Thread by @FootnotesGuy

On Friday I appeared on @SkyNewsAust, and commented Orica accepting a $430million subsidy for a 50MW green hydrogen project.

I've just started running some numbers... I think it looks far, far worse than I thought. 1/

skynews.com.au/opinion/slap-i…

The cost difference on consumeable inputs looks like at least $3/kg.

That's with expensive Australian natural gas, and an optimistic take on wholesale electricity, zero costs for network etc. 2/

Winding in a capital component... If Orica plans on using the electrolysers at decent capacity to 20 years (ie they don't just stop when the subsidy runs out) that might add as little 80 cents per kg. 7% discount rate, which is standard for ISP estimates. 3/

But... that calculation right-sized the electrolysers... and concluded just over 30MW were required. Orica (and Bowen) have announced a 50MW project.

Which implies a utilisation of closer to 50% than 80% for their daily output of 12 tonnes. 4/

adjusting up the capital component to a little over a dollar/kg, you end up with a difference of about $4/kg.

This is may be roughly 3X the cost of hydrogen from natural gas?

But that only consumes a $180 million subsidy over 10 years. 5/

So, given that Orica has got $500million grants from the federal government (before we roll in NSW), what does this imply?

Probably that electricity would cost an industrial user more like $230/MWh, or 23 cents/kwh.

That's... realistic? 6/

Remember, we don't have a green grid yet. I think once we're above 80% renewables, costs will hike further. Today small businesses and households already pay well over 30c/kwh.

But at 23c/kwh, hydrogen will be up around $13/kg.
Over 6X current practice. 7/

So, quite apart from there being no chance of this being commercially feasible, ever, due to the cost of electricity alone... the depth of the scandal is exposed in the cost of carbon abated.

Over $1200 per tonne.

This is INSANE. 8/

To put this into perspective, in 2023 the Clean Energy Regulator contracted nearly 8 million tonnes of abatement for around $17/tonne.

That's 20X the abatement.

At less than one 70th the price.
9/

cer.gov.au/news-and-media…

Even if $17/tonne isn't realistic, ACCU prices have rarely exceeded $40.

This project is 30X that cost. There's just no way that any money should be spent on such a ridiculously expensive abatement. 10/

That absurd cost of abatement goes to show that Bowen is spending an insane amount of money for a win on Hydrogen specifically. This isn't serious decarbonisation. This is Bowen bailing out his own failed policy narrative, at an excruciating cost to taxpayers. 11/

But my head now turns to @OricaLimited. What are they trying to achieve?

Are they making a profit, or loss on this plan?

A profit would be morally reprehensible. Ripping off the taxpayer. Cashing in on Bowen's recklessness. Being bribed to support his delusions. 12/

But if they're making a loss, the implications are... Well... Maybe worse?

Because that implies Hydrogen is EVEN LESS VIABLE than these calculations imply.

The intellectual depravity to continue is utterly obscene. 13/

I'd welcome feedback btw, from @OricaLimited or anyone else who'd care to critique and cross-examine the assumptions and calcs.

(The largest, most likely adjustment I can find would be to assume the electrolyser capex is amortized over 10 years, instead of 20.)
14/

And remember, this whole project will only displace 7.5% of Orica's natural gas needs.

It's minuscule.

They'd need $6.6bn subsidies to replace it all.

Their market cap is $9.5bn.

This is just absurd spending for a toehold pilot that could never scale! 15/

For context, the other project that's been backed with "Hydrogen Headstart" funding from ARENA is 30X the size. 1500MW.

And it got $815million, not even double the funding.

The Orica deal is just obscene. 16/

And the ISP, from @AEMO_Energy assumes we'll have 15GW of electrolysers, paid for by industry, operating as solar sponges, at around 30-40% utilisation.

At Orica's subsidy rate, that would cost taxpayers... like...maybe... over 200 billion?! 🤯
17/

https://x.com/QuixoticQuant/status/1859802564289757482

I can't see how Orica can look themselves, or their shareholders, or taxpayers, in the eye.

This is not serious decarbonisation. This is entertaining an obscenity, for the sake of... profiteering? Currying political favours?

It stinks, every which way you look at it. 18/18