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Australia needs policies and incentives to drive green hydrogen deployment, says industry

The emerging renewable (green) hydrogen sector in Australia needs governments to deliver policies and incentives to help their project proposals get off the ground, according to the Clean Energy Council’s 2022 annual survey of its renewable hydrogen membership.

The Clean Energy Council’s members nominated ‘government funding to help projects achieve scale’ as the most important priority for industry development in the next 1-2 years, followed by ‘local demand creation’ and ‘lowering the cost of renewable electricity projects’.

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Despite the rising cost of gas, which is pushing up the cost of green hydrogen’s fossil-based competitors – natural gas and ‘blue’ hydrogen – green hydrogen projects are also facing rising costs due to price increases in materials (e.g. steel and other metals), equipment (e.g. solar modules and wind turbines) and shipping.

The Clean Energy Council’s Policy Director – Electrification & Hydrogen, Anna Freeman, said that the rising costs were making it harder to get new project proposals across the line.

“The long-term outlook for cost reductions in green hydrogen is positive – electrolyser costs will fall, and so too will electricity prices. But right now, projects are struggling to bridge the gap between the capital outlay for new plants and customers’ ability to pay the price premium for a green molecule fuel,” she said.

“In recent months, we have only seen the capital costs of planned new projects increase further, with the current global inflationary pressures and supply chain shortages. For example, the World Bank expects metal prices to rise by 16 per cent this year and energy prices to rise by 50 per cent”.

“We need markets for green hydrogen and we need financial support to help the industry scale-up. Scaling up will assist proponents to drive down the levelised cost of hydrogen.”

The survey makes it clear that the best place to start in creating local demand is in decarbonising the ‘hard-to-electrify’ segments, such as chemicals and fertilisers (a number of which already rely on ‘grey’ hydrogen (from fossil fuels and carbon capture and storage), heavy transport and steel.

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And to accelerate the switch from grey to green, industry would like to see governments deploy broader-based support mechanisms than grant programs.

“A carbon price is at the top of the wish list as it would supercharge decarbonisation projects across the economy, helping hydrogen to be deployed for those uses where it is most competitive.

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“In the absence of these preferred broad-based emissions reduction policies and settings, more targeted support programs, such as incentives or subsidies for fuel switching, could speed up project deployment.”

So far in Australia, the main form of government support for the emerging hydrogen sector has been in the form of grants for feasibility studies or capital investment. New South Wales has singled itself out as a notable exception here, with a planned renewable hydrogen target from 2024 and heavy discounts to network charges for hydrogen electrolysers deployed by 2030.

“Grants are helpful, but they don’t provide predictable income streams, transparency or the flexibility that can put a business case on a stronger, more sustainable footing.

Seventy per cent of survey respondents also said that Australian governments were not investing enough in hydrogen. Note that the survey was conducted before the announcement of the latest Clean Hydrogen Industrial Hubs funding.

Product differentiation is important for the renewable hydrogen sector, and two-thirds of respondents indicated that a credible guarantee of origin scheme for hydrogen would be needed by 2023 to facilitate offtake deals and trade.

“Potential hydrogen buyers will want assurance in terms of the environmental credentials of the product they are purchasing, so a guarantee of origin scheme is essential for facilitating trade.”

The Australian Government, via the Clean Energy Regulator, has recently begun trials of its guarantee of origin scheme for hydrogen, which are due to run until mid-2023.

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