Carbon neutrality requires significant renewable resources to provide the energy for transition. Australia is well placed to provide large quantities of cost-competitive green fuels to deeply decarbonise not only its own economy, but also those of others, such as Germany. Recent research shows that decarbonisation and hydrogen production are not disconnected but offer synergistic benefits that assist both hydrogen producers and the wider economy.  

By taking advantage of its significant solar, wind and land availability, Australia has sufficient renewable energy resources to decarbonise its own energy use while supplying green hydrogen to international markets. Modelling by researchers at the Australian-German Energy Transition Hub evaluated the cost-optimal transition of Australia’s electricity supply by 2050 across a range of scenarios, starting from the existing ‘Status Quo’ climate energy policy environment through to an ambitious ‘200% Renewable’ scenario (4+). 

The results show that even in the absence of additional climate energy policies, carbon emissions in the electricity sector are expected to fall by 40-48% in 2030 (relative to 2005), driven by retirements in fossil fuel generation, falling costs of renewable energy technologies and a continued growth in solar PV and wind power capacity. As the level of decarbonisation across the economy increases, solar PV and wind technologies rise to become Australia’s primary sources of energy, dominating Australia’s electricity future while keeping system costs similar to or below those of today.

Expanding Australia’s energy transition to include the production of hydrogen (via electrolysis) results in a range of benefits that are dependent upon the location and energy source of these electrolysers. In the short term, while electrolyser costs remain high (around $3000/kW with low conversion efficiency), locations with the lowest hydrogen production costs have high and complementary wind and solar resources hydrogen production. Such locations include the Pilbara region in Western Australia, central Northern Territory (with sufficient water access), South Australia, and Tasmania. These locations are able to provide the highest possible energy capacity factors to operate hydrogen facilities but tend to be located away from the major demand centre of the National Electricity Market (NEM). These findings are consistent with early investments occurring in large-scale green hydrogen export facilities (such as the 15-GW Asian Renewable Energy Hub project) that are located away from the NEM.

However, as electrolyser costs fall over time (towards $800/kW in 2050 and with improved conversion efficiencies), the range of economically viable locations for hydrogen production becomes more tolerant to regions with lower capacity factors and begins to include the option of sourcing energy from NEM (as opposed to onsite generation). By integrating hydrogen production into the NEM, a number of further benefits can be realised. First, electrolysers are able to take advantage of low and moderate electricity prices while switching off during times of high network demand and low supply (i.e. high electricity prices). Second, the flexibility of hydrogen production counterbalances the variability in renewable electricity generation across the network, thus reducing their curtailment and the need for additional investments in peaking generation, energy storage and transmission. Third, greater use of hydrogen within the domestic economy is promoted. These integration benefits may assist the wider economy by reducing electricity cost of supply pressures thus benefitting all electricity customers including hydrogen producers. Additional increases in the quantity of hydrogen production further reduces the network and generation costs for each megawatt-hour of electricity supplied, suggesting synergies and opportunities that come from producing hydrogen in Australia.

The significant renewable energy and land resources available in Australia provide the capacity to not only deeply decarbonise the national economy, but also to provide Australia with a new source of revenue as a significant exporter of cost-competitive green hydrogen to international markets. When developing a strategy for a hydrogen export economy, a systems perspective is required as hydrogen production and the decarbonisation of Australia’s economy are inherently linked. Scenario analyses highlight that optimal locations for hydrogen production are heavily influenced by electrolyser costs, the level of decarbonisation in the Australian economy, and the scale of hydrogen production for both international and domestic markets. Many nations face significant challenges achieving net-zero emissions with their own domestic renewable energy sources; Australia has an opportunity to leverage its competitive advantage to become a significant supplier of green hydrogen for the rest of the world.