Hydrogen energy is a crucial battleground in the pursuit of net-zero carbon emissions. Australia, with its favorable solar and wind conditions, has long recognized hydrogen potential, launching a hydrogen strategy in 2019. However, five years later, Australia has failed to become a hydrogen powerhouse, falling behind the United States and the Middle East. In May of this year, Australia further increased its green hydrogen subsidies. At a time when Asian hydrogen buyers are aggressively developing their hydrogen supply chains, can Australia win back hydrogen orders?
Australia's hydrogen energy is "too expensive" and investors are deterred.
In April of this year, S&P Global reported that Australia was facing a loss of supply chain orders due to the high cost of green hydrogen. Australia has approximately 156 green or low-carbon hydrogen projects with a total projected capacity of approximately 10 million metric tons, of which approximately 146 are green hydrogen projects. However, investors have been hesitant to invest, with only three projects reaching final investment decisions.
S&P Global notes that since 2021, the cost of green hydrogen produced through electrolysis has risen due to a 20% to 45% increase in electrolyzer costs. Global inflation has also significantly increased plant construction costs, negatively impacting Australia. In contrast, low-carbon hydrogen produced in Middle Eastern countries utilizes existing infrastructure, resulting in a lower impact.
Although hydrogen is a low-carbon energy source, its carbon emissions vary depending on how it's produced. Hydrogen produced by electrolysis of water using renewable energy sources like photovoltaic or wind power is called "green hydrogen." Hydrogen produced from fossil fuels is called "gray hydrogen" and doesn't meet low-carbon energy requirements. However, if processed using carbon capture, reuse, and storage (CCUS) technology, gray hydrogen's carbon emissions are reduced, making it known as low-carbon hydrogen or "blue hydrogen."
The US and Europe are competing in subsidies, with Australia catching up quickly
"The world has changed," said Alison Reeve, deputy director of the Grattan Institute's energy and climate change program, who helped develop Australia's hydrogen strategy.
Another reason Australia has lost its hydrogen advantage is the massive subsidies for renewable energy in Europe and the United States. Leaf explained that the EU has spent trillions of euros on post-pandemic economic recovery, shifting industries from Asia to Europe. The 2022 US Inflation Reduction Act (IRA) also heavily subsidized domestic renewable energy.
Australia is catching up quickly, launching a AUD 2 billion (US$1.3 billion) "Hydrogen Headstart" program in 2023. Six companies have passed the first round of selection, with a total electrolyzer capacity of 3.5GW. Australian Minister for Climate Change and Energy Chris Bowen stated that the "Hydrogen Headstart" program will solidify the development of hydrogen energy and put Australia on the path to becoming a renewable energy superpower.
Asia sourcing: International hydrogen energy competition unfolds
In May 2024, Australia launched the "Future Made in Australia" plan to make Australia a renewable energy superpower.
Finance Minister Jim Chalmers announced a further A$2 billion boost to the Hydrogen Jumpstart, along with a tax credit of A$2 per kilogram of Australian-produced green hydrogen for 10 years. The incentives are estimated to cost A$6.7 billion.
S&P Global stated that Australia's subsidy is unprecedented and the industry is optimistic about it. However, a closer look reveals that the US hydrogen subsidy is US$3 (approximately 4.5 Australian dollars) per kilogram, more than double Australia's.
The deputy director of research and analysis at S&P Global Commodity Insights believes that this will help narrow the gap in subsidies between the US and Australia and will attract buyers. He said that without this subsidy, the cost of exporting green ammonia from Australia to Japan would be more than twice that of US green ammonia.
The Australian Financial Review (AFR) pointed out that the Japanese government has planned to invest 3 trillion yen in hydrogen energy projects over 15 years and will begin selecting investment targets in the next few months. Facing strong competition from the United States, Australia needs more advantages.
References：
♦ Prime Minister of Australia (May 14, 2024),Investing in a future made in Australia
♦ Australian Financial Review (July 18, 2024),Green hydrogen too ‘expensive and inefficient’: Finkel
♦ S&P Global (April 25, 2024),Costly Australian renewable hydrogen may lose upcoming supply deals to Middle East, US
♦ S&P Global (May 15, 2024),Australia’s A$2/kg Production Tax Incentive for renewable hydrogen to help energy transition
♦ Dialogue (December 3, 2023),Hyped and expensive, hydrogen has a place in Australia’s energy transition, but only with urgent government support
♦ Prime Minister of Australia (May 14, 2024),Investing in a future made in Australia
Sources: Environmental Information Center
