By Dr Fiona Simon, CEO, Australian Hydrogen Council
With the many announcements being made about hydrogen in the media, it may be a surprise to hear that the clean hydrogen industry in Australia is far from commercial.
Global announcements from around the world demonstrate that this situation is not unique. In its 2022 Hydrogen Insights publication, the global Hydrogen Council reports that only around ten per cent of the proposed $240 billion worth of large-scale project announcements have reached final investment decision, and the International Renewable Energy Agency has commented on the high uncertainty about which specific announcements will materialise.
Considerable investment is needed to close the economic gap between where we are now and hydrogen as a commercial proposition.
For Australia to meet its hydrogen ambitions, this investment will likely be tens of billions of dollars. Of course, the economic dividend for being among the first countries to do so successfully will be worth many times more.
The issue is that today’s markets still regard carbon emissions as externalities, and clean and green alternatives to fossil fuels as needing to cost a ‘green premium’. We can see circumstances changing, but we are not yet in a place where the benefits of the energy transition are valued sufficiently to bring in low to zero emissions alternatives like hydrogen – at least not at scale.
Government policy is the only way to level the playing field and accelerate market developments in the public benefit. We need to see government policy manifested in mechanisms like carbon pricing, taxation costs and benefits, targets and rebates. The overarching policy mechanism for valuing carbon in Australia is the Safeguard Mechanism. It requires Australia’s largest greenhouse gas emitters to keep their net emissions below a baseline.
The Australian Government intends to gradually reduce baselines to help Australia reach net zero emissions by 2050. It proposes introducing credits for facilities that emit less than their baseline and providing tailored treatment to emissions-intensive, trade-exposed facilities so local businesses are not disadvantaged compared to international competitors. The Government is currently consulting on the details of this proposal.
The proposed changes to the Safeguard Mechanism will mean that industry effectively assigns a value to being able to maintain productivity while reducing emissions. Done properly, this is exactly what’s needed. But it is unlikely that this will be enough. In the absence of an economy wide carbon price, we need a suite of policy mechanisms.
The United States has taken steps to draw investment in hydrogen through measures included in its Inflation Reduction Act. These measures include the provision of tax credits for the production of clean hydrogen, with the size of the credit based on the carbon intensity of the hydrogen product.
Projects can attract a multiplier if they meet eligibility criteria relating to job and apprenticeship creation and the use of locally produced steel in project construction. This policy has the potential to bring forward investment in hydrogen production and the ability to produce green hydrogen at cost parity with carbon intensive grey hydrogen. Funding and concessional loans are also vital, and this is recognised in Australia.
We have our Australian Renewable Energy Agency (ARENA), which provides direct funding to select projects, and the Australian Government’s ‘green bank’, the Clean Energy Finance Corporation (CEFC). Both play an important role in hydrogen, particularly ARENA’s support of pilot and demonstration projects.
The CEFC has a $300 million Advancing Hydrogen Fund, and will be vital to the industry, however the CEFC can only finance commercial projects in order to provide a return to taxpayers. ENGIE and Yara Pilbara Fertiliser reached final investment decision for the Yuri Renewable Hydrogen to Ammonia Project in Western Australia, which is supported with $47.5 million investment from ARENA.
A 10MW electrolyser, powered by 18MW of solar PV and supported by an 8MW battery energy storage system, is expected to generate renewable hydrogen to produce renewable ammonia at a neighbouring liquid ammonia plant. The green hydrogen produced will ultimately displace existing grey hydrogen and kickstart the Australian market for clean hydrogen as a feedstock. Once commissioned, it will be among the largest renewable powered electrolysers in the world.
ARENA is supporting three 10MW electrolyser projects scheduled to come on-line in 2023 and this is a promising start. But the scale of the electrolysers required to reach scale will be closer to 1GW – and we will need several of these. The Yuri Project is a great start – it is exactly the kind of ‘no regrets’ project for hydrogen that we need to see get up, where we know hydrogen has a role and where decarbonisation benefits are immediately obvious.
These types of projects are critical to ensuring that Australia receives the greatest return on its public investment in hydrogen and driving the additional private investment required to bring the industry to scale. Imagine what could happen when this kind of industrial change is further driven by policy like the Safeguard Mechanism.