The “hourly matching” rule will force hydrogen producers to either cease production when renewables are not available – an option that would undermine productivity and viability – or sign up for excess renewable power from diverse sources to improve the chances of having clean energy available from at least one source at all times.
Fortescue has urged the government to instead consider “annual matching” – a system that would allow a hydrogen producer to rely on non-renewable power at times, so long as it sourced extra renewable power at other times and ultimately consumed as much power as it generated over the course of a year.
Huge power surplus
In submissions to Treasury, Fortescue has warned that “hourly matching” would increase the cost of an 80-megawatt green hydrogen facility by “between 140 and 200 per cent”. The comment appears to be a veiled reference to Fortescue’s Arizona project, which will be an 80-megawatt plant that makes green hydrogen for refuelling trucks.
Andy Vesey, Fortescue’s North American chief, last week said the “hourly matching” rule would force a hydrogen developer to sign up for seven times more renewable power than they could consume at any one time.
“If I am building a gigawatt of electrolysers in Texas I may only need a gigawatt of energy at any time, but I have to buy seven times that to ensure that I have all the probabilities working, so I know I can match in that hour, which means the bulk of what I buy I don’t need,” he told a Bloomberg podcast.
“Because of the massive amount of the energy we have to buy we have to make the project smaller, so you can actually transact that … because of this hourly matching, there are only certain places you can do it, so there are fewer opportunities.”
Andy Vesey, the president of Fortescue in North America, speaking at a Bloomberg event last week. Bloomberg
The 45V draft rules also require eligible hydrogen producers to consume “additional” or new clean power, rather than buy from existing clean power generators.
The “additionality” clause is designed to ensure the green hydrogen industry stokes investment in new renewables projects and is also a blow for an early-stage project Fortescue has been studying near a hydroelectric plant in the state of Washington.
Fortescue has warned the government that wait times for new clean power projects of up to five years and challenges with building transmission lines means the “additionality” clause will slow development of the hydrogen industry.
Asked by The Australian Financial Review whether the unfavourable draft rules would force Fortescue to alter the scope of the approved Arizona project, a spokesman signalled there were unlikely to be changes until the eligibility rules were finalised.
“When 45V guidelines are finalised, we will assess how they impact our US operations and make the decisions necessary to ensure our green energy projects are economic and profitable,” he said. “Fortescue believes with or without government incentives there will be a place for green hydrogen and green ammonia projects in the US.”
Fortescue has suggested that early movers be made exempt from the rules and have those exemptions “grandfathered”.
Mr Vesey, a former AGL Energy chief executive, told Bloomberg that the rules were doing “everything against the original intent” to foster a clean hydrogen industry.
Woodside Energy has its own hydrogen project in the US which could also be in doubt, the Financial Review reported in January. That project, known as H2OK, is in Oklahoma and proposes to use electricity from the state’s power grid.
The hydrogen eligibility talks are an example of how the fine details of the IRA are still being thrashed out, almost two years after the legislation passed Congress.
Battery makers, electric vehicle manufacturers and critical minerals producers are also waiting for clarity on “foreign entity of concern” rules within the IRA, which will determine whether Australian minerals that rely on significant levels of Chinese ownership or processing will be eligible for US subsidies.
The elongated process to design the IRA means that the vast majority of investment in clean energy and low carbon technologies in the US over the past year has been private money anticipating future support, rather than actual government spending.
An audit of “clean investment” by the Massachusetts Institute of Technology and Rhodium Group found that government money accounted for just $US33.7 billion of the $US239 billion invested in clean energy, transportation and manufacturing in the year to September. Of the $US33.7 billion of government money that was invested in those 12 months, much of it was from schemes that pre-dated the IRA.
