Australia's hydrogen industry is progressing, but not fast enough

Recent developments in the hydrogen industry 12 min read

In the recent Federal Budget, the Federal Government committed to investing $2 billion in Hydrogen Headstart, a new program designed to support hydrogen production in Australia. This follows a number of other developments in the last few months aimed at furthering Australia's ambition to be a global hydrogen superpower. These developments are welcomed after a period of relative inactivity in the hydrogen policy space, which has seen Australia start to lag behind its international competitors in the race to be a first-mover in the much-hyped global hydrogen industry.

In addition to the announcement in the Federal Budget, other recent developments include a commitment by the Government and all state and territory governments to review the National Hydrogen Strategy, the release by the Clean Energy Regulator of a new greenhouse gas emissions calculator for hydrogen projects, and the publication of the State of the Hydrogen Report 2022 (Hydrogen Report) and the first National Hydrogen Infrastructure Assessment Report (Infrastructure Report).

In this Insight, we outline the key takeaways for the hydrogen industry from the 2023-24 Federal Budget, the Hydrogen Report and the Infrastructure Report, and provide an overview of the new emissions calculator.

Key takeaways

• While the development of Australia's hydrogen industry is tracking well in some areas, Australia is still lagging behind many of its international counterparts in a number of respects.
• The Hydrogen Report recognises that—given the competition presented by other producing nations and the notable economic incentives recently announced in a number of countries, including the United States, Canada and Germany—Australia may need to reconsider the need for targets, incentives and other measures to ensure its hydrogen industry is globally competitive.
• The announcement of a $2 billion program in the Federal Budget to support hydrogen production in Australia is a welcome development in light of the findings of the Hydrogen Report. Only time will tell whether it will provide sufficient support for projects in Australia to move past the pilot phase and into commercial-scale development, which is what is required to develop a sustainable industry.
• Beyond the need for adequate financial support and incentives for Australian hydrogen projects while the industry remains nascent, the Infrastructure Report also identifies the strategic and timely investment in Australia's supply chain infrastructure as a further challenge faced by the market. What is required, it concludes, is the rapid scale-up of several technologies and supply chain elements, and further integration of the prospective role of hydrogen in our energy system and infrastructure planning.
• Those interested in investing in, and/or developing, hydrogen projects in Australia should closely monitor the review of the National Hydrogen Strategy announced in February, and take the opportunity to participate in the public consultation process, with a view to seeing that the revised strategy identifies: (1) the right opportunities for Australia to be pursuing; and (2) the support required from governments, to ensure the Australian hydrogen industry remains globally competitive.

Federal Budget

The recent Federal Budget includes $2 billion for Hydrogen Headstart, a program designed to accelerate large-scale renewable hydrogen projects. Given Australia already has the largest pipeline of renewable hydrogen projects in the world, Hydrogen Headstart aims to bridge the commercial gap for early-stage projects. In doing so, the program seeks to position Australia as a world-leading hydrogen producer and exporter.

It is envisaged that the $2 billion program will include:

• revenue support for investment in renewable hydrogen production through competitive production contracts, including funding for the Australian Renewable Energy Agency and the Department of Climate Change, Energy, the Environment and Water (DCCEEW) to support the development and operation of the program;
• investing $5.6 million in 2023-24 to analyse the implications for Australia of overseas hydrogen schemes and to identify actions before the end of 2023 to further catalyse clean energy industries, ensure Australian manufacturing competitiveness and attract capital investment;
• investing $2 million in 2024-25 to establish a fund to support Indigenous communities to engage with hydrogen companies and planning processes; and
• provision of $38.2 million for the creation of a Guarantee of Origin (GO) Scheme to certify renewable energy, and track and verify emissions from clean energy products. The GO Scheme has undergone extensive consultation and been trialled by industry, and its arrival is highly anticipated both in Australia and internationally. The GO Scheme will not only assist with the international trade of hydrogen, but will also provide a low-cost measure for new projects to prove their green credentials and, therefore, help to secure finance, and ultimately scale up to an international scale.

State of Hydrogen Report 2022

In April 2023, DCCEEW released the second ever State of Hydrogen Report, which tracks the development of Australia's hydrogen industry, including progress in implementing the National Hydrogen Strategy, and progress against global developments. The Hydrogen Report records the findings of an independent assessment of the Australian hydrogen industry undertaken by Deloitte in 2022.

Deloitte's analysis concluded Australia is tracking well in some areas, however Australia is still lagging behind many of its international counterparts in a number of respects, with many industry development signals being downgraded from the 2021 State of Hydrogen Report.

While Australia is particularly well-positioned to be a global hydrogen export leader and effectively meet the rising global demand, it was found to no longer be a global policy leader in developing a new clean hydrogen industry

Further, while Australia is particularly well-positioned to be a global hydrogen export leader and effectively meet the rising global demand, it was found to no longer be a global policy leader in developing a new clean hydrogen industry. For instance, the Hydrogen Report notes that while Australia has a large pipeline of announced hydrogen projects, it has not kept up with other OECD nations in terms of projects proceeding to development. The Hydrogen Report concludes that—in order to be a global leader—Australia will need to accelerate delivery of the early actions identified in the National Hydrogen Strategy, including the advancement of priority pilot projects, the establishment of hydrogen hubs and the assessment of supply chains.

Unsurprisingly, the Hydrogen Report recognises that—given the competition presented by other producing nations and the notable economic incentives recently announced in a number of countries, including the United States, Canada and Germany—Australia may need to reconsider the need for targets, incentives and other measures to ensure its industry is globally competitive. The major investment in hydrogen provided for in the 2023-24 Federal Budget seems to be the Federal Government's response to this intensifying global competition. It is not yet clear, though, whether the Hydrogen Headstart program, associated packages for revenue support and the GO Scheme will sufficiently bridge the commercial gap for early-stage projects and provide the necessary support for Australia to remain an attractive destination for investment in hydrogen projects.

The Hydrogen Report ranked the industry's development in Australia across a number of development signals as either 'advancing quickly', 'advancing' or 'advancing slowly'. The rankings given to each industry development signal are summarised below.

National Hydrogen Infrastructure Assessment Final Report

In consultation with Arup and Frontier Economics, the Federal Government has completed Australia's first National Hydrogen Infrastructure Assessment (NHIA). The Infrastructure Report, published in April 2023, records the results of that assessment, the aim of which is to support future investment decisions of government and the private sector.

The Infrastructure Report emphasises that Australia has an abundance of resources to support the production of hydrogen from renewable and fossil fuel sources, along with an extensive existing infrastructure network. With this strong foundation, the challenge faced by the market is the strategic and timely investment in Australia's supply chain infrastructure.

To assess this challenge, the NHIA took a national approach to mapping and understanding Australia's existing and planned enabling infrastructure, assessing every aspect of the supply chain from the generation of hydrogen through to manufacturing, storage, transportation and end use.

The NHIA found that:

• the Australian hydrogen economy is expected to develop quickly and require the rapid scale-up of several technologies and supply chain elements;
• it is expected that renewable generation capacity in some renewable energy zones will become constrained by 2040 due to hydrogen demand alone, not accounting for other renewable energy requirements of the economy;
• in 2025 and 2030, most hydrogen will be generated directly at demand locations, produced in electrolysers powered by the grid;
• there will be a preference for hydrogen transport via trucks and rail in 2025, however in later timeframes the bulk of domestic transport of hydrogen will be carried out along new dedicated pipeline corridors;
• the water demand associated with the production of hydrogen is estimated to reach 740GL by 2050, which is considerable but not prohibitive;
• the need for planning approvals and to address social and environmental impacts are considerations in all infrastructure development that can impact project costs and timelines; and
• hydrogen export will shape the future development of ports in a similar way to other fossil fuel commodity exports, such as liquefied natural gas.

Based on these findings, the NHIA made the following conclusions about the infrastructure requirements that should be addressed as a priority:

• since most hydrogen demand is expected to be satisfied by green hydrogen, the primary electricity infrastructure need is additional renewable power supply;
• the lowest cost of hydrogen would be achieved by co-locating hydrogen production with demand locations and implementing power transmission upgrades;
• large-scale electrolysis facilities will be required to meet the green hydrogen demand;
• hydrogen pipelines are the preferred mode of hydrogen transport, particularly after 2030 when high volumes will justify their development;
• the preferred storage technologies are carrier tanks for small and medium-scale storage and underground geological storage in salt caverns for large-scale compressed hydrogen storage;
• the primary port infrastructure required includes shipping berth capability and capacity, as well as hydrogen carrier bulk storage;
• water infrastructure will also be required for the extraction, treatment and supply of water for hydrogen production; and
• as the largest share of hydrogen demand in 2025 and 2030 is expected to be linked to the transport sector, a refuelling station network will be required in the near term.

The Infrastructure Report concluded that further integration of the prospective role of hydrogen in our energy system and infrastructure planning is required.

Hydrogen production emissions calculator

In late March 2023, the Clean Energy Regulator released a new calculator which enables the estimation of greenhouse gas emissions generated during the production of hydrogen. The calculator can be used for blue and green hydrogen projects, utilising the following three generation methods:

• electrolysis;
• coal gasification with carbon capture and storage (CCS); and
• steam methane reforming of natural gas with CCS.

The calculator has been created to support participation in the GO Scheme trials to shape the final design of the GO Scheme.

Further developments to watch

In February, the Federal Government and each of the state and territory governments agreed to conduct a review of the National Hydrogen Strategy. The National Hydrogen Strategy was formulated over the course of 2019 and released in November 2019. Since then, there have been a number of significant developments both globally and in Australia that warrant an update to the strategy.

The review of the National Hydrogen Strategy will take account of recent developments, including the impact of the US Government's Inflation Reduction Act 2022 and policies of other foreign governments that have significantly increased global competition for hydrogen investment. The Federal Government has indicated that the aim of the review is to ensure Australia remains on a path to be a global hydrogen leader by 2030, on both an export basis and for the decarbonisation of Australian industries.

DCCEEW has indicated it will be conducting a public consultation process to inform the preparation of the updated strategy, although there has been no indication of the timeframe for the consultation process or the release of a revised National Hydrogen Strategy. Those interested in investing in and/or developing hydrogen projects in Australia should take the opportunity to participate in the public consultation process, with a view to seeing that the revised strategy identifies: (1) the right opportunities for Australia to be pursuing, and (2) the support required from governments, so that the Australian hydrogen industry remains globally competitive.