Low Carbon Pulse - Edition 2

Welcome to Edition 2 of Ashurst's Low Carbon Pulse. This edition continues to monitor the pulse of energy transition, outlining key developments covering aspects of energy transition globally from the past two weeks.

During November we will also bring you the first of a series of articles on hydrogen, titled The Shift to Hydrogen (S2H2): Elemental Change, with the first providing an overview of the increasing momentum towards use of hydrogen.

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Japan to reduce GHG emissions to net zero by 2050

On 23 October 2020 Nikkei Asia broke the news that Japanese Prime Minister Yoshihide Suga is to commit Japan to reducing GHG emissions to net zero by 2050 (2050 goal). In committing to the 2050 goal, Japan will align its commitment with those of the European Union. To achieve the 2050 goal it is anticipated that automotive, electrical energy, steel industries (and other difficult to decarbonise industries), and public transport, will be required to develop and to use new technologies. It is expected that policy settings will be announced shortly to provide concrete measures as to how to achieve the 2050 goal. The 2050 goal is consistent with a carbon free society by 2050, and follows concrete measures consistent with the 2050 goal, including the development of offshore wind capacity and hydrogen import.

As with the announcement of the People's Republic of China of net zero GHG emissions by 2060 (outlined in Edition 1 of Low Carbon Pulse), achieving the 2050 goal will impact countries that export coal and LNG (and other energy carriers) to Japan. For example, best estimates are that Japan imports 45% of both Australia's coal and LNG exports. For Australia (as noted below) there are opportunities to become a major exporter of hydrogen (including to Japan), and possibly a major exporter of renewable electrical energy: Australia is blessed with some of the world's best renewable energy resources for solar and wind, and is starting to develop them.

See: Japan to reduce greenhouse-gas emissions to net zero by 2050

Japan continues as a hydrogen first mover

In December 2017 (under the Basic Hydrogen Strategy (BHS)) the Japanese Ministerial Council on Renewable Energy, Hydrogen and Related Issues, among other things, announced a plan to import up to 300,000 mtpa of hydrogen by 2030. The BHS was agnostic as to the form or colour of hydrogen imported - liquid hydrogen gas (LHG), methylcyclohexane (MCH) and ammonia (NH₃) were all expressly contemplated. 

Since December 2017, Kawasaki Heavy Industries has developed the world's first LHG carrier, the Suiso Frontier (launched in December 2019, Suiso being hydrogen in Japanese), Chiyoda Corporation has shipped its first cargo of MCH from Brunei to Japan (in June 2020), and Sabic and Mitsubishi Corp have shipped the world's first cargo of Blue Ammonia (in this instance being hydrogen sourced from the production of petroleum products with CO2 captured) from the Kingdom of Saudi Arabia to Japan (late September 2020). In March 2020, the world's first renewable energy powered hydrogen plant was completed at Fukushima.

On October 14, 2020 the Japanese Industry Minister, Hiroshi Kajiyama announced that Japan will create a commercial hydrogen fuel supply chain by 2030. The core of this policy setting is the continued development of sea-borne carriers, with US$800 million in funding to be made available in Japan's next fiscal year for these purposes. In making the announcement, Minister Kajiyama said: "Given the growing momentum in actions taken by many countries toward wider use of hydrogen, we have come to share a common understanding that hydrogen is an essential energy for decarbonisation".

Note: In addition to liquefying hydrogen, it is possible to compress it (compressed hydrogen gas or CHG). A number of corporations are working on the development of CHG technologies, including CHG carriers.

See: Japan aims to set up commercial hydrogen fuel supply chain by 2030

Japanese industry integral to momentum on hydrogen development

The establishment of the Japan Hydrogen Association (JH2A) was recently announced by nine Japanese companies, namely ENEOS Corporation, Iwatani Corporation, Kawasaki Heavy Industries Limited, Kobe Steel Ltd, Sumitomo Mitsui Financial, Group Inc., Kansai Electric Power Company, Inc., Toshiba Corporation, Toyota Motor Corporation and Mitsui & Co Ltd. The establishment of the JH2A is to be formalised in December 2020. The objective of the JH2A is to help drive the development of a new hydrogen society in Japan. The JH2A is a further acknowledgement by the private sector of the importance of alliances among private sector participants and governments so as to develop and to implement appropriate policy settings. While not all Japanese corporations actively involved in developing and using technologies are members of the JH2A (notably Mitsubishi Corporation), it is to be expected that the JH2A will promote policy settings that are responsive to the development of the new hydrogen society.

See: Launch of a preparatory committee for "Japan Hydrogen Association (JH2A)"

Achieving net zero GHG emissions virtually impossible without CCUS

In a recent report, the IEA concluded that achieving net zero GHG emissions will be virtually impossible without carbon capture, utilisation and storage (CCUS). On a fairly consistent basis, Governments and Big Oil appear to agree with this conclusion. The issue with CCUS is the development of technology that will result in the capture and storage of CO2 on a permanent basis, or the capture and use CO2 into solid form or into a form that does not produce GHG. The development of CCUS technology is key to the development of the Blue Hydrogen industry (hydrogen produced using fossil fuels with CO2 capture permanently so that it is not released into the atmosphere), and to the continued use of technologies in the difficult to decarbonise industries (including cement, chemical and steel production). In theory, green hydrogen (hydrogen produced from electrolysis of H2O using renewable electrical energy) could negate the need for CCUS over time, but the issue is time, how long? By when?

The development of CCUS and carbon capture and storage (CCS) is an area in which Governments can take a leading role. For example, the Norwegian Government is providing funding for the Longship Project, which provides funds for the Equinor, Shell and TOTAL Northern Lights Project to capture CO2 from industrial sources (cement production and waste to energy). The total project cost is US$2.7 billion, with the Norwegian Government providing US$1.8 billion. While it is recognised that over time the GHGs emitted from cement production and waste to energy may be displaced by green hydrogen, the Longship Project is about acting in the near term to abate GHG emissions that would otherwise arise (reality, not theory): "For Longship to be a successful climate project, other countries also have to start using this technology" Norway's Prime Minister, Erna Solberg.

The development of the Longship Project demonstrates that acting in the near term is key, because in the medium and long term there is no guarantee that technologies required to allow the production of green hydrogen will be scalable to supply a green hydrogen energy carrier to the demand side of the hydrogen market, i.e., this is not a policy setting of wait and see, it is a see and fix policy setting.

See: CCUS in Clean Energy Transitions 

Capturing and storing a fossilised carbon footprint

On 14 October 2020 it was announced that Microsoft has signed an Memorandum of Understanding with Equinor to determine the basis upon which the Northern Lights Project can be used to capture and to store a quantity of GHGs equal to the quantity of GHGs emitted for the purposes of its business since it was founded in 1975 (Zero Carbon Reset). Microsoft is a technology partner in the Northern Lights Project: the stated goal of Microsoft is "to contribute [its] technology and know-how, but explore how new solutions like the North Lights Project can help [it] meet [its] own carbon negative goals by 2030".  If Equinor and Microsoft devise a basis on which a Zero Carbon Reset can be achieved, this may provide another pathway to effective funding of CCS / CCUS projects, as those that have contributed to GHG emissions in the past, recognise the continued impact of them.

See: Equinor collaborates with Microsoft on Northern Lights carbon capture and storage value chain

Reductions in GHG emissions – measuring actual reductions: 

The Equinor / Microsoft MOU has prompted consideration of how to measure GHG emissions, at both a corporate and a country level. Given the dynamics of world trade, industrial and manufacturing activities are often undertaken in lower cost jurisdictions, and in those lower cost jurisdictions there is increased demand for energy. As the trading activity of corporations increases, so does their energy use, whether in the country of their establishment or any country in which they undertake activities. By analogy, the same is true of countries: a country achieves a reduction in GHG emissions by virtue of transition from industrial and manufacturing activities, with those activities undertaken overseas. As such, from a policy setting perspective there is an argument for "GHG tracking", and for regulating towards a true cost of carbon, including in respect of goods imported into a country. Article Heading 1 - to introduce article

Solar renewable energy - cheapest electrical energy in history

The IEA has stated that: "For projects with low-cost financing that tap high quality resources, solar PV is now the cheapest source of electricity in history." The IEA report goes on to say that solar projects with these characteristics are able to generate electrical energy "at or below" US$20 per MWh or US$0.02 per KWh, i.e., 2 cents. This is cheaper than the cost of generating electrical energy from coal and gas. Given these factors, it is anticipated that as solar projects achieve greater scale, the unit cost will reduce further. Over time this is likely to result in the grandparenting of coal and gas fired generation as that generation approaches end of design life, in particular in India and the People's Republic of China. Further, the lower the cost of solar power, the more competitive green hydrogen will become both as an energy carrier and to displace fossil fuels in higher temperature processes in difficult to decarbonise industries.

See: World Energy Outlook 2020

Northern Australia – Asia's renewable energy and H2 hub

Study undertaken by Monash University concluded that Australia (Western Australia, North Territory and Queensland in particular) has  some of the best renewable energy resources in the world, resources that could allow the installation of up to 25,000 GW of renewable energy capacity. With two recent announcements it is possible that this potential is set to be realised. 

Given the proximity of Australia to Asia, the available water sources, it is possible that Australia's role as one of the largest exporters of LNG (second to Qatar) may transition to being one of the largest, if not the largest, exporter of liquid hydrogen gas (LHG).

On 16 October 2020, the Western Australian State Government approved the first stage (15 GW) of the proposed 26 GW wind and solar project in Western Australia's Pilbara (Asian Renewable Energy Hub or AREH). On 23 October 2020 the AREH achieved major project status Renewable, which will streamline the approvals process. Consistent with policy settings in the energy sector in Western Australia, the AREH is committed to providing electrical energy domestically to the Pilbara (including the extractive industries located there), currently using predominantly fossil fuels to generate electrical energy. In addition, it has been reported that the AREH will produce green hydrogen, with 2028 projected as the year in which exports will commence. The AREH will contribute greatly to the achievement of the Western Australia Government's Renewable Hydrogen Strategy. The AREH will cover an area covering 6,500 km2 of the East Pilbara and Broome. It is anticipated that the AREH will have the capacity generate up to 100 TWh of electrical energy each year. 

Separately, the approval process in the Northern Territory has commenced in respect of what would be the world's largest solar farm or, adopting the phrase evocative of the pastoralist history of Australia, "solar station". The solar station would be located on the Newcastle Waters Station in the Northern Territory. The current thinking for the electrical energy generated at the 10 GW capacity solar station will supply up to 20% of the electrical energy load of Singapore via a 4,500km submarine interconnector. It is reported that Mike Cannon-Brookes is involved, as is Australia's business tycoon, Andrew Forrest. 

See: Asian Renewable Energy Hub

Global Power System Transformation Consortium and grid transition

In the context of energy transition, the current focus on decarbonisation generally has been renewable energy, energy storage, CCS / CCUS, new technology, hydrogen production from fossil fuel sources and from H2O, difficult to decarbonise industries, and technological development. There has been less focus on grandparenting and repurposing existing infrastructure and facilities and fleets. It is fair to say that there had been even less focus on the transmission and distribution systems, and how they operate.

The Global Power System Transformation Consortium (G-PST) comprises:

• six leading Grid operators: Australia Energy Market Operator, the California Independent System Operator, Electric Reliability Council of Texas, EirGrid (Ireland), Energinet (Denmark) and National Grid Electricity System Operator (UK's National Grid);
• policy banks: the World Bank and Asian Development Bank; and
• leading research institutes: CSIRO (Australia), Fraunhofer Institute, Imperial College London, Latin American Energy Organisation, Institute of Electrical and Electronics Engineers, Electric Power Research Institute, Danish Technical University and the National Renewable Energy Laboratory (United States). 

The purpose of the G-PST is to foment: "a rapid clean energy transition at unprecedented scope and scale", and to share findings and information with Grid operators in developing countries in Africa, Asia and Latin America. In fomenting change, G-PST will provide clear pathways as to how solar and wind electrical energy (and associated technologies) arising from an anticipated US$10 trillion of investment by the end of 2030 may be integrated into existing grids. In so doing, if these aims are realised, this will contribute greatly to a 50% reduction in GHG emissions arising from electrical energy generation. 

The members of G-PST are located in countries or states that have adopted renewable energy at fast rates (in particular intermittent / variable solar and wind electrical energy capacity), albeit some of which having material fossil fuel fired generation capacity. It is to be expected that the G-PST will take a grid wide / whole of system approach, to balance / complement the more technology specific approach policy settings. In the Australian context, while the transition from base load and peaking power stations has not been without its challenges, on 11 October 2020 for the first time 100% of the load in the state of South Australia was matched by the dispatch of electrical energy from renewable sources. 

See: Global Power System Transformation Consortium

California issues its first tender for energy storage

A key means of grid security and stability is energy storage, including pumped and battery. Grid stability and security are ongoing issues. In the light of the impact of the fires in California it has been reported that CAISO and California Public Utilities Commission (CPUC) has reached the view that neither the energy market nor the energy system may be regarded as "fit for purpose". In this context, the CPUC has indicated that it will revise Electric Rule 21 to facilitate the connection of energy storage projects to the grid. Further, the CPUC has announced the intention to procure energy storage by 2026: the plan is for California to add close to 14 GW of additional renewable capacity (11GW of solar and nearly 3GW of wind) as well as 8.9 GW of low term energy storageand 1 GW of pumped storage.

See: California issues first tend for long-duration storage to support wind and solar

140 refuelling stations by 2050 will be sufficient for Germany

One of the issues for the heavy goods vehicle / trucking industry has been the number of refuelling stations that it will require. The Fraunhofer Institute has concluded that by 2050 140 refuelling stations will be sufficient for Germany, with 70 refuelling stations required by 2030. It is considered that this number of stations will enable H2 to form part of Germany's strategy to achieve its GHG targets both in 2030 and 2050, in each case with hydrogen as an integral part of its energy policy.

Clearly each country will be different, but as with CCS / CCUS this is an area in which Government and other sectors are able to work together to achieve a planned outcome that responds to the developing market rather than getting ahead of it, and ensuring that as the market develops it does so on an efficient basis.

See: Fuel cell trucks: 140 refuelling stations are enough

Summary of progress so far from World Energy Council Germany

A World Energy Council study has been released this week. Among other things, the study states that while the international hydrogen market is on the move (as evidenced by the number of countries that have released and intend to release road maps and strategies outlining hydrogen goals), what is needed are concrete measures and plans and policy settings to achieve the goals that many countries have been setting for themselves: "The measures currently described [in road maps and strategies] will, in many cases, not be sufficient to trigger the envisaged growth" (Carsten Rolle).

The study recognises that Germany, Japan and Korea are likely to be key importers of green hydrogen (demand for green hydrogen from large demand hydrogen demand sources). For the demand side to develop it is recognised that importing and exporting countries need to work closely. There a number of examples of this, including Japan and Germany working with Australia, and Germany working with Morocco. These "market marking" international partnerships are critical to allow the development of the supply side allowing demand side to shift to hydrogen. Existing trading relationships in fossil fuels and other commodities are likely to offer mutually beneficial partnerships.

See: World Energy Council-Germany: The Global Hydrogen Age has Arrived

Supply and demand side development fundamental

Continuing the theme of market development, in the hydrogen road maps and strategies developed by various countries, it is recognised that it is critical to develop both supply side and demand side of the hydrogen market in a controlled and sustainable way. This is fundamental.

In a lead piece, Michael Liebreich, Senior Contributor, BloombergNEF, underscores this fundamental point: at the moment, the theory is that green hydrogen (being hydrogen produced using electrolysis technology to split H2O into H2 and O, using renewable energy) will be competitive with, and displace, each other incumbent technology, but Mr Liebreich points out that green hydrogen needs to compete with every other zero-carbon option. This is where the theory green hydrogen meets reality of the market for energy carriers. 

The approach taken by the Norwegian Government in funding Project Longboat may be regarded as significant because this investment is a near term investment to achieve a zero carbon outcome, using current technology, fully aware that technological development may supersede CCS / CCUS.

See: Liebreich: Separating Hype from Hydrogen – Part Two: The Demand Side

Korean Government funding for hydrogen

Along with Japan, Korea is a first mover. Indeed both countries have whole of economy outlooks based on hydrogen "hydrogen based society" or "hydrogen society" (in the case of Japan) and "Transition to Hydrogen Economy" (in the case of Korea). In mid-October the Prime Minister of Korea, Jeong Sye-gyun, committed Korea to becoming a Hydrogen Economy and to the development of technology to allow Korea to become one of the leading players globally. As a statement of intent, Prime Minister Jeong was clear: "The hydrogen economy is already spreading throughout everyday life, [it is] not in the distant future … Countries around the world are competitively preoccupied with the hydrogen economy".

At the heart of policy setting in Korea is the Hydrogen Economic Committee. The purpose of the Committee is to provide policy settings that "will open the road to a hydrogen economy, [and to go where] no one has been".

The policy settings from the Hydrogen Economic Committee include: US$800 million of hydrogen related funding, requiring the power industry to purchase electrical energy derived from fuel cell technology thereby achieving a market of an appropriate scale, and as we noted in Edition 1 of Low Carbon Pulse the first step in the implementation of this policy setting has occurred with KEPCO's procurement from Bloom Energy and gas pricing reform, oil and gas companies to develop refuelling stations for commercial vehicles, Kohygen developing refuelling stations for municipalities, and development of hydrogen cities.

These policy settings, are consistent with the announcement in early September 2020 of 28 MW Fuel Cell capacity to provide electrical energy to the cities of Hwasyng (19.8 MW) and Paju (8.1 MW) in Korea's Gyeonggi Province. The Fuel Cell facilities are to be developed by US based Bloom Energy and Korean world leader SK Engineering and Construction.

See: Prime Minister Jeong Sye-gyun to Leap Forward as a Pioneer in Hydrogen Economy through the Green New Deal