BRINGING ZERO CARBON GAS TO AOTEAROA - Hydrogen Feasibility Study - Summary Report - First Gas

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BRINGING ZERO CARBON GAS TO AOTEAROA - Hydrogen Feasibility Study - Summary Report - First Gas
BRINGING
ZERO CARBON
GAS TO
AOTEAROA
Hydrogen Feasibility Study – Summary Report
BRINGING ZERO CARBON GAS TO AOTEAROA - Hydrogen Feasibility Study - Summary Report - First Gas
I OREA TE
                                T UATA R A
                                K A P U TA
                                K I WA H O
                                                    – Ta Hirini Moko Mead

                                                          Translation:

                                          The Tuatara comes out before it is too late.
                                      A problem is solved by continuing to find solutions.

2   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                              Foreword
BRINGING ZERO CARBON GAS TO AOTEAROA - Hydrogen Feasibility Study - Summary Report - First Gas
FOREWORD
           Every day Firstgas Group supplies the energy needs
           of 430,000 New Zealanders. Our pipelines generate
           jobs and value for New Zealand by supporting the
           meat, dairy, steel, petrochemicals and pulp and
           paper sectors. We are committed to ensuring we
           play our role in providing energy to New Zealanders
           in a zero carbon world and see hydrogen as an
           exciting prospect to unlock low-carbon solutions
           for future industry, transport and heating needs.

                    FIRSTGAS GROUP IS BRINGING
                 ZERO CARBON GASES TO AOTEAROA...                    We’d like to thank all of those involved to date.
                                                                     We will call on you again as this is just the start.

           As a member of the Climate Leader’s Coalition,            We have also been fortunate enough to have the
           Firstgas Group has committed to reducing our scope        support of the Government which contributed
           1 and 2 emissions by 30% by 2030. We are doing            50% of the funding required for this study,
           this by making improvements to our compressor             through the Provincial Development Unit.
           fleet, which is our largest source of emissions by far.   This backing from the Government has been
           This includes investigating the use of zero carbon        invaluable in supporting the study and helping
           gases like hydrogen as a fuel for gas compression.        us connect with government stakeholders.

           For over two years, Firstgas has had a dedicated
           workstream investigating low carbon gases, such                     OUR GOAL: 30% REDUCTION IN
           as hydrogen, biogas, and bioLPG. Developing
           these technologies will help us provide low                            EMISSIONS BY 2030...
           emissions options for our customers in the future,
           while retaining the benefits of gas provided via          I’m excited to be presenting this report to you
           existing pipeline networks in New Zealand.                as I see this work as crucial in setting Firstgas
                                                                     Group up for the future. The Firstgas Group
           This study is the first step in a programme of            team is a bright bunch of individuals with a huge
           work we will be undertaking to prove that our             amount of passion for supplying New Zealand
           pipelines can be converted to hydrogen and to             with energy. The opportunities to decarbonise
           make that conversion happen. This study helps             our gas networks are simply too big to ignore
           us get clarity over what we need to do to ensure          We’re up for the challenge presented in this
           that our networks can transport hydrogen as               report and we want to have you alongside us.
           demand ramps up over the coming years and
           informs our next steps in this programme.

           Our customers and stakeholders need to be
           part of New Zealand’s journey towards zero
           carbon gases. We’re pleased to say that they
           have had a lot of input into this study. They have
                                                                     NGĀ MIHI NUI
           helped us scope the scenarios for conversion,
           providing their valuable time and expertise.              PAUL GOODEVE

FOREWORD                                                                                HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   3
BRINGING ZERO CARBON GAS TO AOTEAROA - Hydrogen Feasibility Study - Summary Report - First Gas
CONTENTS

4   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   Contents
BRINGING ZERO CARBON GAS TO AOTEAROA - Hydrogen Feasibility Study - Summary Report - First Gas
FOREWORD                                                                                            3

           1     EXECUTIVE SUMMARY                                                                             6

           2     INTRODUCTION                                                                                18

                 2.1 About our consultants                                                                   19
                 2.2 Focus of this work                                                                      19
                 2.3 Study process                                                                           19
                 2.4 Report structure                                                                        20

           3     FUTURE HYDROGEN DEMAND                                                                      21

                 3.1 Energy demand in 2050                                                                   23
                 3.2 Growth in Hydrogen demand prior to 2050                                                 25
                 3.3 High-level economic assessment of Hydrogen demand                                       26
                 3.4 Energy sector carbon emissions in 2050                                                  27

           4     PROJECTIONS AND IMPLICATIONS OF HYDROGEN SUPPLY                                             28

                 4.1 Hydrogen supply sources                                                                 29
                 4.2 Electricity system impacts of Hydrogen supply                                           32
                 4.3 Water consumption from Hydrogen supply                                                  35

           5     TECHNICAL FEASIBILITY AND REGULATORY ASSESSMENT                                             36

            5.1 Consumer equipment assessment                                                                37
            5.2 Network capacity and materials assessment                                                    37
            5.3 Conversion strategy                                                                          40
           		5.3.1 Blended network prior to 2035                                                             40
           		5.3.2 Conversion to 100% hydrogen network                                                       41
            5.4 Regulatory assessment                                                                        41

           6     NEXT STEPS FOR NEW ZEALAND’S HYDROGEN GAS NETWORK                                           44

                 6.1 Confirming network characteristics                                                      45
                 6.2 Building experience with Hydrogen                                                       46
                 6.3 Building the Hydrogen value chain                                                       47
                 6.4 Later phase activities                                                                  48

           UNIT CONVERSIONS                                                                                  50

           GLOSSARY                                                                                          51

CONTENTS                                                                  HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   5
BRINGING ZERO CARBON GAS TO AOTEAROA - Hydrogen Feasibility Study - Summary Report - First Gas
01                                        EXECUTIVE
                                              SUMMARY
    Firstgas Group supports
    the decarbonisation of
    New Zealand’s energy
    sector. As a member of
    the Climate Leader’s
    Coalition, we are
    committed to leading the
    decarbonisation of New
    Zealand’s gas networks
    with low emissions
    technology and to
    provide our customers
    with zero carbon gas.

6   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT       Executive summary
BRINGING ZERO CARBON GAS TO AOTEAROA - Hydrogen Feasibility Study - Summary Report - First Gas
We see transitioning to lower emitting gases as an                 This study builds on technical and economic
            essential step in New Zealand’s decarbonisation.                   modelling work carried out overseas and considers
            That’s why we have a dedicated programme of                        this work in the New Zealand context. Figure 1
            work to investigate zero carbon gas options, such                  below summarises the hydrogen pipeline feasibility
            as hydrogen, biogas, and bioLPG. We believe that                   study process and intended future sequencing of
            New Zealand’s energy future will be a combination                  hydrogen trials and blending within the gas network.
            of renewable electricity and zero carbon gases
            that can meet all of our varied energy needs;                      We’ve investigated what New Zealand’s
            from vehicles, to homes, to restaurants, to steel                  hydrogen future could look like and
            production, to electricity generation at peak times                how our network can play its part.
            supported by large scale, long-term energy storage.
                                                                               This study concludes that the use of the existing
                                                                               gas pipeline network to transport hydrogen
                                                                               throughout the North Island is technically feasible
                           ...GIVING NZ A RANGE OF                             and can make a valuable contribution to carbon
                                                                               emissions reductions. This report also describes
                        RENEWABLE ENERGY CHOICES...                            further steps that need to be taken to progress
                                                                               towards the introduction of hydrogen into the
                                                                               natural gas network later this decade, with
                                                                               more detail provided in the full study report.
            This study has progressed our understanding of
            how Firstgas Group can prepare for hydrogen use                    The future role of hydrogen in New Zealand’s
            as part of New Zealand’s energy future. The work                   economy and the potential future demand for
            allows us to confirm the feasibility of converting                 hydrogen were investigated through three distinct
            Firstgas pipelines to hydrogen — initially as a                    scenarios, each representing a variation of a
            blend, and then to 100% in the future if required.                 decarbonised New Zealand energy sector by
            We have gained a better understanding of the                       2050. These scenarios are outlined in Figure 2
            likely challenges in this conversion process                       and are described in detail in the full study report.
            and have designed an indicative programme of
            future work for converting the gas network.

                  2020                                        2020                       2021-30                              2035+

                                                                                                                           Conversion
                                                                                        Hydrogen
           International                                    Desktop                                                          to 100%
                                                                                         Pipeline
             Research                                       Analysis                                                        Hydrogen
                                                                                         Testing
                                                                                                                           in Pipeline

                                                                       Hydrogen
                                                                                                        Hydrogen
                                Stakeholder                             Network
                                                                                                       Blending in
                                Engagement                             Feasibility
                                                                                                      Live Network
                                                                         Report

                                      2020                              2020-21                        2030-2035
                                                                               WE ARE HERE
Figure 1: Firstgas hydrogen network trial and conversion stages

Executive summary                                                                                HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   7
BRINGING ZERO CARBON GAS TO AOTEAROA - Hydrogen Feasibility Study - Summary Report - First Gas
OUR ENERGY SCENARIOS
                                                                              HIGH
                                                                            HYDROGEN
                                                                    Both hydrogen fuel switching
                                                                    and electrification contribute
                                                                     to energy decarbonisation.

                         HIGH
                    ELECTRIFICATION
                    Electrification is the
                 preferred strategy for the       DECARBONISED
                                                  ENERGY SECTOR
                decarbonisation of energy.

                                                                       INTEGRATED
                                                                     ENERGY SYSTEM
                                                               The power system and a 100%
                                                               hydrogen gas network operate
                                                                  as an integrated system.

       Figure 2: The study scenarios

       The scenarios are based on a set of assumptions     In the context of these scenarios,
       around future government support and policies       the study considers:
       for the decarbonisation of energy, as well as
       the role of customer choice, which will influence   — How and why the gas network might
       the type of low-carbon fuels and technologies         be used to transport hydrogen
       that will prevail in the coming decades.
                                                           — The suitability of the materials that the
                                                             current network is constructed from to
       All of the scenarios used in this study are based
                                                             transport hydrogen to energy users
       on the assumption that hydrogen demand is met
       entirely with green hydrogen. While other zero      — The capacity of the network to transfer the
       carbon sources of hydrogen may emerge over            quantities of hydrogen to the areas where it
       the time frames considered in this report (such       will be required, including how the network
       as blue hydrogen which involves capturing and         may need to be re-configured and;
       storing the carbon created by reforming natural
                                                           — T
                                                              he cost of generating green hydrogen and the
       gas into hydrogen), this report has focused on
                                                             changes required to allow transportation and use
       a green hydrogen pathway for New Zealand.
                                                             of natural gas/hydrogen blends and hydrogen.

                                                           The results presented in this summary report focus
                                                           on the Integrated Energy System scenario, which
                                                           was selected as the focus of the analysis in the full
                                                           study report. The implementation of this scenario
                                                           has the potential to bring the greatest economic
                                                           and operational benefits for New Zealand’s energy

8   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                                           Executive summary
BRINGING ZERO CARBON GAS TO AOTEAROA - Hydrogen Feasibility Study - Summary Report - First Gas
Maximizing the use of hydrogen in these applications
                    A RANGE OF ENERGY CHOICES GIVES                                     delivers significant carbon reductions. The study
                                                                                        estimates that hydrogen would contribute
                     NZ THE BEST ECONOMIC BENEFIT                                       8 Mt CO2/yr of emissions reductions in 2050 from
                                                                                        a baseline of energy sector emissions of 32 Mt CO2/
                                                                                        yr in 2018 – removing one quarter of New Zealand’s
            future and has a wide range of implications for                             energy system emissions. Other emissions
            the use of gas infrastructure. Since this scenario                          reductions of 6 Mt CO2/yr come from reduced
            requires the most significant changes to the existing                       demand (energy efficiency), 11 Mt CO2/yr from direct
            gas network to accommodate energy needs, being                              electrification and 5 Mt CO2/yr from bioenergy.
            ready for this scenario will set us up well to manage
            the transportation of hydrogen in other scenarios.

            Hydrogen can play a significant role                                             ACHIEVING 2050 GOAL REQUIRES ZERO
            in decarbonising New Zealand’s
            integrated energy system.
                                                                                             CARBON GAS, RENEWABLE ELECTRICITY
            The study identifies the potential for hydrogen to
                                                                                              AND A DECREASE IN ENERGY DEMAND
            decarbonise high temperature process heat and
            heavy transport, and to provide an energy storage
            vector that supports a 100% renewable electricity                           The switch from coal, oil and natural gas to
            system. These uses are sometimes referred to as                             hydrogen, renewable electricity and biofuels,
            generating ‘hard to abate’ sources of emissions                             together with the overall reduction in energy
            because the direct use of renewable electricity                             demand, results in near zero energy sector
            does not provide a realistic option for reducing                            emissions in 2050, as shown in Figure 4.
            emissions. The potential roles for hydrogen within
            the energy system are shown in Figure 3.

                                               HYDROGEN'S ROLE IN DECARBONISING OUR ENERGY

                 Decarbonising industrial                                 Removing the need                         Decarbonising transport
                 energy uses that are not                               to overbuild renewable                    applications that are not well
                 well suited to electricity,                           electricity generation in                    suited to electricity, such
                  such as steel, cement,                               order to achieve a 100%                     as heavy vehicles, marine,
                        chemicals.                                    renewable electricity grid.                            aviation.

                                                                                               Allowing on-demand
                                           Providing inter-seasonal
                                                                                                power generation to
                                            and inter-year storage
                                                                                            support the intermittency of
                                           of energy to support the
                                                                                            renewables when the dams
                                           electricity system in dry
                                                                                               are low, the wind isn’t
                                             years when the dams
                                                                                              blowing or the sun isn’t
                                             remain at low levels.
                                                                                                      shining.

Figure 3: How hydrogen supports a 100% renewable electricity system

Executive summary                                                                                          HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   9
BRINGING ZERO CARBON GAS TO AOTEAROA - Hydrogen Feasibility Study - Summary Report - First Gas
35

                                                                30
                                                                                                                            8             -23%
                                                                                                               Hydrogen

                                                                25

                                                                                                                 Demand
                                                                                                                            6
                   ANNUAL                                       20
                                                                                                                reduction

                EMISSIONS
                  (MTCO2)                                       15
                                                                                                                                                                  TODAY*

            Figure 4: Contribution of carbon                                                             Electrification
                                                                                                                          11
            emissions reductions from
            today’s baseline to 2050                            10

                                                                                                  Bioenergy / Other
                                                                                                                            5
                                                                    5

                                                                                                       Residual 2050
                                                                                                                           4
                                                    MtCO2           0

                                                                                                       *Excludes agricultural, land use, forestry and waste emissions

                                                                                         MILESTONE 3                                                                     MILESTONE 5
                                                                                         Commence network                                                                All networks converted
                                                                                         conversion to 100% H2                                                           to 100% H2
                                                                                       2035                                                                             2050

                    2020                 2025                                                                  2040

                              Phase 1: Trials                             Phase 2:
                                                                                                                Phase 3: Conversion
                           Trials and conversion                           Blends
                                                                                                            Stepwise conversion of network
                                  planning                              H2 blends up
                                                                                                                branches to 100% H2.
                                                                         to 20% vol

                                                             2030                      2035                                                2045
                                                  MILESTONE 1                            MILESTONE 2                                         MILESTONE 4
                                                  Start of 1%                           20% H2 blending                                      H2 storage starts
                                                  H2 blending                           achieved                                             operations

Figure 5: Indicative hydrogen conversion strategy timeline

10      HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                                                                                                            Executive summary
ANNUAL HYDROGEN
          DEMAND PROJECTION
                  TW/h / yr                                                                                Mt / yr      PJ/yr
                  50

                                                                                                                            160
                                                                                                               1.25
                  40

                                                                                                                1           120
                                                                                    2040s
                  30                                                               100% H2

                                                                                                                0.75
                                                                                                                            80
                  20
                                                                                                               0.5
                                                                  2030s
                                                                 Blending
                                                                                                                            40
                  10
                                                                                                               0.25
                                                  2020s
                                                Transport

                    0                                                                                          0            0

                        2010                     2020        2030                   2040                  2050

          Figure 6: Projection of annual hydrogen demand

          The expected cost of hydrogen is within the range of         and additional costs. Pipeline transportation
          expected costs for other fuels—but higher than most          also avoids truck movements and therefore has
          energy costs incurred today. The study estimates             safety advantages and is a more environmentally
          the cost of producing hydrogen will fall to $3.26/           friendly method of transporting energy.
          kg in 2050 ($98/MWh or $27/GJ). This compares
          with a likely range of conventional natural gas              Network connections also provide the ability to
          prices between $8/GJ and $30/GJ (including carbon            optimise the value of hydrogen production by
          prices of between $25/tCO2e and $200/t CO2e).                combining other (potentially high value) uses
                                                                       of hydrogen such as heavy transport, export
          Using the existing Firstgas network to transport             production and industrial use with the ability to feed
          hydrogen improves its overall economics by                   the surplus hydrogen produced into gas networks.
          avoiding the need to compress hydrogen for                   Used in this way, gas network connections enhance
          transport in a tube trailer or make a chemical               the economic viability of hydrogen production
          conversion (e.g. ammonia) to transport                       as part of multi-use hydrogen ‘hubs’, rather than
          hydrogen as a liquid1. These steps both incur                relying on a single use case for hydrogen.
          additional penalties in terms of energy losses

             FIRSTGAS GROUP TARGET IS A 20% BLEND OF HYDROGEN
                  STARTING 2030 WITH 100% STARTING 2035
1 https://www.iea.org/reports/the-future-of-hydrogen

Executive summary                                                                       HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   11
We have sufficient network capacity and a                             might meet other energy system needs. For
           viable strategy for converting the networks to                        example, if hydrogen storage was required to
           hydrogen blends and then 100% hydrogen.                               support a fully renewable electricity grid from
                                                                                 an earlier date then this would be feasible
           The study modelled demand growth in hydrogen                          and may change the dates for progressing
           increasing from an initial transport load that builds                 other elements of the conversion strategy.
           in the 2020s, with blending into the gas network
           starting at scale from 2030. This work suggests
           that the network could be 20% hydrogen by 2035,
           with a move to full hydrogen by 2050 supported                                     NZ CAN ACCESS BLENDED ZERO
           by large scale storage of hydrogen in Taranaki to
           provide inter-seasonal and inter-year flexibility for                           CARBON GAS THROUGH MOST EXISTING
           the energy system. Starting 2035 the network would
           be progressively converted to 100% hydrogen
                                                                                               NETWORKS AND APPLIANCES
           from the end of the network back to Taranaki as
           hydrogen demand grows. Working inwards in this
           manner means we could keep supplying natural gas                      To understand if our assets can facilitate the
           to users in Taranaki as hydrogen demand grows.                        level of hydrogen demand estimated, the study
                                                                                 explored whether our gas networks could deliver
           We’ve shown this indicative conversion time line                      the energy and volume of hydrogen required
           in Figure 5. This is a good start to show what’s                      safely – within pressure, flow and velocity limits.
           possible, but it is important to bear in mind that                    The study found that the transmission system
           other sequences and timings are possible that                         (long distance, high pressure gas transportation

           Figure 7: Hydrogen programme focus areas

                                                              Building Experience
                                                              with Hydrogen (2022)

                                                         • Live distribution blend trial
                                                         • Off-grid test infrastructure
                                                         • Live 100% distribution trial
                                                         • Live transmission trials

        Confirming network                                                                                                      Later Phase Activities
       characteristics (2021)                                                                                                          (2025-)

                                                      GAS TRANSMISSION AND
     • Consumer equipment
       assessments
                                                      DISTRIBUTION PIPELINES                                                • Conversion safety assessment
                                                                                                                            • Conversion strategy review
     • Network material                                                                                                     • Network modifications
       assessments                                                                                                          • Operating procedures review

                                                             Building the Hydrogen
                                                              Value Chain (2021-)                   KEY

                                                                                                          Led by Firstgas
                                                         • Hydrogen storage
                                                         • Commercial arrangements                        Led by other stakeholders

                                                         • Research Hub
                                                         • Public acceptance
                                                         • Regulatory change

12     HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                                                                          Executive summary
network) has enough capacity to transport the                         Of particular relevance here in New Zealand is
           projected energy demand as either a blend of                          the body of work being undertaken by the Future
           hydrogen in natural gas, or entirely as hydrogen                      Fuels Cooperative Research Centre (FFCRC) in
           gas, with minimal capacity reinforcement.                             Australia. The FFCRC consists of a combination of

           However, Firstgas will need to change the
           configuration of our compressors as compression                            HYDROGEN CAN BE STORED AT SCALE,
           will be needed in different locations, since hydrogen
           production will be distributed across the network.                        MEANING LESS INVESTMENT TO PRODUCE
           Changing compressors is likely to occur during the
           already programmed renewal of our assets prior to                     industry experts, government representatives and
           network conversion to hydrogen. The introduction                      academic researchers to cover multiple streams
           of hydrogen also creates potential for reduced                        of technical evidencing required to decarbonise
           pipeline compression needs (with associated capex                     Australia’s energy networks using hydrogen
           and opex savings), since electrolysers can likely                     and biomethane. Their RP3 Network lifecycle
           inject hydrogen at pressure across the network.                       management programme is a 30+ topic research
                                                                                 stream focusing on quantifying and combating
           The study also modelled a typical low-pressure gas                    key issues of equipment material compatibility
           distribution network (localised, lower pressure gas                   and performance under hydrogen service. A key
           transportation network), and found that distribution                  focus of this research is the issue of hydrogen
           networks are likely to be able to deliver enough                      embrittlement and the FFCRC is setting up large
           hydrogen blends and 100% hydrogen for projected                       scale research test facilities to test the effect of
           demands, with some reinforcement required.                            hydrogen on transmission pipeline material.
           The cost of the modifications over all distribution                   Firstgas is a member of the Australian Pipeline
           networks is projected to be in order of $270 million
           over the coming 30 years. While this expenditure
           is significant, the Firstgas Distribution Asset
           Management Plan already projects $100 million
                                                                                      FIRSTGAS GROUP IS LEADING THE WAY
           of capital expenditure over the next 10 years with
           similar (or greater) levels of investment planned on
                                                                                     BY STAYING ABREAST OF INTERNATIONAL
           the other gas distribution systems owned by Vector                       DEVELOPMENTS AND LEADING NZ INDUSTRY
           and Powerco. Investments to enable hydrogen
           could be incorporated into the existing asset renewal
           programme to manage consumer cost impacts.                            and Gas Association (APGA) who partly fund
                                                                                 the FFCRC, which allows us to participate in this
           We think that much of the Firstgas network                            research programme and access the findings of the
           will be capable of transporting hydrogen                              work. We aim to leverage this connection to ensure
           blends and hydrogen without replacement.                              that we can both influence the direction of the
                                                                                 programme and potentially provide representative
           The study assessed the typical components of                          samples of existing pipeline materials for testing.
           our transmission network for likely risks when
           operating with hydrogen blends or 100% hydrogen.                      Hydrogen production opportunities are large
           This assessment was made based on the current                         and dispersed across the Firstgas network.
           state of international research. At this point we have
                                                                                 The Firstgas network is designed to transport
                                                                                 gas from Taranaki to users across the North
                                                                                 Island. Hydrogen changes that dynamic as
              HYDROGEN CAN BE PRODUCED ANYWHERE,                                 hydrogen can be produced across the island.
                  SUPPORTING LOCAL ECONOMIES                                     This means that the compressors will work in
                                                                                 a different way and gas will potentially flow in
                                                                                 different directions. Also, as the study assumes
                                                                                 that electrolysers will discharge at high pressure
           identified some issues. The key issue of hydrogen                     into the network, the Firstgas compressors will
           embrittlement of high-strength steel potentially                      have less work to do – saving on operating
           applies to around one third of our transmission                       expenditure. This distribution of electrolysers
           network. This and other issues are being actively                     across the network provides the opportunity to
           investigated in overseas research programmes.                         develop hydrogen economy hubs across the
           We therefore expect that some of these technical                      regions to take advantage of this infrastructure.
           issues are likely to be resolved as more work is
           done on gas pipelines overseas and by the forward                     The build-out of electrolysers estimated in the
           Firstgas research, development and demonstration                      study is significant. Hydrogen demand in 2050
           (RD&D) programme set out in this summary report.                      is projected to be 42 TWh and this will need

2 Equivalent to approximately 2,000m3/hr or 178 tonnesH2/hr production capacity.
3 https://www.nationalgrid.com/uk/gas-transmission/insight-and-innovation/transmission-innovation/futuregrid

Executive summary                                                                                    HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   13
8.5 GW of electrolyser capacity2 and use 50 TWh           Our results set a good foundation to
       of electricity. This would require the addition of        define the forward programme.
       around 28 GW of electricity generation capacity by
       2050. While this is more that the new generation          To prove reliable and safe operation of our pipeline
       capacity required in Transpower’s Whakamana               networks with hydrogen, we need to regularly
       i Te Mauri Hiko report, our study also study              review worldwide research and adopt results where
       encompasses greater decarbonisation as more               practicable. Some of this work, like the HyNTS
       energy requirements are decarbonised, particularly        programme currently underway in the United
       in high temperature process heat and heavy                Kingdom3, involves removing components of their
       transport. Importantly, the required generation           network from service and testing them for hydrogen
       investment to produce hydrogen is less than if all        blends and 100% hydrogen in an off-grid facility.
       energy end uses are electrified (which the study          These programmes will give us a realistic view on the
       estimates would require 32 GW of new generation           likely performance of our similar network componentry
       capacity). This is because hydrogen enables energy        of a similar age. There will be gaps, which will need
       to be stored at scale, storing hydrogen produced          to be addressed by New Zealand specific research
       off-peak for use during peak demand periods.              and demonstration. While many of our components
                                                                 are similar to overseas networks, they may not be
       Our consultants estimate the cost to build the            identical or the operating conditions may differ.
       electrolyser capacity at around $3.3 billion by 2035,     To successfully convert our pipeline networks,
       with an additional cost of $11.6 billion from 2035 to     a programme of activities will need to be
       2050. We view this as the upper bound of electricity      undertaken. Some of these activities are
       generation and electrolyser build out to produce          directly related to assuring the components
       large amounts of hydrogen. However, many of the           of our network work with hydrogen.
       hydrogen storage and energy system integration
       benefits would still be realised with lower levels of     Others relate to equipment owned by third parties
       electricity generation and hydrogen production.           or the need to set up appropriate commercial
                                                                 and regulatory regimes. We see Firstgas Group
                                                                 as the natural leader for work relating directly
                                                                 to our network assets, but think that other
                                                                 stakeholders are best placed to lead hydrogen-
                                                                 related work in the wider energy sector. The
                                                                 work programme is set out in Figure 7.

        FIRSTGAS INTENDS                                        Live distribution blend trial planning:

        TO START WORK
                                                                     03
                                                                                       Final network
                                                                                       selection and
                                                                                       execution of a

        STRAIGHT AWAY                                                                  hydrogen blend in
                                                                                       a live network.

       Consumer equipment assessments:                          Hydrogen storage scoping work:

                                                                                       Building understanding
                                   Preparing a full inventory

               01                                                    04
                                                                                       of the options for storing
                                   of appliances connected
                                                                                       hydrogen at various
                                   to our networks and those
                                                                                       scales, the maturity of
                                   of other network operators
                                                                                       these options and the
                                   to understand RD&D and
                                                                                       RD&D required to mature
                                   conversion requirements.
                                                                                       the technologies.

        Materials assessments:                                  Commercial arrangements scoping work:

                                   Undertaking a detailed                              Developing an

              02                                                     05
                                   materials assessment of                             understanding of changes to
                                   our networks and those of                           commercial arrangements
                                   other network operators                             that will be needed to
                                   to understand RD&D and                              introduce hydrogen blends
                                   conversion requirements.                            into the network post trials.

14   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                                             Executive summary
Alongside this work, we will also actively monitor
         the progress being made on gas network trials
         overseas and will incorporate the findings of that
         work (as applicable) into our programme. We will
         also continue to participate in the Australian FFCRC
         programme through our membership of APGA.

         We would like to see other parties
         working on the following as a priority:

         — Establishing a research hub: providing
           a central clearing house for international
           research to allow this to be quickly understood
           and assimilated by stakeholders.
         — Reviews of the regulatory regime: end to
           end assessment of all potential regulatory
           barriers to hydrogen uptake and an action
           plan to create a facilitative regime.
         — Building public acceptance: providing
           impartial, factual information to the public
           about the potential uses of hydrogen, safety
           impacts and how it will impact them.

          THIS STUDY IS A
          GOOD FIRST STEP
         When launching this study, we said
         we believed realising a hydrogen
         economy will be a collaborative effort.
         Our findings support this view. We
         see the role of Firstgas Group as
         facilitating the programme to convert
         the gas network to hydrogen, while
         others can join us in developing other
         parts of the hydrogen ecosystem.

         This collaboration will ensure New Zealand is
         well placed to roll out hydrogen as a part of its
         approach to energy sector decarbonisation.

Executive summary                                               HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   15
ACKNOWLEDGEMENTS
       This study was 50% funded by Government investment managed by the Provincial Development Unit
       (PDU). We would like to thank the Provincial Development Unit for their support in furthering this very
       important work.

       We would like to acknowledge the members of our governance group who gave their time to support
       this study:

       • Bridget Sullivan, Provincial Development Unit
       • Dr Linda Wright, NZ Hydrogen Council
       • Pam Walklin, National New Energy Development Centre Establishment

       We would also like to acknowledge the support of all our workshop attendees and interviewees.

       Special thanks also to Dr Megan Woods, Minister of Energy and Resources for her support of this study.
       Finally, we would like to acknowledge the assistance of the following organisations in the preparation
       of this report:

       •   Ara Ake
       •   Beca
       •   Business Energy Council
       •   Callaghan Innovation
       •   Commerce Commission
       •   Concept Consulting
       •   Contact Energy
       •   Elemental Group
       •   Energy Efficiency and Conservation Authority
       •   EHL Solutions
       •   Fonterra
       •   Gas Industry Company
       •   Genesis Energy
       •   GNS
       •   Halcyon Power
       •   Hiringa Energy
       •   Hyundai NZ
       •   JGP Ltd
       •   MacDiarmid Institute
       •   Major Gas Users Group
       •   Methanex NZ
       •   M
            inistry for Business Innovation
           and Employment
       •   Mitsubishi NZ
       •   Nova Energy
       •   Office of the Minister for Energy and Resources
       •   Obayashi Corporation
       •   Refining NZ
       •   Standards NZ
       •   PowerCo
       •   Transpower
       •   Venture Taranaki
       •   Victoria University Wellington
       •   Worksafe NZ
       •   Worley
       •   Z Energy

16   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                                                Acknowledgements
FIRST GAS TRANSMISSION NETWORK MAP

                                                                                                                                                                             Waitoki

                                                                                                                                                                                                              Auckland
                                                                     Kauri

                                                                                           Whangarei                                                                                                          Southdown
                                                                                                                                                                      Henderson                               Westfield
                                                                               Marsden Point                                                                       Bruce Mclaren
                                                                                                                                                                      Waikumete                                Flatbush
                                                             Maungaturoto                                                                                                                    Otahuhu             Alfriston
                                                                                                                                                                                               Papakura          Hunua
                                                                                                                                                                                                                 Drury
                                                                                                                                                                                                  Pukekohe       Ramarama
                                                                                                                                                                                             Kingseat
                                                                                               Wellsford
                                                                                                                                                                                             Glenbrook           Harrisville
                                                                                                                                                                                                                 Tuakau
                                                                                               Warkworth

                                                                                                                                                         Tauranga
                                                                            Rotowaro                         Huntly
                                                                                                                               Tatuanui                                            Rotorua
            New Plymouth                  Waitara                           Ngaruawahia
                                                                                                            Morrinsville           Waitoa
                                                                            Te Kowhai                                                                            Mt Manganui
                                                                                                                                Kiwitahi
                                                                                                                                                                    Papamoa
                                                                                                                                           Pyes Pa
                                                                                                                           Matangi                                              Papamoa
                   Oakura             Kaimiro                       Hamilton                                               Cambridge
                                                                                                                                                       Te Puke
                                                 Inglewood                                 Temple View
                 Okato                                                                                         Te Awamutu
                                                                                                                  DF    Tirau               Okoroire                       Whakatane
                               Norfolk                                                          Pirongia
        Pungarahu No.2      Pungarehu                                                                                    Waikeria                                   Edgecumbe
                                                Stratford                                        Pokuru                                    Putaruru                                                 Opotiki
                                                                                                                                                                                   Te Teko
                                 Cardiff                                                                     Kihikihi                                              Kawerau
                                                                                                                                            Lichfield
              Opunake         Kaponga
                                                                                                            Otorohanga                      Tokoroa                            Kawerau
                                 Kupe           Eltham
                  Oaonui
                                           Kapuni                                                           Te Kuiti North
                            Lactose
                                                                                                            Te Kuiti South            Kinleith
                               AUP          Matapu
                                              Hawera
                                                                                                                                                                 Reporoa
                  Okaiawa/ Manaia
                                                                                            Mahoenui                                                             Broadlands

                                                                                       Mokau

                                                                                                                                                                                                                               Gisborne

                                                                                                                                                                                                  Taupo

                                                                                Patea                                                                                                            Hastings
                                                                                        Waverley
                                                                   Mokoia
                                                                                            Waitotara
                                                                                                                                                                               Mangaroa
                                                                                                     Kaitoke
                                                                                                         Lake          Marton
                                                                                                         Alice
                                                                                                                       Kakariki
                                                               Whanganui                 Kaitoke                                Feilding
                                                                                                                                                                   Takapau

                                                                                                                 Oroua                Ashhurst
                                                                                                                 Downs                                     Dannevirke
                                                                                           Flockhouse

                                                                                                 Foxton                                               Mangatainoka
                                                                                                                  longburn
                                                                                                                                              Pahiatua
                                                                                                                       Levin

              Map Key                                                                                            Kuku
                                                                                                Otaki
                                                                                             Te Horo
                                                                                         Waikanae

                  Production Station                                               Paraparaumu

                                                                                                                                                                     Palmerston North
                  Compressor Station                                                                       Pauatahanui No.2
                                                                              Waitangirua
                                                                                                           Belmont
                  Delivery Point                                                          Tawa

                  Delivery Point

                  City/Town                                                                                                                Lower Hutt
                                                                       Wellington
                  Firstgas High Pressure Pipelines

                  Maui High Pressure Pipelines

Transmission network map                                                                                                                                                    HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                   17
02
                                                   INTRODUCTION

     In May 2019, Firstgas Group
     announced our intention to explore
     how hydrogen might be used in
     our existing gas pipeline networks
     as part of a low carbon energy
     system in New Zealand. This report
     and the accompanying technical
     study from Aqua Consultants and
     Element Energy, document the
     work completed to establish and
     inform our trial programme.

18   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT              Introduction
2.1 ABOUT OUR CONSULTANTS
          Element Energy is a low carbon energy economics consultant firm based in London. They have
          significant experience in the analysis of hydrogen projects and are involved in the Hy4Heat study4
          and the Gigastack project5 among a wide range of work they have done for public and private sector
          clients throughout Europe. This economic expertise is complemented by the practical engineering
          expertise provided by Aqua Consultants. Aqua have been integral to numerous UK gas transmission
          innovation projects in the hydrogen and new energy space, such as the Leeds H21 project6.

          2.2 FOCUS OF THIS WORK                                               2.3 STUDY PROCESS
          The focus of this work is to better understand                       This work could not have happened without
          how existing natural gas infrastructure might                        the input of Firstgas’ stakeholders. We began
          be used to transport hydrogen from where                             in early March 2020 with a series of workshops
          it is produced to where it is required.                              and interviews in Wellington and New Plymouth.
                                                                               This allowed our study team to understand
          While natural gas today provides over 20% of                         more about the NZ energy system and source
          New Zealand’s primary energy supply7, hydrogen                       data for the study. We interviewed over 40
          has the potential to decarbonise more parts of                       individuals across 14 organisations over a week
          the economy than are currently fuelled by natural                    to kick off the study. A further 30 people from
          gas, such as vehicles like trucks, trains, ferries                   15 organisations attended two, four-hour long
          and planes. To stimulate discussion on the role of                   workshops in Wellington and New Plymouth.
          hydrogen in New Zealand’s zero carbon future,
          the Government released its Vision for Hydrogen                      We also held stakeholder events for around
          in New Zealand Green Paper in 2019.8                                 180 people to further engage with potential
                                                                               sources of information and users.
          The study Firstgas has commissioned aims
          to help improve our understanding on how                             The study team took this information away to
          pipeline infrastructure can help realise this                        develop the hydrogen scenarios. We set up further
          vision. Firstgas’ extensive pipeline network in                      meetings with other stakeholders focused on
          the North Island reaches all major centres. This                     specific topics. This allowed for ground-truthing
          creates the opportunity for existing infrastructure                  of the scenarios and testing of their robustness.
          to play a substantial role in decarbonising                          Following on from this work we set to work
          New Zealand’s energy system through:                                 modelling these scenarios from an economic and
                                                                               physical perspective to understand the implications
                                                                               of introducing hydrogen into the system.
          — Storage in our pipeline network to support
            intraday/daily and weekly energy flexibility;                      It was intended that further stakeholder
                                                                               workshops were to be held during the course
          — C
             onnection to large scale hydrogen storage for
                                                                               of the study. Unfortunately, due to COVID-19
            seasonal flexibility;
                                                                               the team were unable to return to NZ following
          — Low-cost transportation of hydrogen as a                           their initial visit. However, they were able to
            transport fuel;                                                    complete the study with only limited delays.
          — Systems to manage specification, measurement
            and gas safety;
          — Commercial chain of custody between hydrogen
            producers and users;
          — E
             nabling ‘hard to treat’ industrial users the ability
            to decarbonise by providing zero emission gas to
            their site; and
          — M
             anagement of hydrogen blends prior to 100%
            hydrogen operations commencing.

4 https://www.hy4heat.info/
5 https://gigastack.co.uk/
6 https://www.h21.green/projects/
7 Gas Industry Company, 2016, NZ Gas Story, p6. https://www.gasindustry.co.nz/about-the-industry/nz-gas story/document/5806
8 https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resources/energy-strategies-for-new-zealand/a-vision-for hydrogen-in-new-zealand/

Introduction                                                                                      HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT         19
2.4 REPORT STRUCTURE
       This report is set out with the following sections:

       — Future hydrogen demand – how we think
         hydrogen could be used in a decarbonised New
         Zealand economy.
       — Future hydrogen supply – how we think hydrogen
         could be supplied and the implications for the
         electricity and water sectors.
       — Network conversion strategy – how we could roll
         out hydrogen to our networks based on our views
         of future hydrogen supply and demand.
       — T
          echnical feasibility – what we think we will need
         to test to undertake conversion of the network.
       — Our next steps – what we will need to test, who
         we need to engage with and what we should
         investigate first.

       This summary report highlights the key
       elements of the full study report, which can be
       found on our website www.firstgas.co.nz

       We invite you to contact us if there is something you
       would like to know more about. Please contact:

       comms@firstgasgroup.co.nz

20   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT               Introduction
03
                               FUTURE
                               HYDROGEN
                               DEMAND
    The study considered three
    scenarios for the potential future
    demand for hydrogen - each
    representing a variation of a
    decarbonised New Zealand
    energy sector by 2050.

FUTURE HYDROGEN DEMAND                   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   21
The scenarios are based on a set of assumptions        This scenario was chosen as the focal point for
          around future government support and policies          our work since it has wide ranging impacts on the
          for the decarbonisation of energy, as well as          use of the gas pipeline system. If we are prepared
          the role of customer choice, which will influence      for that scenario to play out, then we believe we
          the type of low-carbon fuels and technologies          can confidently facilitate the use of hydrogen
          that will prevail in the coming decades.               under other plausible scenarios. This scenario also
                                                                 performed best when assessed against the World
          All of the scenarios used in this study are based      Energy Council’s Energy Trilemma objectives
          on the assumption that hydrogen demand is met          – delivering on energy security, energy equity
          entirely with green hydrogen. While other zero         and environmental sustainability outcomes.9
          carbon sources of hydrogen may emerge over             This section provides an overview of energy demand
          the time frames considered in this report (such        under this scenario, the main uses and possible
          as blue hydrogen which involves capturing and          costs of hydrogen over the 30-year time frame
          storing the carbon created from reforming natural      analysed and summarises the resulting carbon
          gas into hydrogen), this report has focused on         emissions from the energy sector in this scenario.
          a green hydrogen pathway for New Zealand.

          In this summary report we present the results of the
          Integrated Energy System scenario, which assumes
                                                                 3.1 ENERGY DEMAND IN 2050
          that Government policy and network economics           Hydrogen is expected to largely replace natural
          drive the integration of the power and gas sectors     gas demand in most sectors by 2050. It will also
          to deliver a balanced low carbon energy supply         replace a large portion of fossil fuels utilised
          system. In this scenario, surplus renewable power      in transport, especially for heavy vehicles.
          is stored as hydrogen and used for industrial and      Additionally, hydrogen is expected to be able to
          transport needs, as well as being reconverted          replace coal in the steelmaking process and for
          to power when required to support the grid.            dry-year storage. Natural gas demand to produce

           OUR ENERGY SCENARIOS
                                                                                    HIGH
                                                                                  HYDROGEN
                                                                          Both hydrogen fuel switching
                                                                          and electrification contribute
                                                                           to energy decarbonisation.

                               HIGH
                          ELECTRIFICATION
                          Electrification is the
                       preferred strategy for the
                      decarbonisation of energy.
                                                     DECARBONISED
                                                     ENERGY SECTOR
                                                                              INTEGRATED
                                                                            ENERGY SYSTEM
                                                                       The power system and a 100%
                                                                       hydrogen gas network operate
                                                                         as an integrated system.

          Figure 8: The study scenarios

9 https://trilemma.worldenergy.org/

22     HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                                         FUTURE HYDROGEN DEMAND
methanol in New Zealand is not replaced by
         hydrogen, due to the reliance on a large source
         of CO2 to be used as feedstock in the chemical
                                                                     3.2 GROWTH IN HYDROGEN
         processes involved. More detailed information
         on our assumptions on fuel switching is reported
                                                                     DEMAND PRIOR TO 2050
         in the appendices of the full study report.
                                                                     The increase in hydrogen demand is
                                                                     assumed to follow the following order:
         A comparison of the energy demand and fuel
         mix in 2020 and 2050 in the study is provided in
                                                                     — Transport demand commencing in the early
         Figure 9. This shows final energy consumed by
                                                                       2020s – commencing with a network of hydrogen
         sector. The demand for hydrogen and natural gas
                                                                       refuelling stations. Electrolysers will be built at
         in this scenario is summarised in Table 1 below.
                                                                       refuelling stations connected by road tanker.
                                                                       The network of refuelling will grow as the
         In this scenario, fossil fuels are replaced by
                                                                       hydrogen fleet grows in size. These locations
         electrification and conversion to hydrogen in
                                                                       will be close to transport infrastructure and will
         relatively equal proportions. In fact, as a result of the
                                                                       act as hubs – not only serving onsite hydrogen
         similar expected cost of electricity and hydrogen,
                                                                       refuellers for vehicles travelling on the highways,
         we expect the two energy vectors to be used
                                                                       but also generating hydrogen to be distributed
         according to their technical suitability and assume
                                                                       by road tanker to a network of smaller refuelling
         they are complementary and interchangeable.
                                                                       sites.

                    HYDROGEN COMPLEMENTS AND                         — From the early 2030s blending of gas into the
                                                                       gas network is assumed – reaching 20% by
                      EXTENDS ELECTRIFICATION                          2035.

         Table 1: Demand for hydrogen and natural gas

                                                        Demand
           Sector                      Fuel type                                    Comments
                                                        2020         2050

                                                                                    Significant reduction from 2020:
                                                        24 TWh       9 TWh
                                       Natural gas                                  Remaining demand predominantly
                                                        (85 PJ)      (32 PJ)
                                                                                    in methanol production
           Energy

                                                                     40 TWh
                                       Hydrogen         0 TWh                       New supply across all sectors
                                                                     (143 PJ)

                                                                                    Largely unchanged from
                                                        14 TWh       14 TWh
                                       Natural gas                                  2020. Demand from methanol
                                                        (51 PJ)      (51 PJ)
                                                                                    and urea production
           Process feedstock

                                                                     1.2 TWh        New supply for iron reduction
                                       Hydrogen         0 TWh
                                                                     (4.3 PJ)       at Glenbrook Steel Mill

                                                        11 TWh                      Natural gas CCGTs replaced
                                       Natural gas                   0 TWh
                                                        (41 PJ)                     by renewable generation
           Electricity
           generation
                                                                     0.16 TWh       Hydrogen gas turbines
                                       Hydrogen         0 TWh
                                                                     (0.6 PJ)       supplement renewable generation

FUTURE HYDROGEN DEMAND                                                                HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   23
2020              Natural Gas 38TWh            Hydrogen 0TWh                                            Primary

                                                                                                       Commerce

                                                                                           Household                         Feedstock etc

            38%     Transport                           37%        Industry                    11%         9% 5%

                                                                                                                         Feedstock:
                                                                    Energy: 166TWh                                       17.5TWh

          Electricity            Hydrogen                    Oil                 Biofuel    Gas                   Coal                 Geothermal

      2050              Natural Gas: 24TWh            Hydrogen 41TWh                                          Primary

                                                                                                       Commerce

                                                                                           Household                         Feedstock etc

            26%     Transport             43%     Industry                                    14% 12% 5%

                                                                                                                         Feedstock:
                                                                    Energy: 142TWh                                       15.3TWh

       Figure 9: Final energy demand by fuel in 2020 and 2050

24   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                                                              FUTURE HYDROGEN DEMAND
— Starting in 2035 the gas network will be                     The results of this economic analysis are presented
            converted sequentially to 100% hydrogen and                  in Figure 11. The largest contributor to the cost
            there will be large scale storage of hydrogen                of hydrogen is the cost of electricity, followed by
            available (assumed to be operational from 2045).             capex and opex costs of the electrolysers used
            Hydrogen demand from users connected to the                  to produce hydrogen. “Other” costs including the
            gas grid in 2050 will account for roughly 50% of             cost of implementation and operation of the inter-
            overall hydrogen demand in New Zealand.                      seasonal storage and the cost of water for the
                                                                         electrolysers are relatively minor in comparison.
          The growth in total hydrogen demand over the
          period from 2020 to 2050 is shown in Figure 10.
                                                                         The forecast of the 2050 electricity costs
                                                                         for dedicated renewables is $61 /MWh (real
          3.3 HIGH-LEVEL ECONOMIC                                        terms 2020), which is based on the long run
                                                                         marginal cost of wind generation. The study

          ASSESSMENT OF HYDROGEN                                         assumes that using a mixed supply and
                                                                         allowing hydrogen to be generated to storage

          DEMAND                                                         from renewable spill through the grid, reduces
                                                                         the 2050 electricity cost for hydrogen by
                                                                         10% to $55 NZ$/MWh (real terms 2020).
          The study developed a detailed economic
          assessment to evaluate the role of hydrogen                    The study also compares expected hydrogen
          in New Zealand’s energy system from an                         costs with other studies and with estimated future
          economic perspective. This work included                       costs of natural gas (which is the alternative
          estimating the costs of infrastructure conversion              fuel in many cases). This analysis is shown in
          and operating hydrogen production facilities to                Figure 12. These comparisons suggest that the
          develop indicative hydrogen resource costs.                    future hydrogen costs used in the work, fall within

          ANNUAL HYDROGEN
          DEMAND PROJECTION
      TW/h / yr                                                                                                 Mt / yr        PJ/yr
     50

                                                                                                                                   160
                                                                                                                     1.25
     40

                                                                                                                     1             120
                                                                                      2040s
     30                                                                              100% H2

                                                                                                                     0.75
                                                                                                                                   80
     20
                                                                                                                     0.5
                                                               2030s
                                                              Blending
                                                                                                                                   40
     10
                                                                                                                    0.25
                                         2020s
                                       Transport

      0                                                                                                             0              0

          2010                          2020                2030                     2040                      2050
          Figure 10: Projection of annual hydrogen demand

FUTURE HYDROGEN DEMAND                                                                    HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT    25
the range of other studies, being higher than
       those used for the Australia Hydrogen Roadmap
       but lower than Castalia’s work for MBIE on
       hydrogen costs in New Zealand. The analysis
       also suggests that hydrogen would be a lower-
       cost option than natural gas in a high gas cost
       scenario – where wholesale gas costs $19.50/
       GJ and the carbon price increased to $200/tCO2.

       The purpose of these estimates is not to predict
       the future price of hydrogen. Since large-scale
       hydrogen production and distribution is not
       yet commonplace around the world, costs are
       expected to decline over coming decades –
       although the rate and level of those cost decreases
       is highly uncertain. The purpose of estimating
       these costs for this work is to demonstrate that
       expected costs are within the range that would
       support the deployment of hydrogen at scale.

                  Technical       Blending up to           Conversion to 100% H2              System continuous
                 evidencing          20% H2                                                       operation

         $/KG

         7       6.3            6.0               5.1         5.3         3.9         3.3           3.3           3.4

                                                                                                                           -46.1%

        0

                2025           2030               2035       2040       2045         2050           2055      2060

                   Water & storage                       Electricity            Electrolyser opex          Electrolyser capex

      Figure 11: Annual hydrogen cost in NZ$/kg

26   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                                                        FUTURE HYDROGEN DEMAND
COST OF HYDROGEN & NATURAL GAS                                                           COST OF HYDROGEN
            NZ$/GJ                                                                    NZ$/kg10
             35                                                                         6

               0                                                                        0

                         Core           2050         2050         2050                           Core                     2030                     2020-2050                2020-2050
                       scenario         High          Mid         Low                          scenario                 Australia                   Castalia                 Castalia
                        mixed                                                                   mixed                   Roadmap                       Grid                  Dedicated
                     supply 2050                                                             supply 2050                                                                      Wind

                                              NATURAL GAS IN NZ                                                                    H2- OTHER STUDIES

            Figure 12 Cost of hydrogen compared with other studies
            and natural gas estimates

            3.4 ENERGY SECTOR CARBON
            EMISSIONS IN 2050
                                                                                 35

            The impact on carbon emissions with the shift in the
            fuel mix is shown in Figure 13. The switch from coal,
                                                                                 30
                                                                                                                                8             -23%
                                                                                                                   Hydrogen
            oil and natural gas to hydrogen, renewable electricity
            and increased use of biofuels, together with
            overall demand reduction, results in energy sector                   25

            emissions being reduced to near zero and a small
            amount of residual emissions in 2050, attributable                                                       Demand
                                                                                                                                6
                                                               ANNUAL
            to remaining natural gas use in the industry sector.                 20
                                                                                                                    reduction

                                                            EMISSIONS
                                                              (MTCO2)            15
                                                                                                                                                                      TODAY*

                                                                                                             Electrification
                                                                                                                              11
                                                                                 10

                                                                                                     Bioenergy / Other
                                                                                                                                5
                                                                                  5

                                                                                                           Residual 2050
                                                                                                                               4
                                                                         MtCO2    0

Figure 13: Contribution of carbon emissions
reduction from today’s baseline to 2050                                                                    *Excludes agricultural, land use, forestry and waste emissions

10 Exchange rate of NZD/AUD of 1.1

FUTURE HYDROGEN DEMAND                                                                                 HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                      27
04
                                                   PROJECTIONS AND
                                                   IMPLICATIONS OF
                                                   HYDROGEN SUPPLY

       Ramping up hydrogen production
       capacity to meet the hydrogen
       demands estimated in the study will
       present a significant challenge and
       investment requirement. In this section
       we consider the hydrogen production
       infrastructure required to meet the
       demand, based on the assumption
       that all hydrogen demand is met with
       green hydrogen. We also outline
       how this interacts with the electricity
       system and impacts on water usage.

28   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT          Projections and implications of hydrogen supply
The operation of the large-scale storage to meet
             4.1 HYDROGEN SUPPLY SOURCES                                                        demand alongside hydrogen production is shown
                                                                                                in Figure 15 overleaf for three time-scales: over the
                                                                                                year, over the peak demand month and during the
             To assess the hydrogen production requirements,                                    peak day. These graphs demonstrate how hydrogen
             the study developed an hourly model of hydrogen                                    is contributing to our energy system flexibility.
             and electricity supply and demand out to 2050.
             If hydrogen is produced via electrolysis, a key                                    The electrolyser capacity will be built up over
             consideration for the supply infrastructure will be                                time as the hydrogen demand increases. The
             to ensure there is adequate renewable electricity                                  total electrolyser capacity reaches 8.5 GW (178
             available to meet the electrolyser demand,                                         tonnesH2/hr) by 2050 as shown in Figure 14
             while also meeting the anticipated growth of                                       alongside average utilisation. The build is relatively
             electricity demand across the economy.                                             slow over the period to 2035 as hydrogen is
                                                                                                only present in the network at up to a maximum
             Based on projected hydrogen demand, the hourly                                     20% blend. It increases more rapidly in the
             model allowed estimation of the following:                                         decade to 2050 as the network converts fully to
                                                                                                hydrogen supply. The impact of the large-scale
             — Required electrolyser capacity                                                   storage coming online in 2045 can be seen by
             — Required hydrogen storage                                                        the sharp increase in electrolyser utilisation.

             — Electricity demand due to hydrogen production                                    Compared to the current global electrolyser market
             — Electricity generated from hydrogen                                              of around 150 MW, this clearly represents a very
                                                                                                significant electrolyser build programme. However,
             — Water usage                                                                      multiple recent market studies forecast a rapid
             We assume that renewable energy spilled at                                         ramp-up in the electrolyser market, with a gigawatt
             times of low electricity demand will be used                                       per year market expected to develop in the 2020-
             to make hydrogen which is stored for later                                         2025 period, hence gigawatt-scale installed capacity
             use. This increases the capacity factor of the                                     by 2050 in New Zealand is not unreasonable.12
             electrolyser and the renewable generation and
             reduces the production capacity required for
             both hydrogen and electricity. Both these factors
             reduce the cost of hydrogen and electricity.

                                               ELECTROLYSER CAPACITY AND UTILISATION
                                                    Electrolyser Utilisation (%)                  Electrolyser Capacity (GW)

                                       GW                                                                                          %
                                   9                                                                                               70%

                                                                                                                         9

                                                                                                         6
                                                                                          5

                                                1                    2
                                   0                                                                                                0%

                                            2030                 2035                    2040         2045            2050
Figure 14: Build-up of electrolyser capacity and utilisation of the installed capacity

12 https://publications.jrc.ec.europa.eu/repository/bitstream/JRC115958/kjna29695enn.pdf

Projections and implications of hydrogen supply                                                                   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   29
H2 demand                        H2 from storage                   H2 generated             H2 into storage

                                              HYDROGEN DAILY SUPPLY AND DEMAND BALANCE

                 1                   60                  120                  180               240           300                360
                                                                        Days of the year

                                      OPERATION OF ELECTROLYSERS AND STORAGE – PEAK MONTH

                                                                       Days of the month

                                          OPERATION OF ELECTROLYSERS AND STORAGE – PEAK DAY

                                                                        Hours of the day

       Figure 15: Hydrogen production by electrolysers and operation of storage to meet
       demand – annual, peak month and peak day timescales

30   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                                          Projections and implications of hydrogen supply
The large-scale hydrogen storage facility required                              The study assumes that supply of hydrogen
          is assumed to be located in Taranaki using                                      will develop in step with the demand created
          a depleted oil and gas reservoir. The rate of                                   in different sectors as they develop:
          withdrawal required to meet modelled demand
          is 4 GWh (15 TJ/h), which has been applied as                                   — Transport demand commencing in the early
          a cap on the maximum rate at which hydrogen                                       2020s. Electrolysers will be built at re-fuelling
          can be fed into the network from the large-scale                                  stations connected by road tanker. The network
          store. This is larger than the current capacity                                   of refuelling stations will grow as the hydrogen
          at the Ahuroa gas storage facility of 2.7TJ/h.                                    fleet grows in size. (these locations are shown
                                                                                            in the left panel of Figure 17). This proposed
          Hydrogen storage has been sized at 5TWh (18PJ)                                    network of refuelling hubs has been supported
          such that hydrogen can be used to generate                                        by discussions with Hiringa Energy on the likely
          electricity to meet peak power sector demands and                                 distribution of hydrogen demand in the transport
          to provide dry year resilience. Increasing the storage                            sector.
          volume beyond this level delivers diminishing
          returns in terms of improving electrolyser utilisation
                                                                                          — From the early 2030s we assume blending
          and minimising the renewable generation capacity
                                                                                            of gas into the gas network – reaching 20%
          required in the system. The variation in the level of
                                                                                            by 2035. It is assumed that the locations of
          hydrogen in storage over the year is shown in Figure
                                                                                            the electrolysers would build on the hydrogen
          16 below for an average year and a dry year (we
                                                                                            transport infrastructure (as shown in the middle
          assume in both cases that the store is 50% full at
                                                                                            panel of Figure 17).
          the start of the year). The hydrogen store is not fully
          depleted during the winter period even in a dry year,
          despite a rapid draw-down on the stored hydrogen.                               — From 2040 the gas network will be 100%
                                                                                            hydrogen. The electrolysers used in the
                                                                                            blended network will remain in place and be
                                                                                            supplemented to form the network in the right-
                                                                                            hand panel of Figure 17. This assumes large
                                                                                            scale storage of hydrogen in Taranaki.

                                                  ANNUAL VARIATION IN H2 STORAGE LEVEL
             TWh                                               Average year                          Dry year

              6
              5
              4
              3
              2
              1
              0
                   01                                100                            188                           276                       365
                                                                           Days from start of year

          Figure 16 Variation of large-scale storage under average and dry year conditions

Projections and implications of hydrogen supply                                                                 HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   31
Refuelling station ‘hub’ locations                   Electrolyser locations in 2035           Electrolysers and hydrogen
       – sites for onsite electrolysers to                  – additional sites for injection         storage in 2050 – locations of
       meet transport demands.                              of hydrogen into the transmis-           electrolyser plant and large-
                                                            sion network (20 vol% hydrogen           scale storage to feed the 100%
                                                            blend).                                  H2 network.

       Figure 17 Locations of refuelling stations and electrolyser sites

       Electrolyser locations have been determined to                          the New Zealand economy, including domestic,
       ensure that the peak demands on the gas network                         commercial, industrial and transport demands.
       can be met without encountering any network                             Electricity demand in these non-hydrogen sectors
       constraints, such as unacceptable pressure drops.                       (collectively referred to as the power sector) is
       The study assumes that the electrolysers installed                      based on the growth projections in the Whakamana
       for grid injection will produce hydrogen at high                        i Te Mauri Hiko (WiTMH) report, modified to
       pressure, enabling injection into the transmission                      reflect the impact of hydrogen penetration into
       network without additional compression. The                             the sectors where hydrogen and electricity
       injection of hydrogen at high pressure at dispersed                     compete, for example transport and heating.
       locations around the network is expected to
       have a beneficial impact on the requirement                             The supply and demand model was used to
       for pipeline network compressors. Additional                            assess the electricity generation capacity required
       compressor stations will still be required, but                         to meet total electricity demand as the demand
       the duty on the compressors should be reduced                           for hydrogen ramps up, in particular the capacity
       potentially resulting in reduced operating costs                        of new renewable generation such as wind and
       compared to the current natural gas network.                            solar. Annual 2050 hydrogen and electricity
                                                                               demand is shown in Table 2. The electricity

       4.2 ELECTRICITY SYSTEM                                                  demand is similar to that in the WiTMH ‘Mobilise
                                                                               to Decarbonise’ and ‘Tiwai Exit’ scenarios.

       IMPACTS OF HYDROGEN SUPPLY                                              Table 2 2050 hydrogen and electricity demand

       The study modelled the interactions between the
       hydrogen production system and the electricity                                                      Demand in 2050
       system using a supply and demand model, which                                                       (TWh)
       includes an hourly representation of supply and
       demand for both hydrogen and electricity over                             Hydrogen                  41.5
       the period to 2050. The electricity supply and
       demand model incorporates electricity required                            Electricity*              63.2
       for electrolysis (the hydrogen sector demand)
                                                                               *Excludes demand for hydrogen production through electrolysis
       and electricity demand across other sectors of

32   HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT                                                          Projections and implications of hydrogen supply
The study includes a relatively limited use of                              demand is calculated. ‘Other’ generating capacity
          bioenergy and some industrial gas use in 2050,                              includes fossil fuel plant in the earlier years, that
          but no other fossil fuels remain in the energy                              are assumed to be retired over the period to 2050
          mix (petrol and diesel in the transport sector is                           and dispatchable renewable generation (such as
          entirely replaced by electricity and hydrogen).                             biomass) after that point. In this analysis there is
                                                                                      no requirement for ‘Other’ generating capacity in
          In line with WiTMH, the study represents a                                  2050, as the peaks in power sector demand can
          significant increase in electricity demand compared                         be met by hydrogen-fuelled generating plant.
          to today - requiring growth in the electricity
          generation capacity and phasing out of fossil fuel                          The capacity of renewable electricity generation
          generation with renewable generating capacity.                              required to meet the combined power and hydrogen
          Production of hydrogen via electrolysis results                             sector demand is large – 18 GW of wind and
          in a significant additional demand for electricity,                         13.5 GW of solar by 2050. However, the required
          on top of the growth in power sector demand.                                generating capacity is less than would be needed
          The growth in overall New Zealand electricity                               if all energy uses were directly electrified.
          demand is shown in Figure 18, with demand from
          electrolysers accounting for just under half (44%)                          This is because hydrogen storage allows use wind
          of New Zealand’s total electricity demand in 2050.                          and solar plant more efficiently in two ways:

          To meet this rapid growth in electricity demand                             — Generating hydrogen at times when wind and
          whilst also decarbonising the power sector                                    solar are available but there is no electricity
          will require a significant increase in renewable                              demand stores energy that would otherwise have
          generation capacity. The generation capacity                                  been wasted and increases utilisation of the
          required is shown in Figure 19. The capacities of                             generation plant
          hydro and geothermal generation are taken from
                                                                                      — Generating electricity using hydrogen at times
          the Whakamana i Te Mauri Hiko (WiTMH) report
                                                                                        of peak demand reduces the requirement for
          projections with the capacity of wind, solar and
                                                                                        additional wind and solar generation capacity to
          other generating plant then sized to meet the power
                                                                                        cover peak times.
          sector demand before the additional wind and solar
          capacity required to meet the hydrogen sector

                                               ANNUAL ELECTRICITY DEMAND (TWh/Y)

                                    42             43              49           60          77           96          114

                                  2020           2025            2030          2035        2040         2045        2050

                                                         Electrolyser demand             Power sector demand

          Figure 18 Growth of total electricity demand

Projections and implications of hydrogen supply                                                         HYDROGEN FEASIBILITY STUDY – SUMMARY REPORT   33
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