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 then…Windows 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
Like other state governments, NSW has a target to reach net zero emissions by 2050.
Whilst the NSW government had already committed at least A$70 million to develop hydrogen hubs in the Hunter and Illawarra regions as part of its Net Zero Industry and Innovation Program, it had been slow to lay out specific ambitions and initiatives for green hydrogen.
This prompted the Clean Energy Council to warn NSW in February that a specific hydrogen plan for NSW was vital for it to attract private investment in the sector and avoid ceding economic growth opportunities to states such as South Australia, Western Australia, Queensland, Tasmania and Victoria, which have each released plans and established hydrogen deployment funds. In August this year, the NSW State Government moved to accelerate the development of its green hydrogen sector with the launch of a market platform intended to facilitate the matching up of potential producers with customers and act as a catalyst to get projects off the ground.
This was followed in October this year by the release of NSW’s green hydrogen strategy. Under the announced strategy, the NSW Government plans to:
- establish hydrogen hubs close to industry, renewable energy and water to facilitate the development of new hydrogen projects. Locations such as Parkes, the Illawarra, and the Upper Hunter are seen as uniquely placed to take advantage of these opportunities, with existing supply lines, access to transport links and a skilled workforce;
- provide up to A$3 billion in incentives for the hydrogen industry, which it hopes will generate A$600 million annually by 2030. This will include the funding of infrastructure assessments for large-scale production and the building of a hydrogen refuelling station network. Businesses were invited to submit expressions of interest to participate in the hubs by the end of October; and
- exclude green hydrogen production from government charges – this would include a 90% reduction in electricity network charges for green hydrogen producers who connect to parts of the network with spare capacity and a state-wide hydrogen refuelling station network.
In November this year, the New South Wales Parliament approved the Energy Legislation Amendment Bill 2021 which will underpin the State’s hydrogen strategy. Of note is that the Bill:
- introduces a new section 192 into the Electricity Supply Act 1995 which provides that regulations made under that Act may (i) provide for limitations on the recovery by a network service provider of charges from a person who buys electricity to produce green hydrogen where that network service provider is otherwise entitled to recover such charges under a determination and (ii) modify the application of, or disapply, a provision of the National Electricity (NSW) Law or the National Electricity Rules to the extent reasonably necessary to give effect to such regulations;
- amends Schedule 4 of the Electricity Supply Act 1995 (which deals with the energy savings scheme) and in particular inserts new clauses 22(3) and (3A) which provide that the Minister may grant an exemption from the scheme only if satisfied electricity is used in connection with an industry or activity that is both emissions intensive and trade exposed or to produce green hydrogen and a new clause 24 which provides that the regulations may make further provision with respect to the determination of whether an industry or activity is emissions intensive or trade exposed and electricity is taken to be used to produce green hydrogen and, subject to the Regulations, allows the Minister to determine the basis on which an industry or activity is considered to be emissions intensive or trade exposed, and electricity is taken to be used to produce green hydrogen; and
- amends the Energy and Utilities Administration Act 1987 by inserting a new section 34N dealing with exemptions for electricity used by green hydrogen producers – the new section provides that the Minister can grant an exemption for electricity used by a specified person or class of persons or used in connection with a specified activity or class of activities and that the Minister may grant such an exemption for electricity only if satisfied that the electricity is used to produce green hydrogen. A licensed distributor to which a contributions order applies then cannot recover charges from a person who buys electricity so exempted for the purpose of paying the annual contributions under a contributions order.
In other key developments:
- Macquarie Group, Snowy Hydro and Chinese-controlled pipeline owner Jemena are involved in a consortium that will examine a potential green hydrogen hub in Newcastle that could have a capacity of 1 gigawatt by 2030. An A$3 million feasibility study into the hub, led by Port of Newcastle and Macquarie’s Green Investment Group (MGIG), will be 50% funded by a grant from ARENA. The hub would initially use a 40MW renewables-powered electrolyser to split water into hydrogen and oxygen, with the hydrogen to be used initially in the Hunter region, in agriculture, transport and energy generation. It could later lead to hydrogen exports from Newcastle, which is the world’s largest thermal coal terminal and the largest port on the east coast of Australia. The project would incorporate a green ammonia plant, a green hydrogen plant and grid-connected renewable energy. The initial 40MW project would generate enough hydrogen to power 900 buses for a year.
According to sources at Macquarie Group, the port has the scope to produce green hydrogen at the scale needed to make it price competitive internationally and the feasibility study would better define domestic and export opportunities. Macquarie CEO Shemara Wikramanayake has been a vocal advocate for Australia to capitalise on its natural advantages in abundant wind and solar resources and seize the opportunity in green hydrogen, which is expected to become a major globally traded commodity. Port of Newcastle CEO Craig Carmody said it made sense for the port to play a key role in Australia’s bid to become a significant exporter of renewable energy in the form of hydrogen.
Japan’s Idemitsu, tram and rail operator Keolis Downer and Lake Macquarie City Council have also agreed to participate in the feasibility study, as has Macquarie’s agriculture platform, Macquarie Asset Management Agriculture, which has a focus on green ammonia for fertiliser production. Idemitsu’s interest is focused on the feasibility of exporting green hydrogen and ammonia to Japan. The project will supplement the Federal Government-owned Snowy Hydro’s renewables generation portfolio with dispatchable capacity to help meet customer demand when it is at its highest. Snowy’s new Hunter gas power plant will be designed to run partly on hydrogen;. - two new gas power stations proposed for NSW, EnergyAustralia’s Tallawarra plant to be built in the Shoalhaven region and Snowy Hydro’s Kurri Kurri plant, will both be able to use hydrogen in the fuel mix. Dr Andrew Forrest’s Australian Industry Energy also plans to use “green” hydrogen in a power station proposed to be built near its LNG import terminal under development in Port Kembla;
- Jemena is developing an A$18 million demonstration hydrogen project at Horsley Park, with the aim of injecting a blend of green hydrogen into the gas network;
- private firm Energy Estate is leading a group of businesses, including AGL Energy and APA Group, whose aim is to develop a large-scale green hydrogen production, transportation and export project in the Hunter region; and
- emerging renewables player and legacy sawmill operator Sweetman Renewables is understood to have signed a $15 million joint venture with Singapore's CAC-H2 to establish a hydrogen production centre of excellence in NSW's Hunter Valley. As part of the joint venture with CAC-H2, Sweetman will provide 30,000 tonnes of wood biomass per annum. Sweetman will own 20% of the new venture in exchange for providing biomass feedstock, engineering services and land access, while CAC-H2 will own 80% and is providing the initial investment for the establishment of the first two production lines at its new centre of excellence, which will be called Hunter Valley One.
In September this year, the WA Government announced plans to invest A$61.5 million (US$45.3 million) in growing the State's green hydrogen industry, which includes the creation of a new A$50 million fund to stimulate demand and drive investment, A$7.5 million for the construction of a road and related infrastructure at the Oakajee Strategic Industrial Area (“Oakajee SIA”) and A$4 million to boost the WA Government Renewable Hydrogen Unit. The WA Government sees hydrogen as having the capacity to sit alongside iron ore or LNG as a major export commodity.
That vision led the WA Government to announce up to A$17.5 million (US$8.4 million) in investment to set up two hydrogen hubs in the state’s Pilbara and Mid-West regions. The Pilbara project involves the development of a hydrogen pipeline to connect the Maitland and Burrup strategic industrial areas, creation of a Clean Energy Training and Research Institution based out of Karratha and Port Hedland and port upgrades to enable export opportunities. The Mid-West project is proposed to be based at the Oakajee SIA.
The State lodged applications through the Commonwealth Government's Clean Hydrogen Industrial Hubs program for matching Commonwealth funding to develop these hubs.
The WA Government has signed a Memorandum of Understanding with the Port of Rotterdam, Europe’s largest seaport, to collaborate on renewable hydrogen and keep WA in Europe’s sights as the exporter of choice. The announcement confirm that the parties will “work together to investigate the renewable hydrogen export supply chain between WA and the Port of Rotterdam, including production, storage, transport and the use of renewable hydrogen…and collaborate on opportunities for knowledge sharing relating to policy, regulation and technology developments.”
Transport is one of four strategic focus areas outlined in the Western Australian Renewable Hydrogen Strategy. In line with that focus, the WA Government has opened expressions of interest for its $10 million Hydrogen Fuelled Transport Program which aims to ramp up local hydrogen production and the use of hydrogen-fuelled transport in WA, with successful applicants to be announced in 2022. The Program will provide finance to a project that includes the procurement and operation of hydrogen or green ammonia-fuelled transport, and the installation of one or more refuelling stations.
Alongside these developments, the WA Government is investing A$900,000 on three green hydrogen feasibility studies, supported by the A$15 million Renewable Hydrogen Fund as follows:
- A$300,000 to BP Australia to help develop a green hydrogen facility at BP's Kwinana refinery facility to be used for green hydrogen and clean fuel production;
- A$300,000 to APT Management Services to study converting the Parmelia gas pipeline into a 100% hydrogen pipeline; and
- A$300,000 to Global Energy Ventures to explore the commercial feasibility of exporting green hydrogen to the Asia-Pacific from Gascoyne.
The WA Government has engaged GHD Group (to the value of A$1 million) to investigate the viability of sustainably producing iron ore as green steel or the inputs necessary to create green steel. The investigation is expected to assist WA, as the world’s largest supplier of iron ore, to position itself as a preferred supplier to global markets and complement the trials undertaken by iron ore heavyweights BHP, Rio Tinto and Fortescue Future Industries (“FFI”).
The WA Government has also awarded A$2 million from its Renewable Hydrogen Fund to ATCO Australia for a project to blend green hydrogen into the gas network. The A$2.6 million project will involve blending renewable hydrogen produced by ATCO at its Jandakot innovation hub into isolated sections of the Western Australian gas distribution system, with the blend being delivered to about 2500 customers.
Woodside has led the charge in WA-based hydrogen projects in announcing the A$$1 billion project named “H2Perth”. The first phase of the project would produce mostly "blue" hydrogen and approximately a third "green". The project is partly considered green because it would use electricity generated by renewable energy through the South West Interconnected System, which includes rooftop solar power. H2Perth is touted to provide a flexible and stabilising load to the electricity grid that “benefits uptake of intermittent renewable electricity by households and local industry”.
To support the growth of the state’s clean energy industry, the WA Government has also announced a suite of land tenure reforms headlined by a new form of tenure – the diversification lease – which is considered in detail in our recent article (Renewable energy and reusable reforms: WA’s land tenure amendments are familiar but exciting). The WA Government has stated that the new diversification lease provides a form of tenure that can support the establishment of clean energy projects and the expansion of carbon farming to capitalise on the burgeoning offsets industry. The WA Government’s announcement also promises to reduce red tape and streamline approval processes to ‘unlock land for renewable energy and economic diversification’.
In October this year, FFI announced plans to build an A$1 billion electrolyser factory in Gladstone in Central Queensland – hydrogen electrolysers use power to split hydrogen from water. The aim is for the plant to start producing its first electrolysers in early 2023, and then to expand to other green industry products needed for decarbonisation. As part of the first stage of the project, FFI will commit A$114 million to build a 2GW green energy manufacturing facility, which would be the largest in the world. Apart from being used for proposed hydrogen projects in Australia, the electrolysers will create a new export industry.
The production cost of electrolysers is a major factor driving the overall cost of green hydrogen, now several times more expensive than producing hydrogen from natural gas but expected to boom in the race towards net zero emissions. Shortages in manufacturing capacity for electrolysers have been identified by the International Energy Agency (“IEA”) as a serious risk that could hinder the development of the many green hydrogen production projects in the pipeline. The IEA puts global electrolysis manufacturing capacity in 2020 at about 3 gigawatts a year, almost all of it in Europe and China. Europe had about 60% of existing production capacity and China 35%, the IEA said, while noting plans by several major companies such as Thyssenkrupp and Cummins to expand capacity to take global capacity up to about 20 gigawatt a year. The IEA has stated that a dedicated supply chain for the sector would be essential to meet demand for capacity this decade and beyond. Increased production of electrolysers will affect demand for nickel and platinum group metals depending on the technology used.
Bernstein Research has suggested that investors looking to profit from the decarbonisation trend may be better off investing in leading equipment makers such as electrolyser manufacturers rather than producers of renewable energy, following the philosophy that it is “better to invest in shovels than mines”. But it has also noted that Chinese producers have significant cost advantages over Western manufacturers and were the lowest cost worldwide thanks to cheaper raw materials, lower labour costs and high factory utilisation rates.
There have been a number of other key developments in Queensland as follows:
- Coal export terminal owner Dalrymple Bay Infrastructure (“DBI”) announced in August this year that it had signed an agreement with part-owner Brookfield, North Queensland Bulk Ports Corp and Itochu to explore a potential green hydrogen production, storage and export facility. Stage 1 of a feasibility study into the facility is expected to start this year.
Government-owned North Queensland Bulk Ports Corp is the port authority that oversees the Port of Hay Point where DBI is located, about 1,000km north of Brisbane. The terminal is arguably well placed to develop a green hydrogen facility due to its deep-water port, the established Mackay industrial zone, the availability of land and water and position within one of Queensland’s Renewable Energy Zones. North Queensland Bulk Ports is also involved in plans to develop a hydrogen production and export facility at another of its ports, the Abbot Point Port near Bowen, further north up the Queensland coast from the Port of Hay Point.
The DBI facility currently ships mainly metallurgical coal for steel production. At some point, hydrogen produced from renewable energy has been touted as a possible replacement for coal as a fuel to power steel production. The coal terminal is reportedly exploring the possibility of building a green hydrogen plant and exporting the energy source to reassure investors that it will not become a stranded asset. But it will need to secure take-or-pay contracts with parties in Asia willing to take green hydrogen before proceeding. - Japan’s Sumitomo Corp and Rio Tinto also announced plans in August this year to explore hydrogen production in Queensland. The companies intend to study the building of a hydrogen pilot plant to help power Rio’s Yarwun alumina refinery in Gladstone. The industrial city in central Queensland has been flagged as a future hydrogen export hub as Asian countries such as Japan seek to reduce their reliance on fossil fuels. The two companies will explore the use of hydrogen not only for the refinery but to supply industry more broadly in Gladstone.
Reducing the carbon intensity of alumina production is seen as key to meeting Rio’s 2030 and 2050 climate targets and may enable the company to ultimately access cheaper power. Sumitomo is the second major Japanese company to announce plans for a hydrogen plant in Gladstone. Itochu Corp in June signed a memorandum of understanding with Australian Future Energy, which is developing the $1bn Gladstone Energy and Ammonia Project.
Hydrogen shipments from Australia to Japan could eventually rival the post-war boom in coal trade between the two countries – some commentators see Australia as set to become a major source of hydrogen for Japan as it moves to a carbon-neutral economy by 2050. Japan’s move to shore up Australia as a secure source of renewable energy comes amid warnings from Tokyo about the threats posed by an increasingly “assertive” China in the Asia Pacific. 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. Sumitomo views the plant as part of that company’s vision to achieve carbon neutrality by 2050. The objective is to be exporting hydrogen to Japan by 2032. - Earlier this year Sumitomo, Gladstone Ports Corporation, Gladstone Regional Council, the Australian Gas Networks and CQUniversity Australia announced plans for a “hydrogen ecosystem” in Gladstone to initially pursue domestic use before moving to exports. The Port of Townsville has already signed a memorandum of understanding with Origin Energy to facilitate hydrogen exports to Japan.
- APA Group, Queensland state-owned power company Stanwell and Japan's Iwatani Corp., Kawasaki Heavy Industries, Kansai Electric Power Company and Marubeni are conducting a feasibility study into establishing a large-scale green hydrogen project in central Queensland. Stanwell and Iwatani had previously announced their cooperation on the project – the other partners are new. The partners, who combine expertise in renewable energy, hydrogen production, liquefaction, shipping and offtake, will provide in-kind and financial contributions towards the A$10.4 million (US$7.62 million) feasibility study, plan to sell green hydrogen to Japan and to supply hydrogen to industrial customers in central Queensland. If it proceeds, the project is planned to start producing gas mid-way through this decade and grow to over 3GW of electrolysis capacity in the early part of next decade. The feasibility study will partially be funded by ARENA and the Japanese Ministry of Economy, Trade and Industry.
- In September this year, the Queensland government announced plans for Ark Energy to ship up to 120,000 tonnes of green hydrogen out of the Port of Townsville to South Korea. The parties plan to explore the feasibility of developing a green hydrogen facility at Sun Metal's zinc refinery at Townsville, as well as hydrogen export facilities at the port. Ark and Sun Metals are both parts of Korea Zinc Co. The Queensland Government has provided Sun Metals with a A$5 million Hydrogen Industry Development Fund. Initially, Ark plans to persuade North Queensland transport fleet owners to transition from diesel-fuelled vehicles to green hydrogen-fuelled vehicles which it will refuel. Ultimately, the goal is to export green hydrogen to customers in Asia, starting with Ark’s parent company in South Korea whose hydrogen demand could be as high as 200,000 tonnes per annum.
- As mentioned above, the Ark Energy project which is supported by ARENA and CEFC and based in Townsville, is expected to build the domestic hydrogen economy of North Queensland. The project was also recently awarded A$5 million from the Queensland State Government’s Hydrogen Industry Development Fund.
In October this year, it was reported that the final investment decision for Fortescue Metals Group (“FMG”) large-scale green hydrogen project in Tasmania’s Bell Bay Industrial Zone may come as early as November – the project is being undertaken by FFI, a related company of FMG. Construction work on FFI’s Tasmanian project, which is planned for 250MW but could be scaled up to 1000MW after four years, could start in February 2022 if a positive final investment decision had been made in November. In late October, FMG CEO Elizabeth Gaines said that a final go-ahead for the project would be pushed out to early 2022 as discussions continued with the Tasmanian Government over access to hydropower generation at Hydro Tasmania.
Origin Energy is due to finish its feasibility study on a separate 300MW green hydrogen project in the Bell Bay Industrial Zone by the end of December. Origin has also 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
Woodside is also studying a 300MW plant in the Bell Bay Industrial Zone.
All the projects are looking to convert hydrogen to green ammonia for export, with possibly some domestic sales of hydrogen.
South Australia’s Sparc Technologies is working on a hydrogen project with its strategic partner, the University of Adelaide – Sparc is understood to be looking to enter an ultra-green hydrogen project with the University of Adelaide that improves on the traditional method of using electrolysis of water to produce the fuel.
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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