OPINION | Has Australia been left behind in the race to be a hydrogen superpower?




The Australian government has blinked in the competition to draw in H2 investment, argues Keynumbers founder


Cover just 1% of Australia in solar panels and you can replace 95 million tonnes of hydrogen produced from fossil fuels that the world currently consumes. Increase this to 3% and you can fulfill the 2050 target of 250 million tonnes of hydrogen the world is anticipating.


Australia has size, sunshine and a skilled workforce. Its export focused resources sector is world class with a business friendly government that encourages foreign investment.


But Australia looks like it’s being left behind in the race to being a hydrogen superpower. Europe and the United States have ignited investor confidence with tax credits and mandates for industrial use.


At this critical juncture, the Australian government has baulked at competing head on.


Can investors succeed without government support?


The 26GW Australian Renewable Energy Hub is considered one of the best of the gigaprojects. With complementary wind and solar increasing capacity factors and minimising the need for storage, the developers estimate it can produce 1.6 million tonnes of hydrogen per year.


Initially estimated at US$36bn, this would have produced hydrogen at closer to US$2.5/kg. Many investors would be expecting these costs to come down as the hydrogen industry matures, but costs have actually risen. If you were to start building it today, it's more likely to come in at US$64bn based on wind, solar and electrolyser estimates tracked by Australia’s main scientific authority, the CSIRO. This translates to US$4/kg and this is one of the best projects.


Compare this to America and the inflation reduction act. Based on the cost of wind and solar, a similar sized project would total US$63bn. Assume it’s not as efficient and the cost could be closer to US$5/kg. But add in the Inflation Reduction Act (IRA) tax credit of US$3/kg and it’s almost half the cost of Australian hydrogen.


But the IRA also provides an opportunity for fossil fuel companies to compete as well. Add carbon capture to existing steam methane reforming plants which turns natural gas to blue hydrogen and the developers can claim a tax credit of up to 60c/kg and they only need to cut out 60% of the emissions.


With current natural gas prices at the US Henry Hub close to US$2.5/MMBtu (million thermal British units of energy), this would equate to a hydrogen price of less than US$1/kg.


The reality is with a small population and tax base, it cannot outspend its larger rivals.


Instead, Australia has set a policy of picking winners with direct support of projects considered strategic to its national interests. It has allocated A$2bn through the Hydrogen Headstart program to lay the groundwork for selected large scale projects and using the Australian Renewable Energy Agency (ARENA) to place bets on emerging technologies.


Can Australia catch up?


Picking winners is a tricky business. It involves both looking at the economics of what is currently uneconomic and balancing that with what is politically possible. The legacy of coal has meant the focus is around communities that are impacted by the energy transition. The Australian government has started this process by setting up hydrogen hubs in these locations including Newcastle in New South Wales and Gladstone in Queensland


So what can Australia expect for its A$2bn?


Possibly just enough to bail out one very expensive gas peaker plant.


The current Labour government was left with a legacy issue of the Kurri Kurri natural gas peaker plant that was announced by the previous right wing Liberal government. The fear of blackouts as renewable energy penetration increases, and coal power plants are decommissioned is a hot topic for voters. But many experts considered it unnecessary with batteries and a balanced grid a better option.


Initially costed at A$600m using natural gas. The current minister has proposed spending a further A$700m to upgrade it to burn green hydrogen. It may still be unnecessary but at least it will be green and unnecessary.


The only issue then is where to get the feedstock from?


To the north of Kurri Kurri is a renewable energy zone using a combination of wind, solar, batteries and pumped hydro. Electricity from onshore wind would come close to A$80/MWh but would only blow a third of the time. To the east is a proposed offshore wind farm which would have a 50% capacity factor but be double the cost at A$150/MWh.


This converts to A$10/kg or the equivalent of A$74/MMBtu. Historical gas prices trended at around A$8/MMBtu although recently this has jumped to A$15/MMBtu. Put this through a hydrogen ready peaker plant and the electricity would cost closer to A$2000 /MWh.





Without a green premium added to wholesale electricity prices, the only option is to sell at a loss and with revenue not being able to cover the cost of hydrogen fuel let alone maintenance and the initial capital investment. The difference may be left with the taxpayer.


Export focus?


But the true prize is to win markets in Asia. Korea and Japan to the north are energy poor and determined to find carbon free alternatives to maintain their industries, including transport, shipping and electronics.


Australia and Japan recently signed a landmark agreement to proceed with a front-end engineering and design (FEED) study to export green hydrogen. The Central Queensland Hydrogen Project will convert Queensland solar and wind into liquefied hydrogen and ship it to Japan to be used in power generation and other sectors.


The first phase of the project will produce 26,000 tonnes per year at a levelised landed cost of A$19/kg (US$13/kg). The second phase will scale up to 224,000 tonnes per year with costs coming down to A$8/kg (US$5.6/kg).





Australia’s national hydrogen roadmap envisages exports at A$2/kg (US$1.4/kg). This project is nowhere close to that. One of the reasons for this magic number is that it takes 7.4 kg of hydrogen to get 1 MMTBU of energy. $2kg is the equivalent of paying A$15/MMBtu (US$10/MMBtu.)


Historically, gas has been imported in Japan via LNG with prices fluctuating between US$7-12/MMBtu. In 2023, the price has averaged US$15/MMBtu.


But the A$2/kg is the production cost. By the time you add in shipping and receiving, this project has the equivalent cost of US$100/MMBtu for the first phase with a second phase target of US$42/MMBtu. This is still three to five times the historical prices of LNG.


Looking at phase 2, with a total lifetime production of 6.7 million tonnes (900 million MMBtu of energy equivalent), this would imply a cost of US$37bn. Assuming all the hydrogen is used in power generation, the LNG equivalent cost even assuming a high US$15/MMBtu would be less than US$14b.


This raises the question, who will pay the US$23bn difference?


Would Australian taxpayers bear the cost in order to be leaders in green hydrogen? Or would Japanese consumers pick up the bill? Japan is adding a carbon tax but this project would be the equivalent of paying US$320/tonne.


Bet big on emerging technology?


Australia is home to some of the most innovative hydrogen technologies. ARENA has funded solar thermal, waste and even bacteria that belches hydrogen.


One of the most promising, is Hysata. Spun out from a research project at the University of Wollongong, their electrolyser technology eliminates bubbles formed by hydrogen and oxygen, decreasing resistance and meaning only 41kWh of electricity are required to make a kilogram of hydrogen instead of 52kWh.


Solving the bubble problem could mean solving the investor hype bubble problem as well. For a project such as the Australian Renewable Energy Hub, the land area just for solar would reduce from 250 km² to 200 km² significantly reducing the cost of the project.


But this is still emerging technology. For the A$117m Central Queensland Hydrogen Project, the review was based on proven PEM and AEM electrolyser technologies that led to an uncompetitive price. Fund this project with old technology and instead of providing revenue support for investors, the government might be providing vendor support for those looking to ditch obsolete inventory.


Go double or nothing on emerging technologies and you could be looking at a competitive product but with the risk that you lose everything.


For a country that has a public holiday for a horse race, I suspect many will be looking to bet big.



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