Mar 2 2023
An ‘Anchor’ project for Western Australia – Frontier Energy
Right time, the right technology, the right scaleThis episode uncovers Frontier Energy's flagship project from advancements to challenges, offtake, community engagement and more. Tune in to find out for yourself how hydrogen can contribute to the decarbonisation of Australia and the world. 0.30 - Intro to Guest: Sam Lee Mohan, MD & CEO of Frontier EnergySam has 20 years of experience in the energy and utilities industry, including design, construction, strategic asset management, regulation, policy, commercial and innovation. Previous appointments included Global Head of Hydrogen for Xodus Group and Senior Manager for Innovation at ATCO. 1.30 - Intro to Frontier EnergyFrontier Energy is an ASX-listed, renewable energy company, based in WA. Its flagship project is developing a 114MW solar farm, tied to a 36MW (electrolyser) hydrogen production plant at Bristol Springs. Stage one will produce 4.4Mkg of hydrogen p.a., growing to 73Mkg p.a. It will also roll out a re-fuelling station in “the Perth CBD.” Construction begins at the end of this year. 2.48 - Update on the stage of the projectThe project is currently at an advanced stage. The location is one of the fundamental aspects as it is located 120 km south of Perth. It is connected to water and power infrastructure. 5km from major transport routes. The main focus at present is securing offtake. Commissioning is projected for the first half of 2025 and hydrogen production in the latter part of 2025. 4.05 - Deeper dive into the project:Daytime power comes from the solar plant. Off-peak power from the grid, so utilisation is around 75% to achieve the best price/supply combination. The challenge is to develop the right production at the right scale at the right time. In time the 114MW could be scaled up to just over 1GW. Challenge is deploying the right technology, at the right time, at the right scale. 6.19 - Having access to world-class infrastructure is fundamental to kick-starting this industry and having foundation projects the industry can anchor on. 6.45 - Resources:Solar is the cheapest form of energy production at present. Excess Photovoltaic electricity can be sold into the grid, and then drawn back during off-peak periods. LGC (large generation certificates) credits gained from green energy production are retired against the purchase of electricity from the grid, of unknown (green/brown) origin and this creates a net zero footprint. The end result is that low-cost electricity is supplied to the WA grid. We are using the grid as a virtual battery. 9.34 - Access to clean water:The plant is located within a kilometre of the Stirling Trunk Main pipeline, this is one of the most strategic assets across Western Australia. The water is sourced from the Southern Seawater desalination plant and the Southern dam, ensuring a reliable, low-cost supply; this allows a huge saving in desalination and bore (drilling) costs. Future supply has also been secured for the stage one requirements, 750k/l per day actually being four times the need, to 1,250k/l per day for stage 2. So projected growth is catered for and the demands from yet unknown tertiary growth are also covered. 11.30 - Gas:The Dampier - Bunbury pipeline currently transfers offshore natural gas in North Western WA down to the demand areas of Perth & surrounds. It also supplies the huge power needs (with resultant emissions) of the Alcoa smelting plant, downstream from Bristol Springs. The pipeline already has the technical capacity to take in hydrogen from the Frontier Energy plant, without any disruption to its own supply or customers. Statutory changes that will legalise the process are already in advanced stages. "The political environment is set in order to enable Hydrogen to be projected into the pipeline both from a legal perspective as well a technical perspective." 13.25 - Workforce:The town of Collie (population 8k) is 57 kilometres from the plant. The power station is due to close there and Frontier Energy will be able to offer workers construction jobs (initially) and ongoing jobs at its plant. Other towns are similar distances away and Perth is only a 70-minute drive. Manufacturing hydrogen commercially is difficult because one has to match supply and demand throughout. It’s essential to assist and work with early adopters and the government to ensure that the recipients are not penalised for making staged switches to Hydrogen consumption. 17.10 - Costs:Other green hydrogen producers are quoting potential production costs of over $6 per kilo of hydrogen, compared to Frontier’s of around $2.80 per kg. Income from the exported (to the grid) electricity is used to offset some of the operating costs through the reserved capacity markets. Low-cost electricity supplies the hydrogen plant. This allows a daytime energy input cost that is actually negative. (-$15 a MWh). Night-time electricity drawdowns cost around $50 - $60 per MWh. The net cost of power for the electrolyser is around $35 per MWh. The solar plant cost $166m and the hydrogen plant $72m. After the CAPEX is paid off, the hydrogen production cost falls to $1.50 per kilo, a rate that is similar to the natural gas equivalent. With scaling up to 1GW, the operating costs fall further to around $1.30/.20 per kilo. This is fundamental as reduced costs for early users will accelerate uptake and broaden the demand base. 27.02 - Community engagement:Positive feedback as they see possibilities for high-paid, skilled jobs in the community, encouraging retention of youth etc. The project has “State Significant” status with the WA government, with fortnightly meetings. 300 jobs at the construction stage, and 50 in operations. Construction is likely to be ongoing with Stage 2, etc. for the next 5 - 10 years. The hydrogen side is likely to require workers transitioning from electrical etc to the less familiar, new technology, with regulatory, compliance approvals, and engineering challenges. The hydrogen economy is a race, and we are competing with incentivised and supported industries in countries, such as the US and UK. We are well supported by our governments, but project-by-project assistance will be required, or our most skilled people may be tempted abroad. 25.50 - Other learnings to date:Investors are interested, but they need to understand the appropriate risks and incentives. A conducive political environment, and favourable emissions targets from the government making access easily available to new gas and electricity infrastructure, at the time of construction, will make it easier and cheaper for other potential hydrogen producers and this is to be encouraged. A proposed government incentive is being progressed that will require 80% of its 2050 emissions targets to be achieved by 2030. This will incentivise early-stage hydrogen developments. 29.40 - Challenges:"How advanced are you in the maturity of the hydrogen industry?"Hydrogen suppliers need to marry up their supply with nascent demand - the timing of the offtakes. Potential users are looking to the governments for support in the transition and are asking what is available, not just through policies but in an “affordability envelope.” Frontier knows that it can be competitive, but it’s the timing of the offtakes which makes it so much more complicated. 32.30 - Risk sharing:It’s essential. A lot of the super majors have net-zero targets. Frontier sees an opportunity for LNG producers to take on the hydrogen as first movers. What they can then do is claim credits, whilst exporting the LNG. In other words, (in a virtual swap arrangement) they can make a margin on the differential between the two.The LNG companies are hooked into the same pipeline infrastructure, making the flows straightforward. The Bristol Springs plant offers a flexible energy supply, fluctuating with demand. The hydrogen can also be stored in other facilities, such as LNG. Transport infrastructure is adequate to allow hydrogen to be supplied to refuelling stations throughout the state. Bristol Springs is within 70 kilometres of export facilities also. 35.30 - Opportunities from this project:Getting costs down to the $1.20 per kilo level also “unlocks” the ammonia (inc fertiliser) industry. LNG production and power generation probably offer the greatest opportunities. There are significant benefits for the transport industry to pivot into the hydrogen economy. But you need evolution in that economy to generate infrastructure and infrastructure in place to allow evolution, a chicken and egg situation. Again, government assistance is important. 37.00 – Hydrogen demand and potential uses:A possible WA government incentive to require 80% of its own 2050 emissions targets to have been achieved by 2030 is a major benefit for the hydrogen industry. That will create a demand stimulus in the transport industry for trucks, trains, buses, etc. Obviously, truck users, etc will need supply availability and continuity, in other words, industry maturity, to commit to these alternatives. In summary, infrastructure, supply, and the right political setting are all key. 39.10 - Projections:2025 Project phase 1 completion and on their way to 1 GW Hydrogen production. There are plans to develop the CBD project further also. There is the possibility of using the blueprint from Bristol Springs elsewhere, replicating its technological and financial success, and using the knowledge to expedite such a process. 40.10 - Final words:Word to investors. Contact us anytime. Look at the practicality of projects and focus on the consentability and constructability of projects. If they and governments back these projects, it will lower the hurdles for other players to carry the mantle forward, resulting in more players, ideas, supply, competitiveness, etc. The next five years are vital if we are to remain in the race with the US, etc.