Australia’s plan to become a renewable superpower is focused on pouring more money into green hydrogen. Can it live up to the hype? By Mike Seccombe.

Fact check: Green hydrogen’s big promise

Two men in suits walk down a red carpet with decorated soldiers.
German Chancellor Olaf Scholz (right) welcomes Prime Minister Anthony Albanese for a meeting at the chancellery in Berlin this week.
Credit: AP Photo / Markus Schreiber

Green hydrogen is like the Nick Kyrgios of the clean energy economy. Years of hype by its supporters about its boundless potential to become an Australian world-beater have been frustratingly unmatched by results.

In 2019, Australia became just the third country to establish a national hydrogen strategy. As of last year, according to the authoritative REN21 Global Renewables Resources report, Australia had the largest number of announced renewable hydrogen plants in the world – about 40 per cent of the total.

Those announcements, according to the government, added up to between $230 billion and $300 billion. By the end of last year, however, “only a single Australian project with a capacity of at least 10 MW had reached a Final Investment Decision,” according to a government discussion paper released as part of a review of the hydrogen strategy this month.

One small project.

“This compares to almost 1400 MW of capacity in the European Union, and 300 MW of capacity in the United States, of such projects to reach FID,” said the paper.

Yet the salesmanship continues. This week, Prime Minister Anthony Albanese announced Australia was joining the so-called Climate Club, an initiative of German chancellor Olaf Scholz, and trumpeted a partnership between Australia and Germany in the production and transportation of green hydrogen.

“My government has set the ambition for Australia to be a renewable energy superpower, but we also want to be a renewable energy export superpower, working with countries like Germany on the industries of the future,” he said.

Australia will need to get its skates on. As the discussion paper highlighted, Australia is not only lagging but the “disparity” is “compounding”, as other nations – most notably the US – have enacted “extensive policy measures” and are spending big bucks in support of their own hydrogen industries.

In fairness, the current government has had only a little more than a year to overcome the policy inertia of the preceding Morrison government. It has committed $2 billion to a Hydrogen Headstart program and more than half a billion dollars in regional hydrogen hubs as it seeks to prove, as Climate Change and Energy Minister Chris Bowen put it when launching the policy review, that Australia now is “ready to be a serious international player”.

There are signs the government’s support for hydrogen projects is encouraging investment. This week saw the announcement that the Australian Renewable Energy Agency (ARENA) had kicked in $32 million to a $111 million project to replace some natural gas with green hydrogen at Rio Tinto’s Yarwun alumina refinery in Gladstone, Queensland. The new plant is expected to be operational by 2025.

It’s only a trial, expected to reduce the plant’s carbon footprint by about 3000 tonnes a year – a tiny fraction of the Yarwun refinery’s annual 500,000 tonnes of greenhouse gas emissions. But it is at least a start.

Until now, says Tony Wood, energy program director at the Grattan Institute, “what we’ve had is a lot of noise. Everyone wants to have their own hydrogen hub, a hydrogen forum, a hydrogen road map, a hydrogen taskforce, whatever you want.

“There’s been lots of tyre kickers,” he says.

This is perhaps understandable given the many uncertainties around the viability of a hydrogen industry. Its boosters have proclaimed the gas as something of a climate panacea. It could, they say, fuel industries such as steel and cement-making, which are otherwise hard to abate; run heavy transport, power stations, ships and aircraft; even replace fossil gas for heating and cooking in our homes.

It may well do some of those things, but big obstacles remain – in terms of technology, infrastructure and, above all, cost – that need to be overcome. And some of the ideas will never fly.

“I think what we’ve done is started to rule out some of the things that probably aren’t going to make any sense,” says Wood.

For example, blending hydrogen with natural gas for use in homes, he says, is a waste of time and money. It is much more practical and cost effective to simply electrify homes and small businesses. And why would Australia use expensive hydrogen to fuel power stations when solar and wind are so much cheaper?

The idea of using hydrogen as a means of storing energy – when variable solar and wind generation is in surplus – and making it available to help meet peak electricity demand also looks less practical as battery technology improves and prices fall.

Many people still see opportunities for hydrogen to be used in certain manufacturing processes, heavy industry such as minerals refining and some transport. But most likely, say Wood and others – including Albanese this week – the future lies largely in exports.

The demand from other nations is clear. The German government, for instance, has committed €7 billion (about $11.5 billion) for the development of its domestic green hydrogen industry, and another €2 billion to establish international trade partnerships with countries that have more favourable production conditions for green hydrogen, including Australia.

“The Germans have been extremely active in engaging with Australia over the course of the last three years or so,” says Anna Freeman, policy director for decarbonisation with the Clean Energy Council.

As evidence of this, she cites an agreement struck last year, in which Germany kicked in €50 million, and ARENA put in another $50 million to a joint incubator called HyGATE, to fund a handful of Australian pilot projects.

The Germans have plenty of company on the hydrogen bandwagon, says Fiona Simon, chief executive of the Australian Hydrogen Council, the peak body for the industry.

“The Netherlands are super keen and see the Port of Rotterdam as the entry point to the whole of Europe. They’re forming MoUs [memorandums of understanding] with people left, right and centre. Japan and Korea are talking more right now about what we call blue hydrogen. A lot of deals are being done for blue ammonia,” she says.

Hydrogen is described in a whole palette of “colours”, although the gas is colourless. There is white, grey, pink, yellow, even turquoise – all distinguishing different processes by which it is made.

The two most relevant to Australia are blue and green: blue being that produced from fossil fuel in a process that emits carbon dioxide as a byproduct, which is then captured and sequestered. Green is produced by using renewably generated electricity to split water molecules into their component atoms, hydrogen and oxygen. The process produces no greenhouse gas.

Hydrogen itself is difficult to transport – it must be cooled to minus 260 degrees before it liquefies – but can be compounded with nitrogen into ammonia, which liquefies at minus 33 degrees, and then used either as ammonia or separated later.

The Morrison government was colourblind when it came to hydrogen, and encouraged its production from fossil fuels. The Albanese government favours green, as increasingly does most of the world.

The Europeans, says Simon, “aren’t keen on anything other than green hydrogen, and that then determines which countries they deal with”.

The Ukraine war has sharpened Germany’s interest, she suggests. Germany was by far the biggest importer of Russian gas before the invasion, and has been scrambling to find new energy sources.

In Europe, and to some extent the industrialised world in general, says Simon, “energy policy is industry policy. Industry policy is national security policy.”

And competition to supply green hydrogen is heating up, fast, as a consequence.

The big new competitor is the US, following the passage last year of the Biden administration’s Inflation Reduction Act, which committed $US369 billion towards energy security and climate change programs over the next 10 years.

It provided, among other things, generous incentives for green hydrogen production.

“They’re subsidising green hydrogen to the tune of $US3 per kilo, which has effectively closed the commercial gap,” says Anna Freeman.

“So we’ve also got a clean energy arms race that is effectively working against us now in Australia, in that we expect that more capital, more equipment, more talent will be heading to the US.”

This competitive struggle compounds the supply chain issues and sharp cost increases that began with the pandemic and were exacerbated by the Ukraine war, she says – amounting to tough times not only for the nascent hydrogen industry, but for the whole renewables sector in Australia.

“Proponents that I’ve spoken to in recent months have talked to me about a 30 to 40 per cent increase in their capital costs… since 2020 or so,” Freeman says. “In the first quarter of this year, we didn’t have a single generation project come to financial close.

“What we have seen is a gradual decline in the rate of deployment of projects over recent years. What we need to see is more than a doubling of the number of projects coming online every year, from where we are now.”

In recent times there has been a growing chorus of expert voices suggesting Australia is not on track to meet its 2030 climate targets. Not only is new electricity generation capacity falling short but, says Freeman, the transmission system is “a decade behind” where it should be.

Only last week a number of industry leaders, including former Energy Security Board chair Kerry Schott and former Snowy Hydro chief executive Paul Broad, told The Australian Financial Review the nation was unlikely to achieve its goal of 82 per cent renewable energy in the electricity system by 2030.

How can a system struggling to meet current demand possibly cope with the extra load imposed by highly energy intensive hydrogen generation?

Then there is the question of cost. The government’s policy aim is to get hydrogen production down to $2 a kilogram, and it has a long way to go before it is competitive with fossil fuels, let alone solar and wind, says Freeman. “At the moment, projects are somewhere between … $5 and $9 a kilo,” she says.

The Australian government could, of course, subsidise it, as the US and Europeans are doing. But those countries are subsidising for domestic use, to prop up their large industrial and manufacturing bases. If Australia did likewise, it would be subsidising exports – effectively subsidising other countries.

No doubt, say the experts, production costs will fall as equipment such as the electrolysers used to split the hydrogen off from water get cheaper. But the biggest cost remains electricity, and bringing its cost down to a point where green hydrogen is cost competitive, Freeman says, is “the holy grail for hydrogen projects in Australia, and internationally”.

ARENA has devoted about $40 million to fund research towards ultra-low cost solar: the so-called 30/30/30 plan, which aims to achieve 30 per cent module efficiency, at 30 cents per installed watt, at utility scale, by 2030.

That equates to about 1.5 cents a kilowatt hour, about a third of the current cost.

“And the reason it wants to do that is because unless you’re making solar at one to two cents per kilowatt hour, you can’t make hydrogen at a price that anyone ever will buy it for,” says Saul Griffith, former climate adviser to US President Joe Biden, advocate of electrification and trenchant critic of plans to make Australia a hydrogen superpower.

“And that’s before the cost of transporting it. So you have to use it onsite. That means now you have a giant industrial load next to a giant solar farm,” he tells The Saturday Paper.

And if that’s the case, he says, why not just use the electricity, instead of going to all the bother and cost of converting it to hydrogen?

“I think it’s insanity.”

Subsidising the production of hydrogen, says Griffith, amounts to stealing from Australian electricity users. “The government is stealing money from the women and children, where it could be lowering the household bills through electrifying them.”

He sees very few applications for which hydrogen has any advantage over electricity.

Griffith’s is a minority view. But it also is true that he is a brilliant engineer, with a much deeper experience in renewables, including hydrogen, than most of those on the other side of the debate.

He rather likes the metaphor about Nick Kyrgios and green hydrogen, although he thinks it’s a bit tough on the tennis player.

Unlike Kyrgios, he says, hydrogen “hasn’t even made it to the majors”.

Maybe one day it will. But the evidence suggests its future as a renewables champion is still a long way off.

This article was first published in the print edition of The Saturday Paper on July 15, 2023 as "Fact check: Green hydrogen’s big promise".

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