This report is produced in partnership with the Australia China Business Council under its landmark Green Channel initiative. Green Channel highlights the opportunities for Australian businesses arising from increased collaboration with China on outcomes addressing the climate challenge.
Despite impressive growth in renewables over the last decade, fossil fuels remain firmly part of the energy mix in both China and Australia. In 2020, 85% of China’s primary energy needs were met with fossil fuels and 72% in Australia.
This is the base from which China and Australia must transform their energy generation and use.
The energy sector will need to fundamentally reshape itself from being the biggest emitter to a nil net contributor.
At the same time, there are fundamentally challenging aspects to the clean energy shift; in particular, the need for a significant amount of firming technology to deal with the intermittency of renewable energy, including dispatchable storage, and congestion-battling new transmission infrastructure.
There are rich veins of opportunity for collaboration between China and Australia in this transition. China is the world’s leading renewable technology manufacturer and investor and has built out the largest energy grid utilising innovative new high-voltage direct current (HVDC) infrastructure. Australia’s innovation heritage and early-adopter status, as shown by the pioneering work on PV cells, positions it as a key contributor to new technology development.
The case for optimism
Investment in a decarbonised electricity sector is increasing almost exponentially, and China is at the forefront of this wave.
In 2021, a record USD755 billion was spent on the deployment of low-carbon technology worldwide, 26% up on the previous year. More than a third - USD266 billion - were investments in China.
The cost imperative: renewables are becoming cheaper
China and Australia have already reached the first tipping point in the race for economic viability of renewable power: energy from new wind and solar is cheaper than energy from new fossil fuel plants.
Thanks mostly to China’s pace of change in its industrial ecosystem, in a little over a decade, the levelised cost of solar PV plummeted from USD248/MWh to as low as USD28/MWh. Wind similarly declined from USD124/MWh to as low as USD26/MWh. These are globally-averaged numbers.
China and Australia will soon reach the second tipping point: energy from new wind and solar becomes cheaper than energy from existing fossil fuel plants.
The security imperative: sustainable growth
Other factors are influencing the energy transition beyond the drive for net zero. For many countries the recent events in Ukraine have highlighted the importance of energy security. Chinese energy security will benefit from a renewables-dominated energy sector rather than reliance on imported fossil fuels.
Similarly, Australia has a dependency on imported oil for its transport sector. Given its rich abundance of solar irradiance and onshore wind, Australia has an economic driver to shift towards renewables. These resources have become increasingly valuable as renewable capex costs decline.
Australia and other Western countries have identified a need to manage risks of supply chain independence in the future renewable energy materials supply chain. Given China’s vast experience, it remains an attractive partner when it comes to looking at ways to increase Australia’s domestic manufacturing capacity.
The challenge: managing a renewables-dominated grid
The intermittency of renewable power brings with it grid management issues. This highlights that options beyond renewables will play a critical role, including hydrogen, methanol, carbon capture and pumped hydro. [Digital: link to sub-headings below]
When it comes to securing a renewables-dominated grid, batteries are essential and they figure prominently in new-build investments in both Australia and China.
South Australia’s Hornsdale Power Reserve was the world’s largest lithium-ion battery when installed in 2017. The utility-scale battery storage capability – initially 100MW and expanded to 150MW in 2020 - was built to help buffer intermittency from the state’s heavy renewable penetration. Since then, Victoria has developed the 300MW Big Battery project which can store enough energy in reserve to power more than one million homes for over half an hour.
In New South Wales five Renewable Energy Zones are planned to help overcome the issues associated with intermittent generation and grid access, as set out in the government’s Electricity Strategy and Electricity Infrastructure Roadmap.
A similar model could assist with the development of Chinese grid infrastructure for renewable development. Chinese authorities have grappled with similar challenges to those faced in Australia.
This presents an opportunity to share lessons learned by way of a structured knowledge exchange between network operators.
The Mammoth task ahead
China recently approved 455GW of wind and solar PV projects for implementation by 2030, located in desert regions to the north of China.[1]
This, together with its installed base of 635MW of utility-scale wind and solar capacity and distributed renewable projects, will take China to its 1,200GW renewable target. A HVDC grid build-out of a similar scale will bring this power reliably to China’s east coast load centres.
For its part, Australia must significantly increase the pace of its energy grid decarbonisation to meet its 2050 net zero target.
Hanyang Wei, ‘China to lay out Gigawatts of Renewables on its Deserts’, BloombergNEF (online, 7 March 2022).
The proportion of the Australian energy load serviced by renewables has increased from negligible amounts in 2010, to nearly 62% in the summer peak hours on 15 November 2021.
More renewable energy in the grid is a given, and onshore wind and solar will not be the only solution.
Community partnership the key to success
“The electricity market is very different in Australia, and we knew we needed local partners to help us navigate the regulatory system. That was crucially important to us. We are taught by community people and technical experts and are ready to listen and follow instructions if necessary. Collaboration between China and Australia is woven into our operations at every level, but we have been able to extend this spirit to work with communities, schools and industry partners as our business has grown.”
Weiwei Shi, Beijing Energy (Australia) General Manager
When Beijing Energy Group entered the renewable energy market in Australia in 2014 through its clean energy division Beijing Energy, the general manager of its Australian subsidiaries, Weiwei Shi, had two key priorities: cooperation and community.
Beijing Energy’s first investment was a 75% stake in the 165.5MW Gullen Range Wind Farm (NSW), acquiring sole ownership of the asset in 2018.
Key to Beijing Energy’s strategy is finding local partners and gaining a deep understanding of the market and the community. All of the company’s activities are overseen by an expanding team of locally-based professionals – headquartered in Sydney but with project-based employees recruited from their local communities.
In 2016 the company bought Gullen Solar Farm (NSW) with an installed capacity of 10MW alternating current (MWac), supported by a grant from ARENA. The plant began operating in 2017.
The company’s goal of building a 1GW portfolio of operating electricity generating assets moved closer with the acquisition of the 110MW Biala Wind Farm in 2018. As of July 2022, the project was in the final stages of commissioning.
It also has government-approved plans to build a 280MWac solar project in the Mudgee area of NSW.
In 2018 Beijing Energy was nominated as a finalist for the Clean Energy Council’s Business Community Engagement Award. Shi says that further demand exists for investment from international companies to help Australia continue its transition to a cleaner energy future.
Opportunities offshore
According to ACBC Green Channel partner Energy Iceberg, China connected more offshore wind generation capacity last year (16.9GW) than the rest of the world installed in the last five years. With a cumulative installed capacity now of 26.4GW, this extraordinary growth is expected to continue through to 2025 with another 60GW in the planning of provincial governments, on the way to 150GW by 2030 into 2023 and beyond.
In Australia, the Offshore Electricity Infrastructure Bill passed by the federal government on 25 November 2021 represented an important first step in the development of an offshore renewable energy sector.
The legislation, which came into effect on 2 June 2022, saw. Australia join Japan, Vietnam, South Korea and China in establishing new policy frameworks, chasing a now burgeoning European and US market. The economics are different; Australia’s prominent solar sector sets a relatively low comparative cost and any possible social costs associated with offshore wind are yet to play out. Still, as a country with abundant offshore wind power resources, the sector shows promise and is attracting investment.
Gippsland, along the south-east coast, contains among the strongest wind resources in Australia and could become the location of the first declared area under the laws. Consultation on declaring offshore wind areas in Gippsland opened in August, and five further areas will follow.
The emerging opportunity is for Australian firms to work with Chinese firms that have accumulated experience, to develop Australia’s capacity to manufacture equipment domestically, accelerate wind power development and unleash significant investment potential for new industries.
There is clear potential from working together in this space.
Innovation and co-operation key to new decarbonisation solutions
“The company won’t be shy to offer its hydrogen electrolysers given that opportunities and needs arise, which they will. Australia has a large number of innovators and investors with a keen eye to develop larger projects that leverage its climate conditions and geographical location, which in turn will open the door to many more opportunities in solar, hydrogen and other forms of green energy.”
LONGi Solar
Since 2017, LONGi Solar Australia - a subsidiary of Chinese solar PV manufacturer LONGi - has provided the Australian solar industry with PV modules with the latest technology and quality, totalling over 1.2GW of capacity installed and currently under construction.
More than 5% of the company’s revenue is invested in R&D, innovating and developing even more efficient solar cells and other technologies. In 2021, LONGi announced the establishment of its hydrogen business unit followed by the launch of its first alkaline water electrolyser. At the beginning of 2022, LONGi had achieved a capacity of 500MW of electrolysed water hydrogen production equipment.
Over the years LONGi has carried out in-depth cooperative research with well-known institutions around the world, including the University of New South Wales and the China Electric Institute. The aim is to develop technologies and solutions that cater for the different needs from users across the globe. Diverse climate conditions, applications and scenarios call for the adoption of diverse testing methods during the module design stage.
Partnering with some of the major solar distributors, but also taking part in major developments, the company intends to be an essential contributor to Australia’s decarbonisation. One of the main objectives is to support large mining enterprises electrifying their remote operations using solar specially in Western Australia. Cooperation and education have already started and are expected to grow over the next few years.
The hydrogen hope
Renewables-powered green hydrogen opportunity
Despite the hope surrounding, and substantial investments in, green hydrogen, it is not a panacea. There are significant logistics and regulatory hurdles to it becoming a mainstream energy carrier.
Nonetheless, Australia and China have ideal conditions for green hydrogen.
Hydrogen features in China’s latest Five-Year Plan as one of “six industries of the future”, but its use is earmarked for transport. The Australian government has announced an AUD1.4 billion investment in building a hydrogen industry. The plan under Australia’s National Hydrogen Strategy is to grow this industry and position Australia as a major player by 2030.
There is an evolution in how the hydrogen promise is perceived, beyond a pure replacement for fossil fuel energy towards its potential as an output from the production of excess renewable energy. This is particularly the case for solar power in Australia and for wind farms inland in China, where insulation rates and wind speed are higher and grid connections are generally sized smaller than the maximum output of a plant’s renewable power, leaving additional capacity to feed into an electrolyser.
Today’s hydrogen production volumes are very small. It is generally used in petroleum refining and fertilizer production and produced from traditional fossil fuel energy sources.
The potential for green hydrogen is driving much of the new infrastructure planning in Australia. The China market provides an opportunity to trial and demonstrate new technology, attract capital and scale it commercially.
Among key hopes for the green hydrogen economy is its use as a zero-carbon fuel where batteries are uneconomical and in other forms of long duration energy storage.
Hydrogen by colour
Green hydrogen electrolysis powered by 100% renewable energy splits water into hydrogen and oxygen, no CO2
Grey hydrogen - most of the hydrogen produced today - steam methane reforming using natural gas as a feedstock, CO2
Blue hydrogen steam methane reforming but carbon capture and storage technologies are used to reduce CO2
Pink hydrogen nuclear power rather than renewable energy
Brown hydrogen coal or lignite, CO2
Martin Tengler, ‘‘Green’ hydrogen set to get cheaper than natural gas’, BloombergNEF (online, 7 April 2021).
Martin Tengler, ‘Green hydrogen to start undercutting blue by mid-2020s’, BloombergNEF (online, 18 November 2021).
The race to price-competitive green hydrogen
The cost of renewable power is one of two key cost drivers for green hydrogen. Electrolyser price is the second, with China managing to achieve significant cost reductions when coordinating supply chain elements into an efficient industry eco-system. Solar PV and batteries are two examples.
BloombergNEF projects green hydrogen benchmark prices falling in some countries to around USD2/kg by 2030, and, in most countries, to under USD1/kg by 2050.[2] China could see competitively priced green hydrogen (compared to blue) as soon as 2023; in other countries with rich renewable resources this is expected to happen between 2026 and 2028.[3]
Martin Tengler, ‘‘Green’ hydrogen set to get cheaper than natural gas’, BloombergNEF (online, 7 April 2021).
Martin Tengler, ‘Green hydrogen to start undercutting blue by mid-2020s’, BloombergNEF (online, 18 November 2021).
Spread of production and projects
Every month around three to five new hydrogen projects emerge in China, according to industry analyst Yuki Yu from Energy Iceberg. By the end of May 2022, Energy Iceberg was tracking more than 131 renewable hydrogen projects in China.
The 2025 target of just one autonomous region of China, Inner Mongolia, is 500,000 tonnes per year. This is more than double the curiously modest national target of 100,000 to 200,000 tonnes by 2025 as part of China’s hydrogen plan released in March 2022. The modesty belies the scale and number of credible Chinese electrolyser projects announced.
The race to competitively priced green hydrogen presents opportunities for both Australia and China to innovate and collaborate.
How to build a hydrogen industry: collaborative ‘clusters’ accelerate growth
“We need a far more coordinated way of developing Australia’s hydrogen capabilities and capacities, as well as promoting these to domestic markets and, importantly, to potential global customers.”
NERA
The city of Perth and the region of Peel stretching south of the Perth metropolitan region is home to one of 18 hydrogen clusters that have emerged across Australia since February 2021. The Perth and Peel Hydrogen Cluster aims to help facilitate the establishment of a hydrogen ecosystem, bringing together hydrogen producers, service providers, government and industry bodies and academics to fast-track innovation and development.
Its 15 members include Murdoch University, the City of Mandurah, hydrogen producer ATCO, energy solutions provider Balance and engineering consultant BMT. Another is ASX-listed technology developer Hazer Group, which is developing a low-emission hydrogen process backed by ARENA.
The cluster is also investigating the potential use of renewable hydrogen in green steel and metals production in nearby heavy industry areas, including in the emerging battery metals industry.
It is currently undertaking a proof-of-concept study into the potential establishment of a WA Hydrogen Innovation Precinct. The precinct would enable the co-location of national and international industrial research and development providers, hydrogen start-ups and small-medium enterprises to undertake research, testing, demonstration and early-stage commercialisation of their hydrogen technologies and products.
The cluster does not currently directly collaborate with Chinese counterparts; it feeds its regional observations and learnings into the national group which then connects globally. However, it has presented to trade commissioners ahead of postings offshore, including to China, and supported hydrogen start-ups with an interest in foreign investment.
The hydrogen technology clusters are driven and seed-funded by National Energy Resources Australia (NERA), which is focused on supporting Australia’s energy transition across the value chain.
There is a higher purpose for the clusters, and it speaks to Australia’s broader ambitions: not only exporting hydrogen molecules, but also knowledge, skills and technologies. The clusters are exploring collaborative projects offshore, including with the hydrogen industry in Germany, Norway, France and the UK.
There are hydrogen clusters globally, including in Europe (via the European Cluster Collaboration Platform). China has several, including the Beijing-Tianjin-Hebei region fuel cell vehicle (FCV) city cluster led by Beijing Municipal Government. The cluster aims to build a globally significant hydrogen demonstration region, creating an industrial value chain of over 10 billion yuan per year.
This presents the chance for nations to do more, together.
Is there a role for capturing carbon?
Coal and gas fired power plants still supply most of the energy in Australia and China. Even in some of the more aggressively-renewable modelled scenarios, gas and coal continue to form part of the energy mix up to and beyond 2050.
To achieve net zero emissions within that timeframe means that both countries will not only need to shift to cleaner sources of energy and improve efficiency but take active steps to remove emissions as well. This makes carbon capture, utilisation and storage (CCUS) technology an essential part of the solution. CCUS is the process of capturing CO2 from industrial activity before it enters the atmosphere, then transporting and storing it, typically in deep geological formations, or potentially using it.
Investment in CCUS accounts for less than 0.5% of global investment in clean energy annually, but renewed enthusiasm has emerged in China, Australia and elsewhere as national policy moves in its favour. This is despite the cost of retrofitting a coal-fired power station to capture carbon (around USD45 per tonne, globally averaged) and unsolved technical issues including the unproven sequestration of carbon in geological formations for long periods of time.
There is only one commercially operational facility in each jurisdiction: the Jilin Oilfield CO2 project in China and 4MtCO2 Gorgon project in Australia.
This looks set to change. A post-combustion CCUS facility in Jinjie is approaching commissioning and Sinopec has begun constructing China’s first 1 Mtpa CO2 project in Shandong Province. Hebei Iron and Steel plans to build CCUS demonstration projects at its steel mills. In Australia, Glencore’s CTSCo Project plans to store CO2 from the Millmerran power station underground.
Utilising captured CO2 as an option, or supplement, to long-term storage can also play a role in the transition to net zero. It can enhance oil recovery to create synthetic fuels for chemicals, displacing fossil fuels in the short term and providing an additional revenue stream to support the commercialisation of carbon capture.
The key challenge lies in creating conditions to support substantial investment in large scale CCUS. Initiated as a means to reduce the carbon footprint of fossil fuel power plants, the longer-term hope is its potential in removing carbon from the atmosphere.
China’s carbon-free nuclear power and Australian uranium
Unlike Australia, China has a mature, well-accepted fleet of nuclear power projects.
China plans to spend USD440 billion on 150 new build nuclear projects in the next 15 years, more than the rest of the world has built in the last 35 years.[4]
Dan Murtaugh & Krystal Chia, ‘China’s Climate Goal Hinge on a $440 Billion Nuclear Buildout’, Bloomberg (online, 3 November 2021).
Hydrogen processing and CCUS for heavy industries
“We have to showcase this in a real factory, showing not only a technology in the lab. That’s commercialisation. We have to make it industry ready and commercially wise.”
Dr Ming S Liu, DIMER Managing Director
Gas technology company DIMER (a scientific term referring to the combination of two molecular units) was spun out from Australia’s CSIRO and universities in 2012. Its Melbourne and Tianjin based teams work on a range of projects, including tail-gas treatment, hydrogen production and processing, carbon capture and utilisation, and the development of renewable power-to-gas co-generation ‘smart’ microgrids.
However, it is its solution to capture CO2 for conversion into useful chemicals that Australian co-founder and scientist Dr Ming Liu hopes will create the biggest ripple effect industry-wide.
DIMER has developed a state-of-the-art gas technologies for the capture of greenhouse gases, hydrogen recovery and processing and power-to-gas. By adding hydrogen, captured CO2 can undergo a chemical reaction to produce methane (widely used including to make fertilisers, fuels and plastics) or methanol (used in the production of chemicals such as formaldehyde and aromatics).
The challenge for DIMER in Australia has always been finding corporate partners to apply the technology to real industry settings. In 2015 it found that partner in China through Sinopec, the world’s largest oil refining, gas and petrochemical conglomerate.
At Sinopec-Tianjin Refinery, DIMER has successfully demonstrated the industrial hydrogen processing and carbon capture technologies. Now it is working with Sinopec to design and build two hydrogen recovery and CO2 capture plants for the treatment of about 20,000Nm3/h tail-gas, as part of Sinopec’s flagship blue hydrogen and CCUS projects.
Through this collaboration, DIMER is helping SINOPEC reduce emissions and create hydrogen-based clean energy. DIMER has also started working closely with other petrochemical and chemical companies including one of the largest manufactures of alcohol-ether products globally, the coal-chemical subsidiary of China Energy Group.
China’s new fleet will likely take the form of fourth generation, small modular reactors (SMRs). SMRs can generate up to 300MW each. By contrast to larger, older reactors, they are capable of prefabrication for on-site installation. Their safety systems also rely more on passive systems than the active systems of older reactors. No human intervention or external power is required to shut them down.
These units also use an innovative new spherical ceramic-coated fuel cell delivered as part of an air-cooled pebble-bed reactor.
China activated the first demonstration SMR units in Weihai, Shandong Province in December 2021 under a China Huaneng, Tsinghua University joint venture.
Australia has around one third of the world’s uranium resources and is the world’s third ranking producer. There is obvious potential for research and collaboration on the value-added production of pebble-bed fuel cells and finding incremental export markets, like China, for Australia’s extensive reserves of uranium.
What Next?
The transition from fossil-fuel to renewables in the energy generation sector is well underway. Renewables - especially solar and wind - will carry much of the shift to net zero, but they cannot do it alone. A burgeoning green hydrogen industry and a multitude of scientific endeavours to turn captured carbon into productive goods or long-term storage are all part of the complex landscape.
Transmission, distribution and storage will also play critical roles.
While technology will enable the energy shift, it cannot carry the burden alone. Policy must support and drive change, facilitate investment, incentivise research and foster innovation lowering the relative costs of alternatives.
For this reason, innovation in policy – not just technology – requires consideration. There are already examples of this, including China’s guidelines requiring storage capacity in renewable energy projects of between at least 5% to 20% depending on the province.
Strengthening cooperation to bring commercial and environmental benefits the region.
The Chinese and Australian energy transitions are each of global importance and in different stages of development. There is no shortage of opportunity to capitalise on Australia’s rich natural and renewable resource endowments to play a key role in the clean energy transition.
What is increasingly clear, however, and what is being demonstrated in many current projects, is that both countries have much to learn from each other.
A bilateral dialogue on climate change and energy would make a worthy starting point. This could cover renewable energy policy development, investment guidelines, joint research in cutting edge technologies and innovation, knowledge transfer, and supporting other countries in the region to adopt similar measures.
A government-to-government green economy agreement in some form with Chinacould form a solid foundation for greater collaboration across all aspects of the economy.
Download
14.51MB, 51 Pages
