The hydrogen industry’s ambitions continue to grow rapidly, but the funding to makes the dreams a reality is lagging, UBS says.
In two reports on the hydrogen sector released this week, UBS says Australia has the potential to develop a competitive hydrogen industry, which could displace some of the nation’s oil and gas exports as the world decarbonises.
“We see Australia as well-positioned, largely due to abundant renewable resources, a strong pipeline of projects and recently announced increased access to funding both domestically and overseas,’’ analyst Camille Wynter says.
“However, given the industry is still nascent, we call out potential risks including the eligibility criteria for funding, competition from other energy sources and offtake security.’’
Ms Winter says in her report that state and federal governments had already committed more than $6bn to hydrogen projects before the recent federal budget, which included the $2bn Hydrogen Headstart program.
“The new Hydrogen Headstart program will offer revenue assistance for investment in renewable hydrogen production, which we interpret as bridging the gap between the market price and the cost of producing green hydrogen,’’ Ms Wynter says.
“The production credit is awarded following a competitive process to select projects based on renewable energy source, scale, location and commercial viability.’’
But Australia’s industry mirrors the global experience, with 89 of the announced 113 hydrogen-related projects in Australia still in the development phase.
“Out of the 32 export-focused projects we identified, 15 of these specified what the target export market was,’’ Ms Wynter says.
“Out of these 15 projects, 14 are targeting Asia, largely Japan (47 per cent), Korea (20 per cent) and Singapore (13 per cent). 28 per cent of the 113 projects have an end-use of domestic mobility.’’
The Australian Petroleum Production and Exploration Association’s annual conference, held in Adelaide earlier this month, heard that globally, hydrogen projects were predominantly export-focused, highlighting an issue with potential producers locking in demand from customers.
UBS is tipping the US, driven in part by generous incentives in the Inflation Reduction Act, will lead in terms of scaling up hydrogen production, supported also by sizeable domestic demand and the potential for exports.
“In North America, average renewable hydrogen production costs could drop to $US1.1/kg,’’ UBS says.
“(The) Hydrogen Council believes Inflation Reduction Act 2022 (IRA) is expected to have
broad and significant impacts on existing energy transition sectors such as renewables, batteries, and existing nuclear power, as well as on earlier stage sectors such as carbon capture, clean hydrogen, and other low-carbon fuels.’’
But renewables-based projects are struggling on a number of fronts including slow permitting, the supply of electrolysers, solar panels, wind turbines and the ability to get projects built.
Globally, as at January this year, more than 1000 large scale projects have been announced by proponents.
“Of the total, 795 aim to be fully or partially commissioned through 2030,’’ UBS says.
“These represent total investments of $US320bn of direct investments into hydrogen value chains through 2030. In last 8 months the number of projects has gone up by 350 and investments have increased by $US80bn.
“Despite a positive trend, less than 10 per cent of the $US320bn announced investments
through 2030 have committed capital.
“For developers to take FID (final investment decisions), securing offtake and potentially government funding is key.’’
UBS says the next three to five years present a significant scale-up challenge, while reporting that the Hydrogen Council believes a doubling in the value of announced investments is needed by 2030 if net zero goals are to be met.
Meanwhile GFG Alliance executive chairman Sanjeev Gupta, speaking at the Australian Hydrogen Council conference in Brisbane on Thursday, said Australia should introduce a carbon border adjustment mechanism (CBAM) such as Europe will in October this year, to protect Australian industry.
“As Australia adopts exacting climate standards under the government’s progressive safeguard mechanism, putting companies like mine to the test to become responsible stewards of sustainable industry, we must have a level playing field,” Mr Gupta said.
“Imports have to meet Australia’s exacting standards for decarbonisation. Not to do so, would mean a license to export jobs and import carbon.
“Europe’s CBAM – although not perfect – is an example of how this could be implemented.’’
Mr Gupta also reiterated his belief that hydrogen is best used close to where it is produced, rather than exported at exorbitant cost, meaning it was well-suited to in-situ applications such as steelmaking.
The South Australian Government is currently out to tender for a $593m hydrogen precinct at Whyalla, next to the GFG Alliance steelworks, which has plans to shift from coal-based to electric steelmaking in coming years.