Frontier Energy is set to capitalise on the Australian Government’s decision to push ahead with its strategy to make Australia a leader in green hydrogen. Pic via Getty Images.
Energy
The costs of green hydrogen complacency are high but with Australia’s national hydrogen strategy now under review, development for shovel-ready projects like Frontier’s Bristol Springs Project could come faster than expected.
It was back in February when Deloitte’s report on Australia’s urgent case to support renewable hydrogen production sent shockwaves through the investment community, highlighting the need for public investment of A$15.5 billion over the coming decade to counter a “subsidy arms race” sparked by the US.
Since Joe Biden’s Inflation Reduction Act (IRA) promised US$370 billion in tax credits to the US renewable energy industry in August last year, more than 100,000 clean energy jobs have been created and almost US$90 billion invested in a matter of six short months.
Australia stands at a crossroads, the report said, with global competitors such as the US, Europe, and Gulf State establishing significant first mover advantages, entering a bidding war for market share and dominance.
“A delayed start due to low competitiveness could leave Australia with limited opportunities for the hydrogen value chain,” the authors said.
“And in turn, this would slow the decarbonisation of Australia’s industrial base, [and] inhibit momentum for regional economic diversification. Delay risks forgoing opportunities for low-cost renewables and hydrogen to cornerstone the revival of Australian clean manufacturing.”
The warning was backed by comments from former Reserve Bank of Australia deputy governor Guy Debelle, who said “there was not a moment lose”.
But there is cause for hope following the government’s recent Energy and Climate Change Ministerial Council decision to review the national hydrogen strategy and support Australia “on a path to be a global hydrogen leader by 2030” on both an export basis and for the decarbonisation of Australian industries.
While competition is fierce, ministers agreed the review will consider developments globally – such as the impact of the Inflation Reduction Act – and in Australia, from the time when the original strategy was developed three years ago.
Industry experts anticipate the revised national hydrogen strategy will drive a meaningful increase in the level of government support provided to the domestic hydrogen industry, with players such as Frontier Energy (ASX:FHE) – poised to be one of the first low-cost green hydrogen producers in WA – set to benefit.
BW Equities, a Melbourne boutique corporate advisory, has placed a ‘buy’ recommendation on the stock, stating that while FHE is unlikely to pocket any supply-side subsidy, additional support would “catapult the adoption curve for Australia”.
“In turn, this will shorten offtake discussions and ultimately raise the likelihood of additional stages reaching financial investment decision,” the advisory said.
“With the goal to generate 1GW of solar energy, around 9 times the size of stage 1, this is where we see the real benefit for FHE.”
A definite feasibility study for the first stage of Frontier’s Bristol Springs renewable energy project estimates an initial capital cost of $242.5mn, inclusive of the 114-megawatt solar farm, as well as a 36MW alkaline electrolyser.
The project is located in Western Australia, only 50km from the Port of Bunbury and 60km from Kwinana, one of the state’s strategic industrial areas. Its proximity to nearby infrastructure including access to an existing water pipeline and connection to the Southwest Interconnected System (SWIS), will drive a targeted annual production of 4.6M kilograms of green hydrogen per year at a total of $2.77/kg. This represents an 11% increase from estimates produced in the pre-feasibility study and is globally competitive when measured against USA’s IRA, which will enable clean hydrogen facilities to earn a US$3/kg production tax credit.
In an interview with Stockhead, FHE managing director Sam Lee Mohan said the company is now in offtake discussions with multiple, large tier-1 super majors.
“We plan to start early works by the end of this year and construction on the hydrogen plant by Q1, 2024,” he said.
“This means the solar plant will be fully commissioned and operating in late 2025 and the hydrogen plant operating in late 2025, early 2026.”
NOW READ: DFS confirms Bristol Springs as low-cost near-term hydrogen producer
With the clock ticking on green hydrogen investment, Lee Mohan said the national hydrogen strategy needs to move from an action-oriented framework to one that aligns itself with shaping investment priorities.
“When you consider our 2030 43% emission reduction targets under the Climate Change Act, we need about 82% of renewables connected to the grid Australia wide,” he said.
“That is an extremely challenging task because we’ve got about 84 months to deliver that.
“Worst case scenario is we don’t have the systems and processes in place for large manufacturing and refining companies or industrial scale businesses to fuel switch and we run the risk of not just meeting a potential export opportunity in this new hydrogen economy, but having a real impact on our existing economy as LNG exports start to diminish in the 2050’s and countries switch to cleaner fuels,” he added.
“It’s important that any potential announcements around demand side affordability envelopes are announced in parallel to the national hydrogen strategy being revised, otherwise we will also risk intellectual property being syphoned into other countries around the world.”
This article was developed in collaboration with Frontier Energy, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
Mining
Mining
Mining
Get the latest Stockhead news delivered free to your inbox.
