In a bid to switch to greener fuels, Sarawak has ambitious plans to produce and export hydrogen. Given a slew of challenges, however, it remains to be seen if its plans will be realised.
Sarawak has grand plans to accelerate the use of greener hydrogen energy sources, with the goal of becoming the first hydrogen-driven economy in Southeast Asia. But its ambitions might be stymied by a lack of global demand for hydrogen and more cost-competitive alternatives such as battery fuel cells.
The East Malaysian state plans to make hydrogen a competitive energy source by 2030, (the same year targeted for achieving developed status). It aims to reduce petroleum use, greenhouse gas emissions and air pollution as well as enable the widespread commercialisation of hydrogen and hydrogen fuel cell technologies. There are five strategic pillars: production and storage, transportation, commercialisation, application and research and development. These pillars will be supported by education and capacity building, infrastructure development and policy support.
Sarawak’s topography provides it with a comparative advantage in the production of hydroelectricity. This results in lower industrial electricity tariffs. Renewable hydropower is used in the production of green hydrogen.
The state’s ambitions are supported by Malaysia’s National Energy Policy (2022–2040). Released in September 2022, the document identified hydrogen as a potential growth opportunity for production and export, with a long-run goal of becoming an export hub for green hydrogen or hydrogen that is produced from renewable or low-carbon sources.
The Sarawak government allocated funds to Sarawak Energy in 2017 to lead the state’s research in the commercial and public application of hydrogen. Sarawak Energy chose Linde — an industrial gas and engineering company founded in Germany but headquartered in the United Kingdom — as its technology partner to produce green hydrogen. In 2019, Sarawak launched its first integrated hydrogen production plant and refuelling station in Kuching. The “proof-of-concept” plant can produce 130 kg of hydrogen per day.
There are three other potential plants in offing. Eneos Corporation in Japan signed a memorandum of understanding with the Sarawak Economic Development Corporation (SEDC) Energy in 2020 to conduct a feasibility study in 2021. This would produce green hydrogen for domestic use, as well as for export to Japan and Singapore. In 2021, SEDC Energy announced that it would partner with hydrogen fuel cell vehicle (FCEV) manufacturer H2X Global and French group Thales New Energy to produce gigawatt-scale green ammonia and hydrogen with an eye for export by 2024/25. Reportedly, H2X also plans to manufacture hydrogen fuel cell vehicles in Sarawak, starting with hydrogen-powered buses. In 2022, Sarawak Energy and SEDC Energy partnered with a trio of South Korean firms — Samsung Engineering, POSCO and Lotte Chemical — to explore producing green ammonia, green methanol, and green hydrogen with the goal of commercial production by 2027.
While there are many plans to accelerate the production and export of hydrogen, it remains to be seen whether Sarawak’s ambitious transition to the fuel would be realised. There are several challenges: lack of commercial scalability of projects, higher purchasing prices for hydrogen-fuelled buses and passenger cars and the relative attractiveness of battery fuel cell alternatives. There are also specific transportation challenges such as leakages, technical complications, costs associated with liquefying hydrogen and losses in efficiency when the element is converted to or from compounds such as ammonia.
While there are many plans to accelerate the production and export of hydrogen, it remains to be seen whether Sarawak’s ambitious transition to the fuel would be realised. There are several challenges: lack of commercial scalability of projects, higher purchasing prices for hydrogen-fuelled buses and passenger cars and the relative attractiveness of battery fuel cell alternatives.
Sarawak’s use of hydrogen in public buses marks a first for Malaysia and Southeast Asia. Currently, however, hydrogen use in public transport is at a modest scale. Such pilot operations, which provide commutes on hydrogen buses for free, help to raise awareness of hydrogen-powered vehicles (and in particular their levels of safety). But it remains to be seen if consumers are willing to pay for greener transport and whether the fares need to be subsidised by the government. Kuching has three hydrogen buses purchased from China for less than RM1.5 million each. The state is using five Toyota Mirai fuel cell cars. There are also plans to use hydrogen for a rapid transit service around Kuching.
The business model for hydrogen fuel cell buses also poses a challenge. Comparatively, battery electric buses are more attractive, due to their lower purchase prices and operational costs. Hydrogen is more suited for larger transportation vehicles that are harder to electrify. But hydrogen fuel cell buses are more expensive to manufacture, which translates into higher purchasing prices. They are, therefore less cost competitive than battery fuel cell buses. In China, subsidies are provided for the utilisation of both types of buses. In 2021, however, battery-electric buses and trucks in China accounted for 97 per cent of the total number of units of these large vehicles.
Sarawak’s use of hydrogen in public transportation will be small compared to global demand. But there is a bigger problem: the higher purchase prices of hydrogen buses can only be lowered when there is sufficient global demand for them. Global demand in turn is driven by the availability of hydrogen as well as refuelling costs, which requires close coordination between the development of hydrogen-fuelled fleets and refuelling infrastructure. The stars are not aligned: at the current level of technology and costs, France has reportedly cancelled a US$33 million order of hydrogen buses due to the lower operational costs of battery fuel cell ones.
The same problems that crimp the adoption of hydrogen in public transport also apply to passenger cars. In August 2022, Sarawak broached a plan to assemble hydrogen-powered fuel cell electric vehicles at a proposed plant with a foreign partner. But, passenger vehicles also face a high purchase price problem. The Toyota Mirai, for example, costs RM198,000 (US$49,500), which places it in the premium segment. It also faces the same issue of refuelling costs. If these FCEVs are built for export, they will face the same global demand constraints.
Sarawak’s ambitions to produce hydrogen and increase the use of hydrogen-powered vehicles, especially for public transportation, is visionary. But the issues of global demand and high manufacturing costs may limit its ability to realise these ambitions in the near future. The technology surrounding hydrogen has to facilitate substantial cost reductions, failing which Sarawak’s grand plans will miss the mark.
Tham Siew Yean is Visiting Senior Fellow at the ISEAS – Yusof Ishak Institute and Professor Emeritus, Universiti Kebangsaan Malaysia.