Australia’s hydrogen outlook

Australia’s recent history of uncertain energy policy has decimated investment in new energy infrastructure, creating real barriers to innovation, adaptation and the adoption of new technologies.

Hydrogen is a carbon-free, zero emissions fuel source that has the potential to project Australia to become a renewable energy exporting superpower. Through harnessing Australia’s abundance of renewable resources, we could position ourselves as a global provider of clean green hydrogen. This industry could replace our economy’s reliance on coal exports and Australia would become a shining light to countries doing their best to tackle climate change and protect the world’s future.

However, harnessing hydrogen’s potential is not that simple and the complexities within Australia mean our place in the hydrogen story could vary enormously depending on a number of factors. Significantly, government policy settings will play a pivotal role in the hydrogen industry’s development and Australia’s continued energy policy uncertainty has not worked in its favour. Let’s first understand the facts surrounding hydrogen and then look at it in the context of Australia.

Hydrogen is a very attractive fuel source as it produces zero emissions and generates more energy than many other fuels (such as gas for example). It can be produced using a number of processes and a crucial distinction between these processes is whether they use energy from fossil fuels or renewable resources. Most of the world’s current hydrogen is produced with fossil fuels, which while it is creating a ‘clean’ energy it is using a ‘dirty’ fuel to do so. Hydrogen produced using coal is referred to as ‘brown’, and with gas it is known as ‘blue’ to delineate the distinction. ‘Green’ hydrogen comes from a process of water electrolysis that uses electricity from renewable sources (like wind and solar). A final important distinction is ‘clean’ hydrogen, which comes from either renewables or from fossil fuels but using technology that captures and stores carbon, referred to as carbon capture and storage (CCS).

Australia is in the box seat for green hydrogen production because we have an abundance of renewable resources. Our investment and uptake of renewables has been very strong, despite an uncertain and unpredictable energy policy (and leadership) environment in Canberra. Australian companies are turning to renewable energy through large scale solar/wind farms and individual households are also contributing by the purchasing of rooftop solar panels. Bloomberg New Energy Finance’s modelling has predicted that Australia will be powered by 84% renewable energy in 2050, making it one of the world’s most renewably powered regions (just behind Europe). Importantly, this projection is not dependent on policy direction and is instead driven by the economics of renewables in Australia. This is supported by the Clean Energy Regulator’s Quarterly Carbon Market Report which showed 25% of Australia’s electricity came from renewables, as investment in renewables climbed a further 24% last year from the previous record set in 2018.[i] Australia’s renewable energy potential is beginning to be realised, validating the idea that we are in a position to make the most of our abundance of natural resources in hydrogen production.

So, will Australia use hydrogen to become an energy superpower? The answer is it is very difficult to predict. Global investment has grown in recent years and there are an increasing number of governments committing to early development and pilot programs. Australia was one of these countries with the Federal and state governments unanimously committing to the National Hydrogen Strategy, in November last year. The Strategy was created and led by Chief Scientist Alan Finkel, who has unapologetically championed hydrogen as the ‘hero’ to Australia’s future energy industry. In addition, most state governments have developed their own hydrogen strategies or plans, and commercial interest and partnerships have begun emerging.

In Victoria the Hydrogen Energy Supply Chain (HESC), a world-first pilot project to safely and efficiently produce and transport clean hydrogen from Victoria’s Latrobe Valley to Japan by sea, is underway. In Queensland, the coal-mining town of Gladstone has been chosen as the location of The Hydrogen Utility’s (H2U) latest project, with government support announced in February for a proposed multi-billion dollar chemical complex for the production of green hydrogen and ammonia at industrial-scale. These projects indicate that Australia is responding to hydrogen’s potential, but it remains to be seen if the sector takes off globally, and whether our governments’ strategic plans and pilot projects position us to lead the pack.

Hydrogen is still relatively early in its evolution as a widespread accessible fuel, but its potential is undeniably enormous. Australia has a lot working in its favour to produce green hydrogen with our renewable resources, a track-record of building large-scale energy industries and proven partnerships with big energy importers in Asia. Significantly if our focus is on green hydrogen then this will contribute to lowering our carbon emissions sooner as Australia and the world increasingly decarbonise. The speed of decarbonisation globally will affect the preference and demand for green hydrogen as markets are likely to have increasingly stringent requirements for hydrogen to be clean over time. The National Hydrogen Strategy is ‘technology neutral’ and its preference for ‘clean’ hydrogen will impact the immediate projects that emerge in Australia over the coming years.

What is clear is that an ambitious hydrogen strategy which is led by government will open Australia up to gaining much more. The continued energy policy uncertainty in Australia has undermined confidence in how ‘real’ some of the hydrogen policy settings are and the challenge remains for State and Federal Governments to work together to make the most of hydrogen’s potential. There has undoubtedly been more recent progress domestically, but we are not the only country investing significantly in hydrogen and not all policy ambitions with great potential come to their fruition.

Stefan Anjou is a Policy Analyst at FPL Advisory.

FPL Advisory is a team of specialists resolving risks and creating opportunities with respect to government. We work with public sector and corporate clients to execute strategies for owning and managing change