What exactly does the budget’s $2 billion Hydrogen Headstart funding mean for the Aussie industry?
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Hydrogen was a big winner in this year’s federal budget, with the Government earmarking a $2 billion Hydrogen Headstart program aimed at bridging “the commercial gap for early projects” and placing Australia on course to develop a gigawatt of electrolyser capacity by 2030 through two to three flagship projects.
The Australian Renewable Energy Agency (ARENA) said the funding will provide revenue support for investment in renewable hydrogen production through competitive production contracts.
Basically, the funding will cover the commercial gap between the cost of hydrogen production from renewables and its current market price.
As Stockhead’s Bevis Yeo points out, there are also calls for a subsidy of about $2 per kilogram of green hydrogen produced, which is half as much offered under the United States’ Inflation Reduction Act.
Since Biden 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 – as Deloitte pointed out back in February with its report on Australia’s urgent case to support renewable hydrogen production.
ARENA CEO Darren Miller said the initiative will ensure large scale hydrogen projects already in development can get off the ground in Australia.
“Australia has an unparalleled opportunity to become a global green hydrogen leader, but we can’t afford to lose our momentum as other competing countries step up their ambitions and support,” he said.
“This funding will reduce the cost of green hydrogen produced via renewable electricity and will scale up our hydrogen sector.
According to new analysis by McKinsey and modelling by DCCEEW, Australia’s hydrogen industry could generate $50 billion in additional GDP, and create more than 13,000 regional jobs and a further 13,000 jobs from construction of new renewable energy infrastructure by 2050.
Australian Association for Hydrogen Energy director and University of Sydney Professor François Aguey-Zinsou says hydrogen is still a relatively expensive exercise because the technology has never been deployed at scale, so there are many countries subsidising companies for projects to start and be viable.
“The Australian Government says that $2 per kilo of hydrogen is a target we should reach to start to have some commercial viability,” he said.
“At the moment hydrogen from renewable energy is about $6 per kilo.”
And while Professor Aguey-Zinsou believes the goal of a gigawatt of capacity by 2030 is achievable, he says we’re a bit late.
“Saudi Arabia already signed a contract with a large German electrolyser company to deploy five gigawatts of electrolyser and this will probably be done in the next two to three years,” he said.
“So, if we do a gigawatt by 2030, we will be behind already.
“Typically, we are looking at deploying technology that has already deployed somewhere else, and I think we need to accelerate.”
— Fortescue Future Industries (@FortescueFuture) May 10, 2023
Beyond the obvious jobs and growth benefits, hydrogen also has the potential to cut annual global emissions by up to 20% by 2050, McKinsey research says.
It can be combusted for industrial heat, used as a chemical input for green manufacturing, a fuel for heavy transport, or liquified and compressed for export to key trading partners.
Sparc Technologies (ASX:SPN) GM renewable energy Nick O’Loughlin says hydrogen is already a massive 90 million tonne per year industry – it’s just that 99% of that hydrogen is produced via fossil fuels.
“Regardless of what people may think about using hydrogen in your car, or in trucks, or whatever other application, there’s already a huge market out there which requires decarbonisation,” he said.
“There is already a big industry out there and there are offtakers out there, it’s all about just producing at a price that can match their existing production.”
And while $2 billion is a nice start, it’s not the much funding in the scheme of things, O’Loughlin says.
“It will be able to support a handful of projects, but not many given the scale at which electrolysis projects need to be built to be competitive – they can be multi-billion-dollar projects in and of themselves,” he said.
Unfortunately for Sparc, the funding isn’t directly beneficial to their hydrogen joint venture with the University of Adelaide to develop a photocatalytic green hydrogen technology prototype in July/August before scaling up to a pilot plant.
One way to reduce production costs is to produce hydrogen in locations with cheap and plentiful renewable energy sources and where there’s existing gas pipelines and infrastructure – which is what Port Anthony Renewables (unlisted) is aiming for, with its hydrogen-hub plans in southeast Australia.
The Port is strategically and geographically situated to take advantage of the emerging energy market, with the plan to build an intricate network of refuelling stations across Australia to expedite the conversion to carbon-free hydrogen-powered vehicles.
The idea is that if refuelling stations are built and costs reduced, hydrogen will produce reliable power for industries currently dependent on aging diesel fuel systems – which is great for our net zero ambitions.
Notably, Port Anthony also has a joint venture with Infinite Green Energy (also unlisted) for Port Welshpool in Victoria, where the plan is to host liquefaction and storage at the port for ease of export in domestic Victoria and to Asia Pacific markets under development.
Infinite Green Energy also has the Arrowsmith project in WA where they’re chasing a Final Investment Decision (FID) for 2024.
On the listed side, one company looking to decarbonise road transport is ReNu Energy (ASX:RNE), with renewable hydrogen projects in Tasmania heading towards a final investment decision this year.
The company’s hydrogen investee company Countrywide Hydrogen (CH) is developing hydrogen projects in Hobart and Launceston (and a possible third at Burnie), strategically located to deliver a hydrogen refuelling network across the state for road transport – which means a key success factor will be the delivered cost of hydrogen because it will be competing to replace the traditional fossil fuels like diesel and natural gas.
“CH is confident the announced Federal Government support to minimise the price of hydrogen will accelerate the uptake of hydrogen which means emissions reduction targets will be achieved faster, impacting positively on air quality and health,” Countrywide Hydrogen MD Geoffrey Drucker said.
Another Aussie company set to benefit is Frontier Energy (ASX:FHE) which is poised to be one of the first low-cost green hydrogen producers in WA with its Bristol Springs Green Hydrogen Project.
The company recently completed a Definitive Feasibility Study that outlined an initial capital cost of $242.5m, inclusive of the 114-megawatt solar farm, as well as a 36MW alkaline electrolyser.
Plus, the 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 4.6Mt of green hydrogen per year at a total of $2.77/kg.
First production is scheduled for 2025/early 2026. A timeline that could coincide nicely with the Government’s hydrogen funding – however it’s dished out.
BW Equities, a Melbourne boutique corporate advisory, is certainly a fan, believing that supply-side equities would “act to catapult forward the adoption curve for Australian hydrogen – in turn shortening offtake discussions and raising the likelihood of additional stages of FHE’s Bristol Springs Project reaching FID.”
BW Equities on $2bn Hydrogen Headstart program announced in last night’s #budget and implications for $FHE: “We believe supply-side subsidies would act to catapult forward the adoption curve for Australian #hydrogen – (continued) pic.twitter.com/wKoWAernHr
— Frontier Energy (@FrontierASX) May 10, 2023
GreenHy2 (ASX:H2G) is focused on Stand Alone Power Systems, with the development of hydrogen storage systems in metal hydrides, which involves breaking up the hydrogen molecules and storing them on the ferrous titanium – a significant cost advantaged because hydrogen stored in metal hydride tanks has no expiry date.
Earlier this month Barclay Pearce Capital (BCP) set a Speculative Buy rating on the company with a target price of 5c (versus current price of 2c).
BCP believes GH2 has several tailwinds, including a political landscape that’s conducive to the company’s growth, and said H2G’s tech is the only one capable of 100% renewable fraction, and is completely green, using 100% renewable generation.
Then there’s companies developing hydrogen powered vehicles like Pure Hydrogen (ASX:PH2) which plans to launch the Taurus this week at the Brisbane Truck Show; a 220kW 6×4 prime mover with a hydrogen refuelling point able to handle B-Double loads of up to 70 tonnes.
PH2 is also developing the Moreton Bay hydrogen project in Queensland which will be a site for hydrogen manufacturing and distribution with an initial targeted output of 1,000 tonnes of clean hydrogen per year.
Plus, there’s quite a few hydrogen stocks on the ASX focused on finding hydrogen, like Gold Hydrogen (ASX:GHY) which has seven applications for exploration in South Australia.
Provaris Energy (ASX:PV1) is progressing its green hydrogen export Tiwi H2 project in the Tiwi Islands, Northern Territory, with the plan to develop an integrated compressed hydrogen export supply chain for up to 100,000 tonnes per annum, “avoiding up to 1 million tonnes of CO2 emissions annually,” the company says.
Interestingly, Australia isn’t the only one investing in Australia, with Japan keen to secure Victorian lignite hydrogen resource part of the international Hydrogen Energy Supply Chain (HESC) project, announcing plans in March to commit $2.35 billion towards the HESC project in the state.
Environmental Clean Technologies (ASX:ECT) has projects in Victoria (Bacchus Marsh and Latrobe) and while not part of the HESC consortium, plans to prepare its COLDry demonstration facility for any vendor selection process for projects that require a lignite drying solution.
A WA play is Pilot Energy (ASX:PGY) which is working on a carbon capture and storage operation to convert the operating Cliff Head offshore oil field to enable to production of blue and green hydrogen and ammonia at its Mid West Clean Energy project.
Province Resources (ASX:PRL) is developing the HyEnergy green hydrogen project in WA’s Gascoyne region, where it’s looking to undertake Pre-Feasibility studies (PFS).
At Stockhead we tell it like it is. While Frontier Energy, Sparc Technologies and Port Anthony Renewables are Stockhead advertisers, they did not sponsor this article.