Overcoming water supply challenges 9 min read
Australia's abundant renewable energy resources and existing infrastructure make it well placed to become a leading producer of green hydrogen. However, given its scarce water resources, hydrogen producers may face challenges in securing reliable, long-term access to the volumes of water required to support large-scale hydrogen projects.
This Insight explores the issues that investors and developers need to consider in securing access to water for hydrogen projects in Australia, as interest in the industry continues to grow.
- Hydrogen production requires secure, long-term access to water, which may prove challenging in a country known for variable rainfall and frequent droughts, particularly as the impacts of climate change intensify. While the Australian hydrogen industry looks set to take off, a level of uncertainty remains as to whether Australia's domestic water resources can support long-term, commercial-scale hydrogen production.
- Water access regimes and trading schemes in Australia are complex, with different rules applying in each of the states and territories. Water pricing, availability and use restrictions also differ between states, and between water sources within states. These factors should be considered when project planning and budgeting.
- Desalination, recycled wastewater and stormwater are being explored as alternatives to relying on fresh water and the traditional water entitlements model for hydrogen production and other industrial applications. Project developers should consider exploring alternative water sources for hydrogen production, and factor potential changes in water supply into project planning and costs.
Hydrogen as a low emissions substitute for fossil fuels is attracting significant attention in Australia. The COAG Energy Council's 2019 National Hydrogen Strategy (the National Hydrogen Strategy) details a plan for Australia to be a major player in the global hydrogen industry by 2030.
Enthusiasm for this opportunity is clear, with policy support and funding growing at federal, state and territory levels.1 We are seeing regular announcements of new projects across the country, including at 'hydrogen hubs' like Bell Bay in Tasmania.2 (See our recent Insight for more information on the current policy landscape, and various regulatory and practical considerations when developing hydrogen projects.)
Australia has been identified as a country well suited for hydrogen production. Many of the natural resources necessary for production are readily available, as are existing and adaptable gas transmission networks and deep water ports for export. Australia is also particularly suited to the production of 'green hydrogen', with abundant sun and wind resources, and a well-established renewable energy industry.
Hydrogen production will also require secure, long-term access to water. The sufficiency of Australia's domestic water resources and infrastructure to support scaling up to long-term, commercial-scale hydrogen production remains somewhat uncertain.
According to the National Hydrogen Strategy, the electrolysis process (the 'green' method for producing hydrogen with zero carbon emissions, when the electrolyser is powered by renewable electricity) needs significant water input, requiring around 9 litres for every 1 kilogram of hydrogen produced.3 Large amounts of water are also required for hydrogen production using fossil fuels, with the current dominant technology of 'steam reforming' using water for the reaction stage, process water and cooling.
The National Hydrogen Strategy predicts that in a strong hydrogen growth scenario, water consumption by the sector in 2050 could equate to about one-third of the water currently used by the Australian mining industry. The demand for water that will accompany upscaled hydrogen production will add significantly to the already substantial demands on Australia's scarce water resources.
Australia is the world's driest inhabited continent, with variable water availability and frequent widespread droughts. Competition for secure water resources is expected to intensify as the impacts of climate change accelerate,4 with ongoing demands from agriculture (which currently accounts for more than 65% of national water consumption),5 mining and domestic users, plus requirements to maintain environmental flows.
Statutory water access regimes and water trading schemes are subject to complex rules that differ across the country. Projects that introduce new demands on water resources, or involve diversion away from agriculture and other existing activities, can be controversial and affect a project's support by the community.
For companies planning to invest in hydrogen, securing a long-term and secure supply of water will be key to the viability of a commercial-scale project. Given the potential challenges in securing access to fresh water in Australia, project developers may need to consider alternative water sources like desalination, recycled wastewater, and stormwater for hydrogen projects.
In Australia, access to water is governed by different statutory regimes in each state and territory. Each jurisdiction has a statutory process for granting licences and approvals to take and use water for industrial purposes, and for trading water entitlements. Most regimes share the following broad features:
- Licence or bulk entitlement: A licence or bulk entitlement is required to take water on an ongoing basis. In some states, power generators are granted special water entitlements from the Water Minister, rather than regional water authorities, with non-standard use conditions and generous allocations.
- Limited purpose: Industrial water licences are often granted for a specified purpose, such as the generation of electricity at a particular facility. The licence conditions may contain strict requirements for use of that water for ancillary activities at the facility. Depending on the terms of the licence, there may be limited scope to use an existing longstanding water right for another purpose. For example, operators seeking to add hydrogen plants to existing infrastructure, or to convert water rights used for a coal-fired plant to a hydrogen plant, may need to amend their licence or apply for a new one, to expand the approved uses of water to include hydrogen production.
- Conditions: The licence may be subject to conditions as to when, where and how much water can be taken, how it can be used, and the extent (if any) to which it is transferrable to another entity.
- Variable allocations: Where a licence entitles the holder to a particular number of shares or units in a water source, annual allocations of water may vary, depending on the amount of water available in the system and number of other users.
- Use and works approvals: Separate approvals may be required to construct and operate any works or infrastructure necessary to extract or convey the water, and to use the water for a particular purpose.
- Water trading rules: Water licences, and part or all of the allocation under a licence, can often be traded between entitlement holders, either permanently or for a specified term. Strict rules apply to the trading of water and licences between different water sources and management zones, with trades between management zones often prohibited.
The cost of securing water, water availability, and the conditions that will apply to extraction and use can vary significantly between states and between water sources within states, and should be factored into project planning and costs.
Given the scarcity of water in Australia, desalination, recycled wastewater and stormwater are being explored as alternatives to relying on fresh water and the traditional water entitlements model for hydrogen production and other industrial applications.
Desalination is increasingly being considered as a viable alternative to provide a secure water supply for hydrogen production. According to the National Hydrogen Strategy and recent commentary,6 the cost of electricity required to desalinate seawater to produce hydrogen is expected to be minor – probably less than five cents per kilogram of hydrogen produced.7
There are six existing desalination plants in Australia that could potentially supply water for new hydrogen projects, if surplus water is available after meeting demand for other uses. Hydrogen producers may also consider establishing their own desalination plants. While the upfront costs of this would be substantial, such costs may be defrayed over time by selling surplus water for other uses, particularly in water-stressed regions.
Research is also underway to explore the potential to hydrolyse seawater directly for hydrogen production (bypassing the need for desalination).8 However, these studies are in their early stages, and the technology is a long way from being commercially viable.
Recycled wastewater is water extracted from sewerage systems or industrial processes, and treated to a standard that is appropriate for its future intended use.9 The use of treated water for hydrogen projects is currently being investigated. A recent assessment indicates that using oxygen-based wastewater treatment, and co-locating these plants with hydrogen production facilities, could improve commercial viability of this water use option.10
A number of advantages of using recycled water for hydrogen production have been identified, including that it is cheaper than fresh or desalinated water, and less likely to be impacted in the event of an extended drought (in which case, fresh and desalinated water would be prioritised for domestic consumption).11 Treatment plants are also often found near large urban centres, so would be close to where the demand is.12 Harnessing wastewater for other purposes also has indirect environmental benefits (and could reduce the regulatory burden associated with wastewater discharge), by diverting and reducing the volume of wastewater released to waterways.
Treatment and use of recycled water is typically governed by guidelines published by the relevant Environment Protection Authority, with the purpose of protecting human health impacts from exposure to treated water. Current guidelines provide that recycled water users can contract with suppliers to obtain recycled water, and must have site management plans in place to ensure their operations comply with specific environmental and safety requirements.13
Stormwater is rainwater that runs off impervious and saturated surfaces in the urban environment. It is generally recognised as an under-utilised water resource in Australia, the volumes of which increase with urban development. According to a Senate Committee Report on stormwater management, stormwater from run-off in Australian cities generally exceeds the volume of water drawn by cities from catchments and groundwater sources.14 Environmental standards prescribe limits for nutrient concentrations in stormwater, which are managed in drainage schemes.
While stormwater volumes are plentiful, there are various significant challenges to harvesting stormwater for new uses. Stormwater networks are highly distributed systems, which can pose practical challenges to capturing the water at particular locations. From a legal perspective, capturing stormwater may also require specific approvals.15
Stormwater often contains pollutants, including organic matter, oils and fertilisers. Even so, it can be treated to a high standard, with various developments and recycling projects implementing treated water for irrigation and non-potable uses.
With stormwater available in abundance and re-use options being explored, it could potentially become an alternative water source for hydrogen producers. However, the reliance of current hydrogen technologies on higher-quality water, and the need to develop new infrastructure to harness stormwater's potential, mean it will likely be some time before we see energy projects and other undertakings capable of effectively using this water source at scale.
- Those interested in developing or investing in hydrogen projects should consider how their projects will obtain long-term and secure water access during feasibility studies.
- Given that water regimes differ between states, and individual water sources are subject to differing rules, restrictions and pricing, developers should familiarise themselves with the applicable water regimes when planning water supply for a hydrogen development.
- Regulation of the hydrogen sector is still in its infancy, with the Federal Government currently reviewing national legal frameworks with a view to supporting the development of the industry and facilitating future regional hydrogen trade.16 Developers should keep abreast of regulatory changes in this space and plan their projects accordingly.
See ARENA, 'Over $100 million to build Australia’s first large-scale hydrogen plants' (May 2021) available at https://arena.gov.au/news/over-100-million-to-build-australias-first-large-scale-hydrogen-plants/.
Angela Macdonald-Smith and Brad Thompson (AFR), Origin, Fortescue in rival hydrogen projects in Tasmania (17 November 2020) available at https://www.afr.com/companies/energy/origin-fortescue-in-rival-hydrogen-projects-in-tasmania-20201117-p56f76.
See National Hydrogen Strategy.
Senate Environment and Communications References Committee, Report on the adequacy of the regulatory framework governing water use by the extractive industry (October 2018) [2.19] available here.
BOM, Water in Australia 2019-20 (p 5) available at http://www.bom.gov.au/water/waterinaustralia/files/Water-in-Australia-2019-20.pdf.
National Hydrogen Strategy (p 12); International Renewable Energy Agency, Green Hydrogen Cost Reduction: Scaling up Electrolysers to Meet the 1.5⁰C Climate Goal (2020) (pp 26, 30) available here.
National Hydrogen Strategy (p 12). See also Jacobs, Australia's pursuit of a large scale hydrogen economy (2019) (p 14) available here.
Tong, W, Forster, M, Dionigi, F. et al. Electrolysis of low-grade and saline surface water. Nat Energy 5, 367–377 (2020). https://doi.org/10.1038/s41560-020-0550-8.
See EPA, Victorian guideline for water recycling (Publication 1910) (2 March 2021) available at https://www.epa.vic.gov.au/about-epa/publications/1910-2.
Jacobs and Yarra Valley Water, Towards a zero carbon future: the role of wastewater treatment plants in accelerating the development of Australia's hydrogen industry (2020) (pp 33-44) available at https://www.jacobs.com/sites/default/files/2020-06/jacobs-yarra-valley-water-towards-a-zero-carbon-future.pdf.
Senate Environment and Communications References Committee, Stormwater Management in Australia (2015) (p 4, fn 6) available here.
Eg Melbourne Water can issue stormwater harvesting licences, but these are limited to entities in urban Melbourne. To meet the criteria for harvesting, proposals need to be within the Urban Growth Boundary (Port Phillip and Western Port) as defined in 'Melbourne 2030: Planning for Sustainable Growth' strategic document (October 2002) available at https://www.planning.vic.gov.au/__data/assets/pdf_file/0022/107419/Melbourne-2030-Full-Report.pdf.
Australian Government, Department of Industry, Science, Energy and Resources, Growing Australia's Hydrogen Industry (October 2021) available at https://www.industry.gov.au/policies-and-initiatives/growing-australias-hydrogen-industry.