first steps, in collaboration with market bodies, governments, and industry. But we are also looking to the future, and the future role hydrogen will play in Australian gas and electricity markets. Hydrogen has many roles to play in our energy markets on the pathway to decarbonisation, some of which may not be fully understood or known today.

With the right settings, the mutual benefit between Australian energy consumers and a growing hydrogen sector is likely to be compelling. We look forward to working with you, the industry, and its stakeholders as you take these critical next steps on a path towards innovation and growth.

Thank you.