Sustainability, Clean Energy, Recycling & ESG

The cost of the green hydrogen project in Australia listed below is extremely high. Ethylene (a complex petrochemical) is now down to a cost of around $1.00 per pound if built efficiently – which is $2,200 per metric ton of capacity. The hydrogen project linked - if the $0.5bn and the 33,000 metric ton hydrogen capacity are correct, works out at around $15,000 per metric ton of capital costs. To get a 15% return on the project they will need $2,300 per ton of margin, above all operating costs. In the chart below, this would represent a capital charge of more than one dollar per pound, much more than is implied in the green bar. This does not look economic to us and will require either significant government subsidies – or severe penalties on hydrocarbons to make the hydrogen economic on a relative basis. The project does involve selling some power to the grid, but we still struggle to see how this hydrogen can be an economic fuel alternative.

CCS may get another leg up from a bill in the senate right now – co-sponsored by Liz Chaney and David McKinley among others. The hope from the coal-rich states is that further incentive to capture carbon might make coal-based power plants less of a target if their carbon footprint can be greatly reduced. Our view is that any further CCS incentives will likely apply broadly and will allow the natural gas-based generators to get to lower carbon footprints more easily and at a lower cost (less CO2 per GW). While a few of the more efficient coal plants with easy access to CCS may see their lives prolonged, we doubt that this will save coal – it is in the crosshairs of ESG investors, and no amount of disguise is going to change that.