Strategies for Unlocking Cost-Competitive Hydrogen Production in Australia

Australia’s 2024 National Hydrogen Strategy outlines a comprehensive plan to position the country as a global leader in hydrogen production, both for domestic decarbonization and as a key export. The strategy capitalizes on Australia’s vast renewable energy potential and proximity to major hydrogen markets, such as Asia, while addressing the challenges of scaling up hydrogen production to a competitive level. This technical report explores the strategies outlined in the 2024 National Hydrogen Strategy aimed at establishing a cost-competitive hydrogen industry in Australia.

1. Setting Ambitious Production and Export Targets

Establishing National Hydrogen Production Targets

Australia’s strategy sets clear and ambitious goals for hydrogen production, aiming to produce at least 15 million tonnes of hydrogen annually by 2050, with the potential to stretch to 30 million tonnes. These targets provide a clear signal to both domestic and international stakeholders about Australia's long-term commitment to the hydrogen industry. Achieving these targets will not only require significant investment in hydrogen production facilities but also in the supporting infrastructure to enable large-scale production.

5-Yearly Production Milestones

To maintain momentum toward the 2050 target, the strategy sets five-yearly production milestones. By 2030, Australia aims to produce between 0.5 and 1.5 million tonnes of hydrogen annually. This phased approach allows for the gradual scaling up of hydrogen production while assessing the impact of technological advances and market conditions.

Export Targets

Australia recognizes its potential as a major exporter of hydrogen, particularly to markets in Asia and Europe, where demand is expected to grow significantly. The strategy sets an export target of 0.2 million tonnes of renewable hydrogen per year by 2030, with the possibility of increasing exports to 1.2 million tonnes annually. These export targets are designed to attract foreign investment and solidify Australia’s position as a leading supplier of green hydrogen to the global market.

2. Driving Down Production Costs

Prioritizing Renewable Hydrogen

Australia's strategy emphasizes renewable hydrogen as the primary pathway to align with the country’s commitment to net-zero emissions. Green hydrogen, produced through electrolysis using solar and wind energy, offers the most sustainable solution. While acknowledging the role of fossil fuel-based hydrogen production with carbon capture and storage (CCS) in the short term, the strategy focuses on renewable hydrogen as the long-term, cost-competitive solution.

Production Incentives

To address the current high production costs of hydrogen, the strategy introduces key incentives designed to accelerate the industry’s growth:

• Hydrogen Production Tax Incentive: This refundable tax offset provides eligible producers with $2 per kilogram of renewable hydrogen produced from 2027–28 to 2039–40. By lowering production costs, this incentive aims to drive the early deployment of green hydrogen projects.
• Hydrogen Headstart Program: This program offers revenue support to large-scale, early-stage hydrogen projects, targeting the financial barriers that hinder these initiatives. The $4 billion budget allocated to this program is expected to enable the development of major hydrogen projects, lowering production costs through economies of scale.

Reducing Renewable Energy Costs

Given that renewable energy is the largest cost component in hydrogen production, reducing the costs of solar and wind energy is essential for driving down hydrogen prices. The strategy supports innovations in renewable energy technologies, such as advanced solar cells, and encourages the large-scale deployment of renewable energy projects to achieve cost reductions through economies of scale.

3. Developing Supportive Infrastructure

Expanding Hydrogen Hubs

Hydrogen hubs are integral to Australia’s strategy for cost-competitive hydrogen production. These hubs act as central locations where hydrogen production, storage, and consumption can occur in close proximity, allowing for shared infrastructure and reduced costs. Existing hydrogen hubs in regions such as the Pilbara, Hunter Valley, Bell Bay, Gladstone, and Port Bonython are critical to the strategy, with plans for expanding and integrating them into broader industrial precincts to maximize their effectiveness.

Enhancing the National Hydrogen Infrastructure Assessment (NHIA)

The strategy includes enhancing the NHIA to guide long-term infrastructure development. This assessment will help identify and develop critical hydrogen infrastructure, such as:

• Storage Sites: The identification of suitable sites, including underground salt caverns and depleted gas fields, is vital for ensuring reliable hydrogen storage.
• Transport Networks: The strategy emphasizes improving understanding of future hydrogen transport needs, including pipelines, road transport, and shipping, to support large-scale hydrogen production and export.
• Ports and Export Facilities: Ports are highlighted as key to supporting the hydrogen industry, and the strategy calls for the development of export terminals and marine refueling infrastructure.

Addressing Water Management Challenges

Hydrogen production via electrolysis requires significant amounts of water. The strategy highlights the need for sustainable water management practices to ensure hydrogen production does not exacerbate water shortages in some regions. Proposed actions include developing new water infrastructure such as desalination plants and water recycling facilities to provide a reliable supply of water for hydrogen projects.

4. Fostering a Skilled Workforce

Workforce Development Initiatives

To support a rapidly growing hydrogen industry, the strategy prioritizes the development of a "hydrogen-ready" workforce. Collaborating with training institutions, the government plans to create programs that address the specific skills required for hydrogen production, storage, and distribution. Retraining programs will also facilitate the transition of workers from traditional energy sectors to the hydrogen industry.

Leveraging Existing Expertise

The strategy seeks to leverage the expertise of key institutions, including the Department of Employment and Workplace Relations and Jobs and Skills Australia, to address workforce challenges. By fostering collaboration between the government, industry, and educational institutions, Australia aims to build a workforce capable of meeting the needs of the hydrogen economy.

5. Driving Innovation and Technology Development

Research and Development (R&D) Prioritization

Ongoing R&D is critical to driving down the cost of hydrogen production and making Australia globally competitive. The strategy emphasizes targeted investments in R&D, particularly in areas such as:

• Electrolyser Efficiency: Improving the efficiency of electrolysers to reduce production costs.
• Hydrogen Storage Technologies: Exploring advanced storage solutions, including liquid organic hydrogen storage (LOHS) technologies.
• Alternative Production Pathways: Investigating biomass and waste conversion as alternative methods of hydrogen production.
• Transport Technologies: Developing technologies for compressing, liquefying, and transporting hydrogen safely and cost-effectively.

Increasing R&D Investment in the TRL 4–6 Range

The strategy calls for bridging the funding gap for hydrogen technologies that are between Technology Readiness Levels (TRL) 4 and 6, where promising innovations face difficulties in securing the necessary capital for commercialization.

6. Building Strong International Partnerships

Bilateral and Multilateral Engagement

Australia’s hydrogen strategy emphasizes the importance of international partnerships in shaping global hydrogen market rules, advancing technology, and establishing hydrogen supply chains. Collaborating with countries like Germany, Japan, and the United States is key to accessing global markets and advancing technology sharing.

Attracting International Investment

Given the capital-intensive nature of hydrogen projects, attracting international investment is essential for scaling up the industry. The strategy highlights the importance of showcasing Australia’s hydrogen opportunities to international investors and working with global partners to co-finance projects.

Guarantee of Origin (GO) Scheme

The expanded GO scheme will certify the sustainability and origin of Australian hydrogen, ensuring that international buyers can be confident in the green credentials of Australian hydrogen products. This scheme is crucial for building trust and securing international trade agreements.

7. Ensuring Community Benefits and Support

First Nations Engagement and Benefit Sharing

Australia’s hydrogen strategy acknowledges the importance of engaging with First Nations communities, particularly for projects on traditional lands. The strategy ensures that First Nations people benefit from the economic opportunities presented by the hydrogen industry and that their knowledge is integrated into project planning and development.

Regulatory Efficiency and Transparency

To facilitate the rapid deployment of hydrogen projects, the strategy aims to streamline regulatory approval processes. Developing national codes of practice for hydrogen production and refueling will enhance regulatory consistency across states and territories, improving investor confidence.

Promoting Public Education and Awareness

Public acceptance of hydrogen projects is critical to their success. The strategy calls for a national education campaign to raise awareness about hydrogen’s benefits, safety, and role in decarbonizing the economy.

8. Regular Strategy Review and Adaptation

5-Yearly Strategy Reviews

To remain flexible and responsive to new developments in the global hydrogen market, the government will conduct comprehensive reviews of the strategy every five years. These reviews will assess progress toward the 2050 targets and adjust policies as necessary to ensure Australia remains on track to achieve its hydrogen goals.

Annual State of Hydrogen Report

An annual report will be published to provide transparency and accountability, tracking industry progress against key performance indicators and offering insights into emerging trends and policy implications.

Conclusion

Australia's National Hydrogen Strategy sets a clear path for unlocking cost-competitive hydrogen production. By leveraging its renewable energy resources, fostering international partnerships, and investing in infrastructure and innovation, Australia is well-positioned to become a global leader in hydrogen production and exports. Success will depend on continued government support, private investment, and technological advancements to ensure that hydrogen becomes a viable, cost-competitive clean energy solution.