A giant US$1.2bn green hydrogen and methanol facility is set to be built at a disused oil-fired power station in Tasmania, after Spanish utility Iberdrola and its Australian partner Abel Energy secured a tentative agreement to buy the site.

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The two companies hope to produce enough green hydrogen to make up to 300,000 tonnes per year of green methanol — made by combining renewable H2 with carbon dioxide — as part of their Bell Bay Powerfuels project in Tasmania, with a view to supplying the shipping industry with cleaner marine fuels.

The duo have now signed a term sheet, an outline of a potential contract to buy the power station, with current owner Hydro Tasmania.

First announced in December 2022, the two companies now say the Bell Bay Powerfuels project will comprise a 240MW electrolyser, powered by new renewable energy assets built in conjunction with Iberdrola, which is already a major renewable energy developer.

Both the green hydrogen and methanol will be produced at the proposed site, currently owned by utility Hydrogen Tasmania, with the facility scheduled to reach commercial operation in 2027.

Front-end engineering and design (FEED) is due to start in the coming months.

So far, there is no timeline for a final investment decision (FID), although the company has revealed some details about the other unanswered question about the project from December: how it plans to source carbon dioxide for methanol production.

It appears the partners are sourcing biogenic CO2 in the form of biomass from “certified plantations”, which would on paper make the methanol production carbon neutral, if the plantations are sustainable.

“Significant progress has already been made across... project components such as supply of biomass from certified plantations, sustainable water sourcing, engineering capability and green methanol offtake arrangements,” Abel Energy said.

The project will also benefit from a deep-water berth at the power station, first used to receive incoming oil tankers, which will be re-purposed as a methanol export facility.

The rest of the oil-fired power station, first commissioned in 1971, is set to be demolished, although Abel said the partners will try to salvage and re-use some of the existing structures where possible.

“Iberdrola Australia’s support for the Bell Bay Powerfuels green methanol project is part of our broad commitment to helping deliver decarbonisation solutions for commercial and industrial customers in historically hard-to-abate sectors,” said chief executive of Iberdrola Australia, Ross Rolfe. “In addition to our partnership with Bell Bay Powerfuels, Iberdrola is providing technical and commercial support for the project, enabling the development to benefit from our local market expertise and global capabilities in this emerging technology.”

The Bell Bay Powerfuels scheme is just one of a host of others hoping to carve out a space on the Tasmanian government’s proposed Bell Bay Hydrogen Hub, which is channelling federal regional development cash to companies working on hydrogen projects in the Bell Bay industrial complex in northern Tasmania.

Andrew Forrest’s Fortescue Future Industries (FFI) has a 250MW green hydrogen project in Bell Bay in the works, which the company says will produce 250,000 tonnes of green ammonia for local use and export. FFI plans to take FID on five projects this year — at least one of which will be in Australia.

Origin Energy has completed a feasibility study into its 500MW Bell Bay green hydrogen ammonia project, while Woodside Energy has put forward it 1.7GW H2TAS green H2 and ammonia scheme in the area.

All will be vying for a slice of the Australian federal government’s A$2bn ($1.35bn) Hydrogen Headstart fund for green hydrogen producers, announced as part of its budget last month.

But research house BNEF has warned that Australian green hydrogen projects could be subject to significant delays, as a result of low investor confidence in robust demand for renewable H2 and its derivatives.

“This announcement is the start of a very unique period for Tasmanian renewable energy,” said chief executive of Abel Energy, Michael van Baarle. “We are on the cusp of being a global leader in green methanol production, the future fuel of world shipping.”