Out-Law Analysis 5 min. read

Australia has unique advantage in hydrogen production and export

The Australian government has released its annual report on the development of the country's clean hydrogen industry, stating that the country is uniquely positioned to produce and export hydrogen internationally.

The State of Hydrogen Report 2022 (108-page/7.49MB PDF) covers Australia’s pathway for a clean hydrogen future; the development of Australia’s hydrogen industry so far and how it compares to the rest of the world; what governments around Australia are doing to advance the industry; and the path ahead for the hydrogen industry in Australia.

The publication fulfils the Australian government’s commitment to carry out an annual review of Australia’s clean hydrogen industry and to publish an annual State of Hydrogen report under Australia’s National Hydrogen Strategy (136-page /16MB PDF) which was published in 2019.

Hydrogen expert George Varma of Pinsent Masons said: “Australia has a number of natural advantages which could position it as a global frontrunner in the hydrogen industry. However, this will not happen without significant action, both at the federal and state government level.”

“While the report shows that we are heading in the right direction when tracked against the National Hydrogen Strategy, a number of countries are jostling for pole position in this industry and we need to act quickly and meaningfully to not be left behind. The United States’ Inflation Reduction Act, for example, has re-directed a massive amount of investment in renewable hydrogen to that country," he said.

The report notes that demand for hydrogen is growing worldwide, with 15% of global energy use expected to be from hydrogen by 2050. Hydrogen has been used for a number of years in numerous industries such as chemical and fertiliser production, however as the reduction of emissions has become a global focus, the production of low emission hydrogen and its use in new sectors such as electricity generation and transportation fuel is set to increase, the report finds.

The National Hydrogen Strategy estimates that 262,000 square kilometres of land highly suited to renewable hydrogen production is available to Australia. This land size is less than 3% of the nation’s entire land area but is still larger than the average EU member state.

Australia has a stable political system and a strong regulatory environment, meaning that it is a steady and trusted exporter. The geology of Australia is also very well suited for hydrogen production.

These advantageous characteristics do not exist for a large number of Australia’s trading partners, and many of these trading partners have committed to achieving net zero emissions by the mid-century, meaning that their reliance on hydrogen is likely to be significant based on their net zero ambitions. This presents an excellent opportunity for Australia to establish new hydrogen-based trade arrangements with these countries, according to the report.

For Australia, short-term priorities include the implementation of investment incentives, a nationally consistent regulatory regime and promotion of the Australian Carbon Credit Units scheme.


A progressing industry

The report finds that the clean hydrogen industry is progressing well in Australia, although some areas are progressing more quickly than others.

Hydrogen use as a chemical feedstock has been advancing quickly over the past year with new hydrogen and ammonia projects replacing their fossil-fuel based equivalents. In the past 12 months, the number of these types of proposed projects in Australia has doubled, the first 10 megawatts (MW) electrolyser has passed financial investment decision, and green ammonia prices have become increasingly competitive with ‘grey’ ammonia prices.

The report sets out that there is a good opportunity for Australia to develop projects for hydrogen export as there are now 45 projects in Australia which plan to use hydrogen as a chemical feedstock for both export and domestic markets. There are 23 renewable-based ammonia production plants planned in Australia currently, and a number of these larger projects will be aiming to export their product.

The report also states that using hydrogen as a feedstock to produce methanol presents an excellent export opportunity as methanol as a hydrogen carrier can be transported in conventional petroleum shipping carriers, making it more cost efficient than liquefied and compressed hydrogen.

Opportunities in export for overseas electricity generation performed well, and this is driven by the increased use of hydrogen for energy generation in countries that Australia has existing trade partnerships with, and which could grow to include hydrogen trading. In April 2022 a world-first pilot project to export liquid hydrogen from Victoria to Japan was successfully completed. This project was the first time liquefied hydrogen was exported from one continent to another and is an important project placing Victoria as a market leader in the development of the hydrogen supply chain.

Strong investment continues

Investment has advanced in Australia with the announcement in 2022 of 48 major hydrogen projects (being projects with at least AU$50 million of investment) with an investment pipeline of AU$230 billion. The Australian government aims to use regulatory certainty, development of a domestic guarantee of origin scheme for hydrogen, grants and access to lower interest financing through the AU$300m hydrogen fund in the Clean Energy Finance Corporation, to create stable investment conditions.

Numerous other areas are progressing including increased project scale and development of hydrogen hubs with the Australian government providing AU$526m towards establishing eight hydrogen hubs, improving exports through studies of international supply chain and establishing new clean energy partnerships with global partners including the US and India, and blending hydrogen into existing gas pipelines.

The report also identified areas in Australia where use of hydrogen is progressing more slowly. These include its use in transport (both heavy and light), use in steel and iron making and in industrial heat. Although these areas are progressing slowly, the report highlights some current developments involving transport in particular: the federal government’s commitment of up to AU$80m to support state-based hydrogen highway initiatives and development of four demonstration scale refuelling stations currently operational for light transport.

Next steps

The report outlines the next six steps that Australia needs to take if it wants to continue on the pathway set out in the National Hydrogen Strategy. These are:

  • setting up hydrogen hubs. Eight hydrogen hubs will be supported and developed. These include the Hunter Valley in New South Wales, the Pilbara and Kwinana in West Australia, Port Bonython in South Australia, Bell Bay in Tasmania, and Gladstone and Townsville in Queensland. Additional funding is also committed from other state governments for these hubs as well as other hubs. It is important now that these hubs are supported in terms of funding and risk allocation. The success of these early-stage projects is also important to set the tone and the learning which can be taken on to future projects.
  • securing foreign investment – significant foreign investment will be required to fund Australia’s hydrogen production goals. It is important that Australia continues to develop its regulatory framework, workforce skill and investment incentives to ensure that foreign investors choose Australia for their hydrogen related investments.
  • delivery of projects that use hydrogen for electricity generation – hydrogen has significant potential as a means of storing renewable energy, which can be released back into the grid to smooth out baseload generation. The report anticipates that these types of projects will generate significant hydrogen demand and Australia needs to ensure that these projects are progressed and supported from their current planning stage to actual implementation.
  • regulatory implementation – suitable legislation and implementation standards need to be quickly rolled out to entice investors and provide them with certainty. It is important that Australia develops regulatory framework that is consistent with both domestic and international regulations to provide investors with clarity.
  • workforce – Australia needs to be certain that it has a suitably skilled workforce who can respond to its hydrogen ambitions and targets.
  • lower the cost of hydrogen – Only 4% of hydrogen projects globally have reached final investment decision or construction and a similar position exists in Australia. Economic incentives to lower the initial investment costs need to be established and utilised to lower the costs of hydrogen production. Australian state and federal governments need to act with greater urgency in relation to funding and research for the lowering the costs of renewable manufacturing such as electrolysers.

Co-written by Shani Stallard of Pinsent Masons.

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