Australia’s plan to lead the green hydrogen industry

Australia is part of a global race for nations to position themselves as major players in the “green” hydrogen industry.  Industry experts forecast a massive future demand for “green” fuels from multiple sectors, including in co-firing in power generation, the shipping sector, heavy industry such as steel, chemicals and mining, as well as the heavy transport and aviation sectors and for industrial feedstocks and heating.  Some commentators predict the “green” hydrogen industry will become a USD2.5 trillion market by 2050. 

In a recent report, Standard & Poor’s has commented that it expects clean hydrogen to emerge as a fuel for buses and heavy trucks possibly in the second half of this decade, but for cars it would lose out to batteries which are “significantly more energy-efficient”.  S&P has also voiced doubts about the pace that hydrogen would emerge in sectors such as steelmaking, noting that net zero commitments imply the full decarbonisation of hard-to-abate sectors which cannot be easily electrified such as steel, but using hydrogen to do so would be extremely costly.  According to S&P, it expects existing end markets for hydrogen such as oil refining, chemicals and later on possibly fertilisers to be among the early adopters of hydrogen. It also sees hydrogen playing an important role beyond 2030 in power generation to provide storage and firm back-up power as the share of electricity generated through renewables increases.

To become a global player, Australia will need to build renewable energy supplies, hydrogen and ammonia production facilities, large scale and import export facilities suitable for bulk hazardous liquids, ports, ships and logistics facilities to get the product to the countries where the demand exists.  It will also need to demonstrate that a domestic market exists for hydrogen.

In an article published earlier this year, we noted that the Federal Government sees “green” hydrogen as a key industry of the future in Australia capable of generating over 8,000 new jobs and A$11 billion a year in GDP by 2050. 

In this regard the Federal Government proposed that thirteen regional hydrogen technology “clusters” be set up around Australia to help smaller companies gain a foothold in the rapidly emerging hydrogen sector and build up national expertise in an area awash with international initiatives to support the development of the clean fuel.  The development of a national hydrogen cluster was identified by the 2019 National Hydrogen Strategy as an important component to scale up Australia’s domestic industry to become a global hydrogen competitor.

National Energy Resources Australia (“NERA”) has now formed a network of hydrogen technology clusters across Australia, providing seed-funding in partnership with governments and industry to build the skills, capability and commercialisation opportunities in the emerging hydrogen industry.  NERA is facilitating connections and knowledge sharing between the cluster network to lead the formation and early development of an overarching industry-led Australian Hydrogen Technology Cluster — Hydrogen Technology Cluster Australia (H2TCA) — that will expedite rapid development of the hydrogen supply chain and drive market activation, establishing a global identity and recognised brand for Australian hydrogen technology and expertise.

The Federal Government has also entered into a series of partnerships with Germany (to develop a hydrogen supply chain), South Korea, Japan and the United Kingdom to explore the possibility of future hydrogen exports.

Since our last article in March this year, a number of important further developments have occurred which we describe and comment on in this article.

ARENA grant funding

In May this year, the Australian Renewable Energy Agency (“ARENA”) announced that it plans to grant A$103.3 million (USD79.1 million) to three projects, as part of its Renewable Hydrogen Deployment Funding Round as follows:

  • up to A$42.5 million to a 10 MW electrolyser project being developed by Engie Renewables Australia (“Engie”) and Yara Pilbara Fertilisers (“Yara”) in Karratha, Western Australia (“WA”);
  • A$28.7 million to ATCO Australia's 10 MW electrolyser for gas blending at ATCO's Clean Energy Innovation Park at Warradarge, WA; and
  • A$32.1 million to Cheung Kong Infrastructure subsidiary Australian Gas Networks Limited (“AGIG”) for a 10 MW electrolyser being developed in AGIG's Murray Valley Hydrogen Park in Wodonga, Victoria.

Engie and Yara will use “green” hydrogen to produce ammonia while ATCO and AGIG will use “green” hydrogen for gas blending in existing pipelines.  Blending of hydrogen into the local gas grid provides a ready-made market for the fuel as there is a use for the hydrogen and a customer from day one. We comment further on this development below.

The parties which have been granted ARENA funding must now satisfy a number of development conditions and achieve financial close before funding is released.  The successful applicants can also apply for debt and equity finance from Clean Energy Finance Corporation (“CEFC”), a sister agency of ARENA, which manages the A$300 million Advancing Hydrogen Fund. 

Darren Miller, the CEO of ARENA, has stated publicly that

“We’re excited to have chosen three projects we believe will help kickstart renewable hydrogen production in Australia at a large scale.  Our hydrogen industry in Australia is in its infancy, so the lessons learned from these three projects – and the entire funding round – will be important in driving our future hydrogen economy." 

The ARENA funding rounds are designed to help spur commercial production of hydrogen under the Federal Government’s H2 under A$2 strategy, which aims to make hydrogen cost competitive with other fuel sources such as gas by bringing the cost of hydrogen to below A$2 per kg.  Since 2016, ARENA has committed over A$57 million to hydrogen projects including A$22.1 million towards 16 R&D projects, as well as to feasibility studies into large scale projects and smaller scale demonstrations.

A number of companies which were unsuccessful in this ARENA funding round are now reportedly reviewing their options. In particular:

  • Gas pipeline company, APA Group, and partner Woodside Petroleum Limited (“Woodside”) announced that they have dropped their proposed renewable hydrogen project in WA after being unsuccessful in obtaining ARENA funding.  APA and Woodside had sought funds for a proposed project in WA’s Central West, powered by APA’s Badgingarra wind and solar farm.
  • Woodside, which has a large LNG export business and has stated publicly that it wants to capture a foothold in the emerging hydrogen market in Asia, was unsuccessful in the ARENA funding round for its Tasmanian project but has announced that it will still pursue that project on a slower schedule.  The company is of the view there is strong support among community and government stakeholders for a phased approach that starts with a Tasmanian market.  Woodside and partner Countrywide Renewable Energy will now review the concept and schedule of their Tasmanian project (which is planned for the same industrial park as separate projects planned by Fortescue Future Industries Pty Ltd (“FFI”) and Origin Energy). FFI is the wholly-owned “green” energy vehicle of Fortescue Metals Group (“FMG”).
  • BHP has said it will continue to study the potential to trial the use of an electrolyser alongside renewable power at its Kwinana nickel refinery in WA despite failing to secure ARENA funding for its project.
  • Macquarie Group has made no comment on the plans for its hydrogen project with Anglo American at the Dawson coal mine in Queensland, after its bid for ARENA funds was also unsuccessful.

Australia’s clean hydrogen hubs initiatives 

In April this year, Prime Minister Scott Morrison 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. 

This was supported in the 2021-22 Budget by a commitment of A$61.8 million over 4 years for the development of these additional clean hydrogen hubs. This builds on A$70.2 million provided in the 2020-21 Budget to support the development of a technology-neutral regional hydrogen export hub. These new measures are for “clean” hydrogen which the 2019 Hydrogen Strategy defines as being “produced using renewable energy (green hydrogen) or using fossil fuels with substantial carbon capture and storage (CCS) (blue hydrogen)”.

Where are the hydrogen hubs in Australia?

The number of announced regional hydrogen hubs in Australia is  currently 7  and are located in:

  • Latrobe Valley (Victoria);
  • Darwin (Northern Territory);
  • Pilbara (Western Australia);
  • Gladstone (Queensland);
  • Hunter Valley (New South Wales);
  • Bell Bay (Tasmania); and
  • Eyre Peninsula (South Australia).

What is the purpose of the hydrogen hubs?

The objective of these hubs is to crystallise billions of dollars of investment pledged by major ASX-listed companies, private investors and international energy investors. Australia is pinning its hopes on the hydrogen hubs – backed by some of the nation’s biggest renewable investors – as part of a technology-led solution to reach net zero emissions, without yet providing a timeline for reaching that goal.

Following this announcement, a consortium of international energy companies has formed to investigate the potential for a fully renewable hydrogen supply chain in the Hunter Valley coal mining region in New South Wales. 

As noted above, the Hunter Valley is one of four hydrogen hubs in regional areas that may be eligible for A$275 million in funding over 5 years. The Hunter Valley is primarily a coal mining region that supplies thermal coal for export to Asian markets from the Port of Newcastle and to three coal power plants (which are all earmarked for closure) and is also home to thoroughbred horse breeding and wine growing industries.   

Global commodity traders Trafigura and Idemitsu, AGL Energy (an Australian utility provider) and APA Group (a gas infrastructure provider), RES (a clean energy company) and Walcha Energy have joined a partnership led by renewables developer and advisor EnergyEstate.  The A$2 billion (US$1.56 billion) Hunter Hydrogen Network (H2N) proposal would involve using renewable energy generated near the Hunter Valley to create “green” hydrogen, which would be transported via a dedicated pipeline to manufacturers based in the region and onto Port of Newcastle for export.  The partners will jointly work on a feasibility study for the proposal.

Stage 1 would involve the production of hydrogen at an electrolyser at the site of Idemitsu’s repurposed Muswellbrook coal mine and a 10km hydrogen pipeline to Liddell, near the site of a coal power plant due to close in 2023.  A much larger second stage would involve more electrolysers built around Liddell between 2022 and 2026, and a 100km extension of the pipeline to the Port of Newcastle that would allow hydrogen to be used by manufacturers there and exported to Japan and Korea. Larger volumes of renewable electricity would be generated from wind and solar farms planned for the Walcha plateau, west of the Hunter Valley.  A potential third stage would involve extending the hydrogen pipeline westwards to the proposed New England and Central West renewable energy zones being developed by the New South Wales government over the next five to 10 years. New electricity transmission infrastructure would be required to connect the renewable generation from Walcha and the two REZs to the proposed electrolysers at Liddell.

According to Energy Estate, the exact scope and size of the network of projects would be determined based on discussions with off-takers which would include manufacturers interested in using hydrogen or ammonia. These may include the Tomago Aluminium Smelter, chemicals manufacturers and proposed gas-fired power stations at Kurri Kurri and Newcastle which could convert to hydrogen-powered turbines.  Underwriting from an agency such as the CEFC for the hydrogen-related infrastructure is an option but the partners have stated that they would not seek financial assistance until the feasibility study determines the optimal scope and size of the various project components.  EnergyEstate said it would consult stakeholders in all three industries as well as local community groups on the potential to develop a hydrogen supply chain while the technical feasibility studies are underway.


In terms of recent developments:

  • An A$100 billion renewable energy hub producing “green” hydrogen and ammonia has been proposed in WA, with the facility having the potential to be one of the world’s largest clean fuel projects should it proceed. 

    The Western Green Energy Hub would cover 15,000 sq km across the Goldfields-Esperance region in the state’s south-east and could produce up to 50 gigawatts of wind and solar power, nearly equal to the entire capacity of Australia’s national electricity market.  The project is estimated to cost close to A$100 billion.  The Western Green Energy Hub will be built in phases and will aim of ultimately producing up to 3.5m tonnes of “green” hydrogen or 20 million tonnes of “green” ammonia each year, with first production scheduled for around 2030.

    The project is sponsored by InterContinental Energy (“InterContinental”) and CWP Global (“CWP”). The Mirning Traditional Lands Aboriginal Corporation (a special purpose vehicle used by traditional owners) is also a partner with InterContinental and CWP in the consortium.  Hydrogen would be supplied both domestically and also for overseas customers.

    InterContinental and CWP had a A$48 billion wind and solar powered green hydrogen project proposed for WA’s Pilbara rejected by federal Environment Minister, Sussan Ley, earlier this year. The Asian Renewable Energy Hub project, which would have covered an area 10 times the size of Singapore, was rejected on concerns the facilities and brine from a desalination plant would pose a “catastrophic” risk to one of the world’s most important migratory bird habitats near Eight-mile Beach. The project was designed to include 1753 wind turbines and up to 10,800 megawatts of solar capacity, spread over a total area of more than 660,000 hectares.
  • British energy major BP recently announced that it regards WA as “ideally positioned” for the large-scale production of “green” hydrogen and “green” ammonia, but that development will require significant investment in ports, energy and water networks and infrastructure.  This results from a A$4.42 million feasibility study by the company in relation to a renewable hydrogen and ammonia facility near Geraldton.  BP is one of several companies which see the opportunity to develop renewable energy-based hydrogen and ammonia projects in Australia, with the aim of targeting clean energy exports to Asia. 

    The prospects for scaled-up green hydrogen look “particularly promising” in WA’s mid-west, according to BP, as the region has existing infrastructure, access to land and “world class wind and solar resources with high diurnal complementarity (i.e. solar by day & wind by night)”.  The company’s study also confirmed strong demand from potential customers in the hard-to-abate industrial sectors which cannot be easily electrified, and for both local and export markets.

    The study, carried out by GHD Advisory, BP’s renewables venture Lightsource bp and with A$1.7 million of funding from ARENA, examined both the potential for a pilot-scale plant of 4,000 tonnes a year of hydrogen to make 20,000 tonnes a year of ammonia, and a much larger commercial scale plant of 200,000 tonnes of hydrogen to make up to 1 million tonnes of ammonia.  It considered three hydrogen production technologies, using a mix of power sources comprising solar and wind, with grid connection and some battery support.  The study examined potential economic returns but found that to be properly analysed and understood, the domestic and export markets for renewable hydrogen and ammonia needed to be further advanced. The study also found that significant scale will be required for general hydrogen fuel use to be commercially viable but that project economics become more favourable at large commercial scale.

    BP has stated that it will work with key stakeholders to develop plans for “green” hydrogen projects in WA and to define infrastructure needs, customer demand and appropriate business models, but its statement did not refer to any specific plan to move forward with a project.

    The feasibility study also found that the success of the hydrogen industry will rely on government support moving forward in the form of government decarbonisation incentives (such as a carbon price and/or clean fuel subsidies and requirements for gas blending into gas networks).  In WA, the State Government shares this view following a recent announcement that it is considering legislating their commitment to net zero by 2050, highlighting support of an energy transition to net zero where they have identified the hydrogen industry as being key to the success of the transition.  The Western Australian Renewable Hydrogen Strategy and the Western Australian Renewable Hydrogen Roadmap outline the WA government’s vision for WA to become a significant producer, exporter and user of renewable hydrogen and then how the government will support private enterprise in pursuit of this vision.
  • Alongside large-scale hydrogen projects such as those already mentioned, the appeal of the WA hydrogen market has attracted players of all sizes.  Recently, Province Resources Limited (PRL) announced the progression of the scoping study of its central “green” hydrogen project, the HyEnergy Project.  Despite being a relatively small market cap ASX-listed corporation, PRL has managed to attract the attention of some of the largest players in energy because of the unique potential opportunity that the WA landscape provides.  Total Eren, a major French organisation in the renewable space, and PRL signed an MOU relating to this “green” hydrogen project that looks to capitalise on wind and solar resources in the Gascoyne region on WA’s coast.  PRL also has the backing of various government bodies, having received funding from the Western Australian Renewable Hydrogen Strategy, ARENA and the Australian Government Advancing Hydrogen Fund.
  • In May, Horizon Power, the State government owned vertically integrated electricity provider to remote and regional WA, commenced construction on Australia’s first renewable hydrogen energy plant in a remote microgrid, in the Gascoyne town of Denham.  The community hydrogen project will feature a dedicated 704kW solar farm to power its innovative hydrogen plant and will feature a 348kW electrolyser, hydrogen compression and storage and a 100kW fuel cell allowing the production and storage of hydrogen.  The remote microgrid project will deliver electricity into the Denham hybrid power system and will generate 526 MWh of renewable electricity per year, which is equivalent to the energy required to power 100 residential households in Denham annually.  This project has received A$2.6 million funding from the ARENA, as part of ARENA’s Advancing Renewables Program. A further A$5.7 million has also been provided by the WA government.

In terms of other announced private sector initiatives in the “green” hydrogen sector:

  • AGIG and Engie are aiming for a final investment decision by early 2022 for their A$44 million Murray Valley Hydrogen Park in Wodonga, Victoria, where hydrogen will be produced for blending into the local gas network, starting in mid-2023;
  • ATCO and AGIG are targeting December 2021 as the date for a final investment decision on a separate project by them at the Warradarge wind farm in WA’s Mid-West which will produce up to 4 tonnes of hydrogen a day for the gas network; and
  • a separate project by Engie and Yara Fertilisers at Karratha is part of a large project aiming at export-scale “green” ammonia expects within a decade.

Each of these three projects will use 10MW electrolysers to split water into hydrogen and oxygen.

In addition:

  • FFI is aiming for a final investment decision this year for its 250MW “green” hydrogen plant at the Bell Bay industrial precinct in Tasmania.  The plant will have the capacity to produce 250,000 tonnes of “green” ammonia for domestic use and international export. Industry experts have estimated it will cost upwards of A$500 million to build the 250MW plant.

FFI has entered into arrangements for access to portside land required for the project and has signed an option agreement with Tasmanian Ports Corporation to exclusively negotiate all land and operating access requirements for the proposed plant.  In addition, it has been announced that FFI has entered into MOUs with Japanese corporations to investigate supply chains between Australia and Japan in relation to ammonia produced at this project.

FFI has also reportedly signed development agreements around major hydro power projects in Africa with a view to supplying “green” hydrogen to Europe and it has been announced that FFI has entered into a framework agreement with JSW Future Energy Limited, a wholly owned subsidiary of JSW Energy Limited, to explore opportunities to develop “green” hydrogen projects in India.

FMG is set to invest more than A$1 billion a year into FFI under a pledge by the company to allocate 10% of the annual profits generated by its core iron ore mining operations.  FFI’s “green” hydrogen project in Tasmania could be one of the world’s largest green hydrogen plants when commissioned, creating a significant export market for “green” hydrogen from Australia.  FFI has said it would soon call for expression of interest around the skills and jobs required for the project.

FMG has stated publicly that FFI has already produced “green” iron and “green” cement in trials that are part of the company’s plans to become a major player in “green” energy and to make its mining operations carbon neutral by 2030.  The company has also announced that it has met deadlines around trials using batteries, “green” ammonia and “green” hydrogen across its iron ore mining operations including in running locomotives and powering drill rigs, haul trucks and ships and that it had completed design and construction of a combustion testing device for ship engines and it had finalised design for a next generation ore carrier ship that would consume ammonia.

  • Origin Energy, which already exports LNG, is conducting a A$3.2 million study into the feasibility of building a plant twice the size of the FFI plant at Bell Bay, Tasmania – the study is due to be completed by December this year.  In recent developments, Origin has announced a collaboration with shipping giant Mitsui OSK Lines to develop a supply chain for the export of “green” ammonia, including from its proposed plant in Bell Bay.  Origin Energy and Mitsui OSK will investigate the potential to transport “green” ammonia to key downstream markets starting in 2026.  Origin has singled out transport as one of the biggest opportunities globally to reduce emissions through the use of “green” fuels such as hydrogen and ammonia.  Origin Energy is also studying the potential for “green” hydrogen and ammonia opportunities at a plant which would be located in the port of Townsville.
  • Both EnergyAustralia’s Tallawarra B gas power project in NSW, which was confirmed in May this year, and a power plant planned by Andrew Forrest’s Squadron Energy in Port Kembla will be designed to use a combination of gas and hydrogen.

A number of other commercial opportunities are under consideration despite the absence of an established market for “green” hydrogen in Australia.  Of note:

  • Separate to ARENA’s announced plans to grant up to A$42.5 million (US$33.2 million) to a 10 MW electrolyser project being developed by Engie and Yara in Karratha, WA, Japan's JERA has agreed to a memorandum of understanding with Yara International to manufacture “blue” and “green ammonia” – “blue” ammonia is created with fossil fuel by-products whilst “green” ammonia is manufactured without any fossil fuel inputs.  

The companies plan to explore improvements to the Yara Pilbara Fertilizer plant in WA to allow it to create “blue” ammonia and also plan to work together on developing new “blue” and “green” ammonia projects, on optimizing ammonia shipping, and on exploring new sources of demand for ammonia in Japan (including in power generation).

While ammonia has been used mostly as a fertilizer so far, it is increasingly being seen as a potential “green” fuel because it is a compound of nitrogen and hydrogen, which burns without generating CO2, and is relatively easy to transport given it is a liquid. The aim of this initiative is to decarbonize JERA’s power production and provide Yara with a footprint in the strategically important Japanese hydrogen market.

  • Ampol, a petrol and diesel supplier, has announced its involvement in a “green” hydrogen energy start-up that will target the A$1.5 billion a year remote diesel power generation market by offering the potential for reliable energy that is clean and affordable.  It is taking a 20% stake in CSIRO-backed Endua in a commercial partnership which is developing renewables-based hydrogen power units that can be used at mines, farms and residential communities that are not connected to the grid.  Envisaged somewhere between the size of a large cabinet and a small shipping container depending on its size and application, an Endua unit would act as a “power bank”, using renewable energy available on-site to power an electrolysis process to create “green” hydrogen, then store it until it was required for delivery as clean electricity.  There is about A$1.5 billion spent on diesel to generate power in Australia alone which emits 200,000 tonnes of carbon into the atmosphere.

Ampol’s 20% stake will be paid for in kind by it providing both expertise and customer access to the venture, as well as its Coopers Plains facility south of Brisbane which will be Endua’s base.  Ampol’s involvement is part of that company’s decarbonisation strategy which it unveiled earlier this year – Endua fits well with Ampol’s strategy of developing low-emission alternatives for customers as Ampol is already involved in remote power generation through its commercial diesel sales.  The company has stated that it expects to invest in the future as Endua develops its commercial product. 

Interestingly, Endua is a product of the “venture science” model of business creation pioneered by the CSIRO’s technology and science investment fund Main Sequence Ventures – the model starts with identifying a major challenge that offers a commercial opportunity to be solved, then assembling the science capability to tackle it from CSIRO, and introducing a pathway to market through a leading industry player which is involved from the start.


Hydrogen gas blending initiatives in Australia

As the momentum and commitment to reach net zero emissions accelerates, companies that distribute gas to households in Australia face significant challenges.  On one view, the only option is to adapt or face a slowly dwindling business as new gas connections are halted and the gas companies are left with only existing customers. Some experts are of the view that it is up to the gas industry to demonstrate that supplying renewable gas through the network is viable in the face of an increasing push towards electrification to meet emissions targets. Prompt action is required given the early stage of “green” hydrogen development compared to the mature electricity industry, where electrical appliances can already be bought to replace the functions of gas in the home.

AGIG aims to have a 100% “green” hydrogen product available for new housing subdivisions by 2025, as part of a push into renewable gas to avoid losing out to electrification in the rush to net zero emissions. 

AGIG owns distributors Multinet and Australian Gas Networks and is Australia’s biggest natural gas distributor.  It is reportedly 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 (being scope 1, 2 and 3 emissions including the product that the company delivers as well as its own emissions from its operations). By 2040, the company plans to transition from natural gas to renewables gases – mostly hydrogen but also biomethane.  Developing options to supply customers with hydrogen and biomethane is seen by AGIG as essential as both a way forward to align with its own corporate net zero targets and also those of governments and stakeholders.

While home appliances can run on a 10% hydrogen blend without adjustments, AGIG’s 100% “green” hydrogen product will require hydrogen appliances that are not available currently 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.

As well as adjustments to home appliances once the blend exceeds 10%, Australia’s National Hydrogen Strategy identified that further research and reforms are needed before widespread hydrogen blending in gas distributions networks can occur.  One issue that has been identified is the extent to which the existing regulatory framework applies to blended gas – the implications of this for blending activities are uncertain.  Due to the embrittlement or degrading effect of hydrogen on steel pipelines that were originally designed for natural gas transportation, the extent of blending will be limited until there is further evidence that safety issues can be addressed.

Hydrogen based on renewable energy is being fed into the gas distribution grid for the first time in South Australia.  AGIG has developed the $14.5 million Hydrogen Park South Australia (HyP SA) facility and views this initiative as part of building credibility in “green” hydrogen and a track record.

The landmark project in Adelaide will also result in “green” hydrogen replacing fossil fuel-based hydrogen at the Whyalla steel works.  This is a first for Australia in terms of clean fuel being used in heavy industrial applications. 

The project has reportedly attracted interest from Japan, Korea and the UK. Before Japanese and Korean customers will sign up for hydrogen imports, a domestic capability must exist as this demonstrates credibility – essentially, there must be a three-stage development of the hydrogen market, starting with domestic gas blending then using hydrogen in local industries and transport and finally exports.

Although a number of much larger “green” hydrogen projects have been proposed, the 1.25MW electrolyser at HyP SA is the largest operating in the country so far. The plant uses low-carbon power sourced from the grid during the day when renewables are plentiful to split water into oxygen and hydrogen gas. The hydrogen is mixed into the gas stream at a proportion of 5% and supplied to households in the Adelaide suburb of Mitchell Park – users are not expected to notice any difference in their gas supply. Regular audits of the power bought will determine its exact carbon intensity, with any residual CO2 to be offset through renewable generation certificates.  While so far only 700 households are involved, AGIG expects the number to grow to thousands by the end of 2022 and to increase the proportion of hydrogen in the distribution system to 10%. Any proportion beyond that would require modified or new appliances. 

The South Australian state government injected A$4.9 million into the project and is committed to supporting the growing industry.  This is seen as an important component of South Australia achieving its goals of reaching 100% net renewable energy and cutting emissions by more than 50% by 2030.  

The cost of hydrogen at HyP SA runs into the double figures per kilogram, well beyond the target of A$2 per kg in the Federal Government’s Low Emissions Technology Road Map. AGIG’s two projects that secured funding from ARENA will produce green hydrogen for A$5-A$6/kg with costs expected to fall further in later projects.  AGIG has stated that it is very confident it can get below A$2 per kilogram by 2030.


The Victorian state government has 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, and Infrastructure Victoria has a consultation ongoing on the future of gas infrastructure.


As noted above, another AGIG project planned for Albury-Wodonga, which has secured ARENA funding will supply a 10% “green” hydrogen gas blend to 40,000 customers, coming online in 2023-24.


AGIG is also building a hydrogen project in Gladstone that will involve 10% blending into the gas stream for the entire town, including industrial customers.


The challenges of building a sustainable hydrogen industry in Australia

The development of a sustainable hydrogen export industry in Australia faces a number of challenges.

The first challenge is to build a domestic market for hydrogen.  There are a number of factors which suggest that this is achievable including:

  • the need for large gas distributors to find an alternative to gas to supply to customers – gas blending is being trialled now with large distributors such as AGIG seeing this as a necessary path for gas distributors to remain relevant and viable. The attractiveness of gas blending is that there is a day one customer and application for the hydrogen produced. The challenge is that once the amount of hydrogen blended into the gas exceeds 10%, modified or new appliances will be required by consumers and impacts on pipeline integrity and safety will need to be better understood;
  • the interest in development of “green” and “blue” ammonia manufacturing capacity which can be used in a number of applications including in fertiliser production. Hydrogen projects which involve an in-built source of demand, such as fertiliser maker Yara’s “green” ammonia project in WA, Strike Energy’s “Project Haber” in WA and FMG’s plans for “green” ammonia to be used in its mining fleet and its other industrial processes, arguably have a higher prospect of success;
  • the innovative use of hydrogen as a part of a renewable energy and storage grid in remote locations such as the units being developed by Ampol and Endua; and
  • the willingness of major listed ASX companies (such as FMG, Origin Energy, Woodside and BHP) to investigate and commit funds to hydrogen projects (and associated infrastructure) even in the absence of access to government grant funding.  This commitment is a reflection of the potential which these companies see in hydrogen delivering their own carbon reduction or net zero emissions goals.

Assuming that a domestic market for hydrogen is created, the challenge remains to build a viable export industry. Once again there are some factors which suggest this can be achieved including:

  • the interest of overseas utilities in the use of “green” ammonia in the manufacture of fertiliser who see this as a way of both reducing their carbon footprint and having a ready market in their home economies; and
  • the innovative use of hydrogen in the steel manufacturing industry in Australia as a way of lessening the carbon footprint of such industries. The success of AGIG’s landmark project in Adelaide which will result in “green” hydrogen replacing fossil fuel-based hydrogen at the Whyalla steel works and FFI’s successful “green” iron production trials in WA will be an important indicator of what can be achieved.  These are a first for Australia in terms of clean fuel being used in heavy industrial applications and will be important “road tests” as to whether the replacement of fossil fuel with hydrogen can be done in a cost-effective manner.

However, Australia is in a global race and other countries are also committed to becoming global players in the hydrogen industry.  Unless the cost of hydrogen production can reach a level of A$2 per kg (the target set by the Federal Government), an export industry will not be competitive globally.

In addition, the scale of capital required to build a viable hydrogen export industry in Australia is significant – billions of dollars of investment will be required. The availability of ARENA grant funding and CEFC debt and equity funding will be important in the early stages but ultimately these projects which receive ARENA and CEFC funding will need to be economically viable and be able to attract private sector finance.  The selectiveness of the Federal Government’s approach to grant funding whereby grant funding will not be available to all applicants (as reflected in the latest round of ARENA funding) is likely to have the result that not all hydrogen projects proceed.  The appetite of governments to continue to provide such funding and commence other government decarbonisation incentives to the developing hydrogen industry is also likely to be tested.

Ultimately, it may fall to the major ASX-listed companies and global developers to invest significantly in the hydrogen industry for a successful export industry to be developed. Whilst there is a powerful driver now for companies to move to a net-zero emissions position, there are different pathways to achieving that outcome and development of hydrogen production facilities and individual hydrogen use cases will be costed against other low emissions alternatives to determine their viability.

It is difficult to see private sector finance being available in the short-term in the absence of a defined and accessible market(s) for hydrogen and committed offtake arrangements to support debt repayment. Private sector finance will also want to see that there exists a clear supply chain pathway from the hydrogen production facility to the end user – for exports, this will include access to transport infrastructure and port facilities and appropriate shipping arrangements.  This may mean that companies need to fund such developments themselves (e.g. by raising equity) and look to introduce private sector debt once economic viability has been established.

It will be interesting to watch the green hydrogen industry in Australia as it develops and compare the country’s progress to that of other countries seeking to be global players.