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Client Update: Opposition's promise of $1 billion for hydrogen reflects growing optimism

14 February 2019

In brief: The Federal Opposition's recent announcement of a $1.1 billion 'National Hydrogen Plan', to support development of hydrogen technologies and hydrogen refuelling infrastructure, is only the latest development demonstrating the industry's potential growth. Partner Igor Bogdanich (view CV), Associate Holly Woodcroft, Lawyer Bridgette Gorman and Vacation Clerk Charlie Pitney report.

Time to read

6 min read

Background

The Federal Opposition 'National Hydrogen Plan' includes quarantining funding from the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (the CEFC) to support the development of hydrogen technologies and hydrogen refuelling infrastructure. It also designates $3 million to Gladstone as a 'National Hydrogen Innovation Hub', and includes a commitment to regulatory changes for hydrogen use. The prospect of future Federal Government investment in the hydrogen industry follows announcements from state governments and Australian industry.

Hydrogen is beginning to be embraced worldwide as efficient and affordable renewable energy.1 It is regarded as a clean-burning fuel that, when developed from renewable sources, creates zero emissions. Hydrogen derived by reacting with fossil fuels, or 'brown hydrogen', requires capture and storage or burying of carbon dioxide that would otherwise be emitted through processing. The Hydrogen Council (a global coalition of CEOs) estimates the fuel could supply up to a fifth of global energy needs by 2050, generating a global market of A$2.5 trillion by that time.2 Japan currently invests approximately US$1.5 billion in research and development,3 while South Korea has increased its investment in hydrogen to approximately US$2.3 billion over the next five years.4

While previous attempts to commercialise the hydrogen industry have been unsuccessful due to high cost, new technology has led to greater investment in this area. Australian hydrogen exports are forecast to grow to $10 billion over the next 20 years and create 16,000 blue-collar regional jobs.5

Industry and state government support for hydrogen

Australian industry has recently begun to embrace hydrogen:

  • Fortescue Metals Group has partnered with the CSIRO to invest $19 million over the next five years to develop and commercialise hydrogen technology.6
  • Woodside has entered into a memorandum of understanding with Korea Gas Corp to cooperate on hydrogen development opportunities.7 Woodside CEO Peter Coleman has also spoken in support of the opportunity for hydrogen to be produced from Western Australian natural gas.8
  • AGL has invested $500 million in a pilot 'Hydrogen Energy Supply Chain' project – as part of a consortium including the Australian, Japanese and Victorian Governments – to produce hydrogen from brown coal at Victoria's Loy Yang A coal generator, which would then be transported by road to be processed at a liquefaction facility at the Port of Hastings and exported to Japan.9
  • As part of a $15 million trial co-funded by ARENA, Jemena will build an electrolyser to produce hydrogen, the majority of which will be injected into Jemena's existing gas network in New South Wales.10

Australian state governments have also recently made commitments:

  • In August 2018, the Western Australian Government announced it will establish a Renewable Hydrogen Council to report on proposals to 'support the growth and development of a renewable hydrogen industry in regional Western Australia'.11
  • The Victorian Government followed in December 2018, announcing a $2 million Hydrogen Investment Program, including a grant system, to fund investment in hydrogen development in Victoria.12
  • The South Australian Government has invested in four green hydrogen projects, totalling more than $15 million in grants and $27.5 million in loans.13
  • The Queensland Government is preparing a Queensland Hydrogen Strategy for release in 201914 and has committed $750,000 for trial projects to demonstrate the feasibility of hydrogen produced in Queensland.15

Federal Opposition's proposal

The Federal Opposition's $1.1 billion commitment as part of the National Hydrogen Plan comprises the following:

  • ARENA to direct up to $90 million to support hydrogen technology and commercialisation, and $10 million to establish hydrogen refuelling infrastructure;
  • $1 billion of CEFC funding to be allocated to the demonstration and development of clean hydrogen technologies, and $40 million to be allocated from the CEFC's Clean Energy Fund for hydrogen technologies and businesses that are beyond the research and development phase; and
  • In December 2018, Labor announced an additional $10 billion of funding for the CEFC; and $3 million of new funds to establish a National Hydrogen Innovation Lab in Gladstone.

Labor has also committed to certain regulatory changes, including a scheme to certify carbon neutral hydrogen, having the Australian Energy Market Commission consider rule changes to incentivise hydrogen development, and working with the states to harmonise regulations.16 Regulatory change will need to keep pace with market development, as the National Gas (South Australia) Act 2008 and certain gas specifications and regulations are not readily translatable for gas that is 100 per cent hydrogen.17

Will the plan extend to brown hydrogen?

It is unclear whether the funding package will support the extraction of so-called brown hydrogen, as it is not sourced through renewables. This is because brown hydrogen is not typically classified as renewable energy. However, Labor's announcement states that the investment will include regulatory reforms and infrastructure investments that could assist hydrogen production from non-renewable sources.

Next steps

In its 'National Hydrogen Roadmap' report18, the CSIRO noted that barriers to development included a lack of supporting infrastructure, and cost, which could be overcome by 'a series of strategic investments along the value chain from both the private and public sector'.19 With state government, and potential future Federal Government, support, as well as industry backing, the future for hydrogen in Australia is looking brighter – and hydrogen growth may potentially, through shared infrastructure, create mutually beneficial opportunities with Australia's rapidly growing LNG industry.

Footnotes
  1. Energy Australia media release: 'National Plan Promise Supports Hydrogen as Fuel of the Future'.
  2. Hydrogen Council, Hydrogen Roadmap, November 2017, 15.
  3. Monica Nagashima, Japan's Hydrogen Strategy and its economic and geopolitical implication, October 2018.
  4. Green Car Congress, 'S Korea to invest $2.3B in hydrogen fuel cell vehicle industrial ecosystem over next 5 years', 25 June 2018.
  5. Hydrogen Council, Hydrogen Roadmap, November 2017.
  6. Australian Financial Review, 'Twiggy's hydrogen kickstart', 23 November 2018.
  7. Woodside, 'The world's future lies in clean energy and Woodside intends to be at the vanguard of its supply through hydrogen', 1 September 2018.
  8. The Australian, 'Woodside has high hopes for hydrogen venture', 10 October 2018.
  9. Hydrogen Energy Supply Chain.
  10. Jemena, 'Welcome to Project H2Go'.
  11. Government of Western Australia, Department of Primary Industries and Regional Development, 'Renewable Hydrogen Council'.
  12. 'New Program to Drive Investment in Hydrogen Energy', 18 December 2018.
  13. Commonwealth of Australia, Hydrogen for Australia’s Future, August 2018.
  14. Queensland Government, Department of Premier and Cabinet, 'Advancing Queensland's hydrogen industry discussion paper', September 2018.
  15. Queensland Government, The Queensland Cabinet and Ministerial Directory, 'Palaszcuk Government backs hydrogen research for renewable fuel source', May 31 2018.
  16. Australian Labor Party, 'National Hydrogen Plan Factsheet'.
  17. Commonwealth of Australia, Hydrogen for Australia's Future, August 2018, 45
  18. CSIRO, 'National Hydrogen Roadmap'.
  19. Section 8 and 14 of the Australian Renewable Energy Agency Act 2011 (Cth) limit ARENA from investing in non-renewable research and technologies. Section 58(3) of the Clean Energy Finance Corporation Act 2012 (Cth) ensures at least half the funds at the time for the purposes of its investment function are invested in renewable energy technologies. CEFC is also prevented from investing in carbon capture and storage by s62(a) of that Act.

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