The race is now well and truly on for countries to build their “green” hydrogen industries so that they can compete in this new global industry - several countries are seeking to capture a share of the emerging market, with Australia up against powerful competitors in the Middle East, Russia and Canada. Within Australia, companies and state governments are racing to position themselves in this developing industry.
Global consulting firm, Wood Mackenzie has expressed the view that Australia stands at the head of the pack of nations chasing the opportunity in the export of hydrogen, whose demand may climb as much as sixfold by 2050 as the world seeks to limit global warming. According to that firm, global demand for low-carbon hydrogen could reach as high as 530 million tonnes by mid-century under the 1.5 degree warming scenario, with almost 150 million tonnes of that involving cargoes shipped by tanker. According to a recent report by that firm, imports of hydrogen by north-east Asia - Australia’s primary market for LNG exports - could account for more than half of the seaborne trade in hydrogen, or about 80 million tonnes, with Europe taking 23 million tonnes.
Deloitte Consulting estimates the global hydrogen market could be worth about US$2 trillion by 2050. At that point, hydrogen is expected to account for 24% of the global energy market, backing up the high usage of renewables. In Deloitte’s view, hydrogen is the only hope of achieving decarbonisation as the gas, which emits no carbon when burnt, can be used in hydrogen fuel-cell buses, trucks and other heavy vehicles and in power generation and industrial processes that have few options to cut their carbon footprint.
Green hydrogen is one of the Federal Government’s priority technologies to help reach net zero emissions by 2050. It has set a stretch goal for green hydrogen production at less than A$2 per kilogram, a level at which it would be competitive with traditional fuels for industry and transport. The hope is that, if it is successful, the hydrogen industry could contribute A$11 billion a year to GDP by 2050. The Federal Government sees “green” hydrogen as a key industry of the future in Australia and has already entered into a series of partnerships with Germany (to develop a hydrogen supply chain), South Korea and Japan to explore the possibility of future hydrogen exports.
Since our last article in August this year (Green hydrogen in Australia - our progresses towards a new industry), a number of important further developments have occurred which we describe and comment on in this article.
What is driving the belief in a green hydrogen industry?
There are a number of factors contributing to the belief that Australia can become a major player in the green hydrogen industry.
Government support
There is strong support from the Federal Government for the development of a green hydrogen industry in Australia both from a policy perspective and in terms of funding initiatives. A number of States have also moved to announce their hydrogen strategies and provide funding by way of grants for feasibility studies and to provide funding for the development of necessary infrastructure to support that industry.
Whilst questions may remain as to the adequacy of funding to kick start this new industry, the policy settings are clear.
Asia’s push to renewable energy
There is a clear and growing demand for green hydrogen and green hydrogen products - importantly, a number of major Asian economies are accelerating their push towards renewable energy development.
In particular, Japan has moved to shore up Australia as a secure source of renewable energy amid warnings from Tokyo about the threats posed by an increasingly “assertive” China in the Asia Pacific. Some commentators see Australia as set to become a major supplier of hydrogen to Japan as it moves to a carbon-neutral economy by 2050 - hydrogen shipments from Australia to Japan could eventually rival the post-war boom in coal trade between the two countries. Japan’s energy supply has become less certain following the 2011 Fukushima nuclear disaster that made it more reliant on imports of fossil fuels such as oil, gas and coal.
In October this year, at an Australia-Korea Business Council meeting, the Federal Minister for Trade, Tourism and Investment also foreshadowed announcements on joint initiatives between Korean and Australian partners in hydrogen. Korean steel giant Posco has singled out Australia as a regional strategic base for hydrogen. In the next phase of its energy relationship, Australia is positioning itself to be Korea’s partner of choice as a supplier of sustainable, competitively priced clean hydrogen.
World class port facilities
Australia enjoys a number of large-scale world class port facilities, some of which are already exporters of coal, LNG and other materials and a number of which are well positioned to become part of a green hydrogen supply chain to customers in Asia.
A number of ports in Australia have already taken steps to position themselves as players in the hydrogen industry including the Port of Newcastle and the state-owned Queensland ports, North Queensland Bulk Ports, Port of Townsville and Gladstone Ports Corporation and the privately-owned Dalrymple Bay Infrastructure. The Government of Western Australia (WA) has also recently pledged funding to upgrade port facilities in the areas of proposed hydrogen hubs.
Several major companies are looking to develop hydrogen facilities in Bell Bay in Tasmania and some have signed arrangements with the local ports corporation already.
Cleaning up the “dirty” industries
At some point, hydrogen produced from renewable energy has been touted as a possible replacement for coal as a fuel to power steel production and other industries which are hard to decarbonise. As green hydrogen becomes more cost competitive, the expectation is that steel manufacturing companies and other hard to decarbonise industries will turn to green hydrogen to reduce their carbon footprint.
Earlier this year, the world’s first customer delivery of green steel was made in Sweden by Hybrit to truck maker Volvo - Hybrit is a Swedish venture involving steelmaker SSAB, state-owned utility Vattenfall and miner LKAB. This was a trial run before full production ramps up in 2026. Volvo has said that it will start production in 2021 of prototype vehicles and components from green steel. Interestingly, SSAB accounts for 10% of Sweden’s and 7% of Finland’s CO2 emissions. Another green steel venture, H2 Green Steel, is planning to build a renewable energy powered steel plant in the north of Sweden including a sustainable hydrogen facility, with production starting in 2024.
In Australia, the Grattan Institute has observed that moving Australian steelmaking towards lower-emissions technologies in the next decade would build the domestic skills and capabilities needed to create an export-oriented green steel industry in the following decades. In that context, federal funding for a steel “flagship” project would be a worthwhile investment, given the size of the opportunity. While the export opportunity is the longer-term prize, a flagship project in the near term and using gas in the interim, could also help sustain existing steelmaking jobs in Whyalla in South Australia or Port Kembla in NSW or facilitate the creation of a new green steel industry in iron ore rich states such as WA.
Federal Government’s green hydrogen strategy
Building on its announcement in April this year, where the Federal Government pledged A$275.5 million to accelerate the development of four additional clean hydrogen hubs in regional Australia and implement a clean hydrogen certification scheme, the Federal Government, in September this year, committed to investing an additional A$150 million (US$108 million) to develop clean hydrogen industrial hubs at two further locations although this additional funding will not be limited to any particular sites. The Federal Government plans to look for areas where hydrogen production and industrial hydrogen use can be co-located. .
The Federal Government has already identified Bell Bay in Tasmania, Darwin in the Northern Territory, Eyre Peninsula in South Australia, Gladstone in Queensland, Latrobe Valley in Victoria, Hunter Valley in New South Wales, and the Pilbara region of WA as particularly promising areas for hydrogen investment. The seven locations have been identified based on strong industrial interest and activity and each location’s existing capabilities, infrastructure and resources.
Project consortia seeking to develop hydrogen projects can seek A$3 million grants for initial feasibility and design work and up to A$70 million to roll out projects from an A$464 million grant program.
The Federal Government also recently announced that Australia was entering into a further partnership with Germany to undertake research into technology critical to reaching new zero emissions by 2050.The two countries will create a research “incubator” for trials and pilot schemes. The initiative known as Hy-GATE is backed by funding of A$50 million from Australia and Euro50 million from Germany. This follows the release of the first report from Hy-Supply, the Australian-German hydrogen supply chain study.
Australian Hydrogen Council response
Some commentators, such as energy “think” tank Beyond Zero Emissions, think more support is needed for renewables generation and transmission networks to power the “green” hydrogen plants, and for the local manufacture of electrolysers. This is a view shared by the Australian Hydrogen Council (“AHC ”).
In September this year, the AHC called on the Federal Government to create a $19 billion Net Zero fund, aimed at cutting emissions and speeding up the fuel’s rollout to the steel and heavy transport industries and in the nation’s gas sector by 2030. The AHC wants this commitment to ensure Australian business can become a global hydrogen player by 2030 and a top-three exporter of the fuel to Asian markets. The new fund would be managed by a newly established Net Zero Authority, covering research through to commercialisation, grants and finance and ensuring the right policy settings are in place. Some of the country’s biggest investors and developers - including ANZ, NAB, Woodside Petroleum, Origin Energy, Wesfarmers and Fortescue Metals Group - are members of the AHC.
AHC’s blueprint calls for A$10 billion in seed funding and a top-up of A$1 billion annually through to 2029, to be allocated to business through grants and loans. It wants the Australian Government to set a goal of 10% hydrogen in the gas network by 2030 and target sectors that face challenges to cut emissions, such as steel and aluminium. Under the AHC’s proposal, the Net Zero Authority could fold in both the Australian Renewable Energy Agency (“ARENA ”) and the Clean Energy Finance Corporation (“CEFC ”), according to the AHC. The AHC wants the Australian Government to prioritise project funding to increase hydrogen demand in industries such as steel, aluminium and heavy transport fleets.
The AHC’s view is that a grander vision is required - in its white paper, the AHC observes:
The hydrogen industry is not yet commercial and considerable investment is required. It is likely that capital investments to produce hydrogen alone could run to tens of billions of dollars. Until the industry has reached commercial scale, grant funding is essential. Public investment will unlock several times its value from the private sector.Investors are increasingly recognising that they have both an ethical and fiduciary duty to play an active role in transitioning to a decarbonised economy. The global financial system is already valuing the risk. There may be different views on when and how fossil fuels will demonstrably decline; however, markets are responding now.. It appears that we need to have locked down a great deal within the next year or so if we are to achieve objectives such as the National Hydrogen Strategy’s ‘Australia as a top three exporter to Asian markets by 2030’ or getting hydrogen to less than $2/kg by thenWindows of opportunity need to be aligned as far as possible if we are to get to scale and do so competitively.
ARENA’s role in supporting green hydrogen
Recently, ARENA has been given an expanded brief to invest in hydrogen.
Hydrogen along with carbon capture and storage have been identified as among the top investment priorities for ARENA after the Federal Government redrafted regulations opposed by Labour and the Greens to allow low emissions technologies to be funded by that agency. The Australian Renewable Energy Agency (Implementing the Technology Roadmap) Regulations 2021 came into effect on Friday 30 July following the earlier disallowance of the Australian Renewable Energy Agency Amendment (2020-21 Budget Programs) Regulation 2021 .
ARENA’s funding will be directed towards the two technologies of hydrogen and carbon capture alongside energy storage, soil carbon management and projects that support the transition to low emissions aluminium and steel and cut the cost of renewable energy generation.
ARENA has expressed the view that rolling out hydrogen at scale in Australia could take up to 10 years with its CEO, Darren Miller, stating at an industry forum that:
It depends what side of the bed you wake up on any given day as to how optimistic you’re feeling. But I think at the very minimum it’s going to take five years before we get real confidence that these costs are coming down to the levels we want, and probably more realistically a decade.
However, ARENA has conceded that the industry had a poor forecasting track record and technology leaps could easily change the timeline - by way of example, contrast the big technology leaps that have slashed the cost of solar, wind and batteries in the last decade.
In November, ARENA and CEFC announced funding for an initiative to fuel heavy transport trucks with green hydrogen. The joint commitment provides up to A$15.52 million to help Ark Energy Corporation, the Australian subsidiary of the world’s leading zinc, lead, and silver producer, Korea Zinc Co Ltd, produce green hydrogen to power fuel cell electric trucks (to be supplied by Hyzon Motors) and construct hydrogen production and refuelling infrastructure. The funding will enable the deployment of five 140 tonne rated fuel cell electric trucks and a 1 MW electrolyser with storage and refuelling infrastructure which will be located at the Sun Metals zinc refinery in Townsville, owned by Ark’s sister company Sun Metals Corporation. The trucks are expected to become the largest road-going fuel cell electric trucks in the world at the time of their deployment and avoid 1,300 tonnes of CO2 emissions each year. ARENA’s funds will be paid upon the commissioning of the refuelling facility and delivery of the five trucks, which are expected to arrive in December 2022.
ARENA previously funded two hydrogen light vehicle transport projects, but this is the first hydrogen project to be jointly supported by CEFC and ARENA.
ARENA has now funded 612 projects to date, investing A$1.81 billion in various green hydrogen feasibility studies across Australia, demonstration projects such as the Horizon Power Denham Hydrogen Demonstration in WA (as well as the Jemena feasibility study discussed below) and the establishment of the Australian Hydrogen Centre to assess the feasibility of blending renewable hydrogen into gas distribution networks in Victoria and South Australia.
CEFC’s role in supporting green hydrogen
To date, CEFC's involvement in hydrogen has been limited to a A$750,000 investment through its Innovation Fund to Wollongong University start-up Hysata to commercialise innovative electrolyser
technology, but it is likely that the types of hydrogen ventures backed by the organisation will broaden this year. CEFC has stated publicly that green hydrogen is a priority area of focus for it over the next 12 months.
The CEO of CEFC, Ian Learmouth, has commented that:
"We've got a number of hydrogen-related projects we hope to bring to market over the next 12 months, both on the transport side and in the production of green hydrogen, and taking that and introducing it to the gas networks. So hydrogen projects are a priority for us."
Mr Learmonth said the focus in the green hydrogen space was on uptake in the domestic market, through the gas network, in transport in the resources sector and in heavy haulage, where the fuel already potentially has a competitive edge. Whilst large-scale, export-focused production is “an exciting prospect”, this is further down the track according to CEFC.
Current State initiatives and developments
Hydrogen gas blending initiatives in Australia
Australian Gas Infrastructure Group (“AGIG ”), which owns distributors Multinet and Australian Gas Networks, is targeting all of its gas network to be on at least a 10% renewable gas blend by 2030, to pave the way towards its new stretch target of net zero emissions by 2040 - that target includes scope 1, 2 and 3 (i.e. it includes the product that it delivers as well as its own emissions from operations). By 2040, the company plans and expect to transition from natural gas to renewables gases - mostly hydrogen but also biomethane. AGIG, sees developing options to supply customers with hydrogen and biomethane as the essential way forward to align with both its own corporate net zero targets - approved by its board in early June - and those of governments and stakeholders.
This is in the context of the Victorian government having issued a consultation paper on a road map for the substitution of natural gas as part of its pledge to reach net zero emissions by 2050 - also, Infrastructure Victoria has a consultation ongoing on the future of gas infrastructure. The momentum and commitment to reach net zero emissions gives the companies that distribute gas to households a strong incentive to adapt.
In May this year, AGIG became the first utility in Australia - possibly worldwide - to operate a green hydrogen blending project that supplies hydrogen into the gas distribution grid, in a business-as-usual operation rather than as an innovation project. That 5% blend of hydrogen in the gas flow supplies 700 customers in the Adelaide suburb of Tonsley Park - AGIG wants to expand to a 10% blend supplying thousands of homes. A larger project planned for Albury-Wodonga, which in May secured funding from ARENA will supply a 10% green hydrogen gas blend to 40,000 customers, coming online in 2023-24.
While home appliances can run on a 10% hydrogen blend without adjustments, AGIG's 100% green hydrogen product would require hydrogen appliances that currently are not available in Australia but are on the market in Britain and Europe. The company intends to bring hydrogen cooktops, ovens, boilers and space heaters in from Europe by the year-end to use in demonstration homes and is in talks with manufacturers with the aim of locally produced appliances being available by 2025.
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