Industry figures are expecting green hydrogen subsidies outlined in the Budget’s $2 billion Hydrogen Headstart program to begin bringing down the price of the technology.
The Budget will spend $2 billion to set up the new Hydrogen Headstart program, which will provide “revenue support” for investment in renewable hydrogen production by using production contracts.
Production contracts, or credits as they’re known overseas, will hopefully be similar to those set up in the US and Canada, says Countrywide Renewable Hydrogen CEO Geoffrey Drucker.
“I’m thrilled to see that the government realises their support is required for us to be able to establish a hydrogen industry in Australia,” he told RenewEconomy.
“If the production credits in the Budget mirror the Americans and the Canadians, it will mean there will be federal financial support subsidising the price of hydrogen that is delivered. They are talking about export projects, but I’m assuming they wouldn’t be ignoring domestic projects which are ready now.”
But the wording in the Budget papers suggests the funding will be limited to two to three major industrial projects, rather than small scale players.
“We are investing $2 billion in a new Hydrogen Headstart program, so Australia can be a world leader in producing and exporting hydrogen power. While reducing our emissions in heavy industry here at home,” said Treasurer Jim Chalmers in his speech presenting the Budget last night.
“If the production contract subsidy is limited to a small number of big projects, Fortescue Future Industries (FFI) may already have been crowned as the big winner given, as it noted in a statement following the Budget, it has already proposed a pipeline of green hydrogen projects.
“This is a great first step. We look forward to working with the government on the broader response over the rest of this year which will catalyse the whole industry in Australia,” said a company statement.
Fortescue boss Andrew Forrest told ABC that the federal proposal was a start. “$2 billion kicks the can down the road but it’s a start, and I’ve very grateful that the government has given it a start,” he said.
Forrest has indicated previously that his company’s first big hydrogen projects are likely to be in the US because of the generosity of that country’s Inflation Reduction Act.
He said the Australian proposal will attract a lot of interest from big players overseas and could help kick off the industry at scale in Australia. “It shows that Australia is not flat footed any more …. it’s not doing nothing (on hydrogen),” Forrest said.
International pressure building
Pressure was on the government to come up with a response to the US Inflation Reduction Act (IRA), which is sucking talent, capital and companies away from the rest of the world in what Deloitte termed in March a “subsidy arms race”.
The $US1.2 trillion ($A1.8 trillion) piece of legislation pushed $US369 billion into energy security which included a $US3/kg green hydrogen production credit.
Analysis by S&P suggests it will knock down the price of green hydrogen made by a polymer electrolyte membrane (PEM) electrolyser operating in California from $US4.81 to $US1.81.
In November, Canada proposed a 15-40 per cent clean hydrogen investment tax credit to compete with the IRA.
Today, the drive-away price of green hydrogen in Australia is still between $4-6/kg, and that depends on the type of technologies used to make it and the source energy, according to InfoLink, a consultancy.
The Coalition was aiming for a green hydrogen price of $2/kg, or a price equivalent to $15 MMBTu for LNG. Federal Labor hasn’t updated that target.
The previous New South Wales (NSW) Liberal government pushed $64 million in grants into two large electrolysers as part of a plan to get the price down to $2.80/kg by 2030.
Australia Conservation Foundation clean exports campaigner Elizabeth Sullivan expects to see the production contracts bridge the gap between cost of production from renewables and the current market price, but much more must be done in coming years to seize the opportunity.
“If implemented well, this would attract further investment and keep us competitive on the global market. Generally, we’d expect it to be used as a temporary measure until the cost of producing hydrogen from renewables comes down, which we fully expect to see in the coming decades.”
Furthermore, its usefulness depends on the key issue of whether the production of green hydrogen can attract buyers, says University of Sydney academic and director of the Australian Association for Hydrogen Energy, Professor François Aguey-Zinsou.
However, the Australian investment is a drop in a bucket compared to the IRA, former chief scientist Alan Finkel made clear on Tuesday.
If the US government spends $US800 million over a decade on tax credits and other support, that also means the private sector will be spending at least $1.5-2 billion on green hydrogen alone.
How to guarantee the origin of a colourless gas
The Budget also revealed some other lollies for green hydrogen — a $5.6 million investigation into risks posed by international competition and other ways to catalyse a green hydrogen industry, and $2 million over two years to support First Nations communities to work with this new industry.
But the next biggest ticket item was the $38.2 million to be spent over four years on a Guarantee of Origin scheme, designed to track emissions from hydrogen and other low emissions products and verify the green credentials of renewable hydrogen.
Aguey-Zinsou believes this isn’t feasible as it could be gamed by companies greenwashing their product.
“This cannot work. Hydrogen has no colour and nobody can check. This is a nascent economy, and it will take time to get this right,” he told RenewEconomy.
Sullivan hoped a transparent scheme that was very clear about the sources of energy used to make green hydrogen could work.
“The international market is hungry for green hydrogen, so we welcome this allocation in the budget,” she says.
“A world-leading scheme would include the ability to track products across their lifecycle.
“That means confirming that responsible renewables were used, that high conservation value land was not destroyed to make way for the renewable energy facility and that free, prior and informed consent from First Nations communities has been secured.”
Renewable energy tracing is partially happening in Australia as companies like Enosi use smart meter data to sell customers renewable power.
Drucker says this method means Countrywide Renewable Hydrogen’s production can be traced back to a renewable source.
