Australia’s nascent hydrogen industry challenges: Four contrasting perspectives

The federal government is updating Australia’s National Hydrogen Strategy, as well as committing $2 billion to the Hydrogen Headstart program to accelerate the development of Australia’s hydrogen industry.

Nonetheless, there’s uncertainty regarding the focus of this investment and its key priorities.

A recent research study, funded by the Woodside Monash Energy Partnership, sought to understand the challenges of the hydrogen transition, and to learn about the plans of hydrogen adoption.

We interviewed 38 stakeholders from across Australia, including industry and government representatives and thought leaders.

The interviews were conducted earlier this year, and coincided with the United States and Europe announcing significant support to boost investment in hydrogen production and technologies.

Read more: A breakthrough in green production and storage of hydrogen gas

The findings will help us understand the challenges of developing Australia’s hydrogen industry in the face of shifting global dynamics.

Our research discovered four contrasting perspectives on hydrogen priorities and focus areas, supported with interview quotes. The findings brought to light the unanimous agreement among participants on the pivotal role of the government.

Should Australia focus on the domestic or international market?

Arguments in favour of prioritising the domestic hydrogen market focus on the need to support domestic value chains and local industry. This would improve Australia’s energy security and create local jobs.

“As a country that has sovereign risks because of how much liquid fuels we do import, I think we need to look at the opportunity to keep as much hydrogen here, and then deploy as much infrastructure as possible.”

However, advocates for focusing on the international market emphasise the need for large-scale export projects to achieve scale and economic viability, which will subsequently stimulate domestic demand.

The Australian economy lacks the industrial demand necessary to justify building large-scale projects. Only export-oriented projects would achieve this, and would additionally compensate for declining revenues from fossil fuel exports.

“We've got to get a hydrogen industry in this country to a sufficient volume for the price of production to be unsubsidised. So, we'll need $2/kg. That's a lot of hydrogen – we cannot consume all that. So, we have to export it.”

How should we invest – diversified investments versus picking winners?

Stakeholders hold divergent views on how the government should allocate its resources. A diversified investment strategy is less controversial and easier to gain public support.

Picking winners, on the other hand, will facilitate the development of areas that are of strategic interest to Australia. This will enable a few projects to demonstrate economic viability.

“I'm in favour of governments picking areas and saying we're going to invest heavily here, to build this, that will encourage industry and private money to go there as well, to leverage the infrastructure spent.”

How to activate the market – pilot projects versus developing to scale?

Should the government focus on activating the hydrogen market with small-scale pilot projects in Australia? The local knowledge from these projects can activate the market and build demand for hydrogen.

Alternatively, Australian governments can build on the lessons from projects that have been completed overseas to reduce costs and the time to scale up the technology.

“We don't need trials. There's been hydrogen station deployments occurring across the world for the last 15 years. We need to learn or look at the outcomes from those trials overseas and deploy the stations in the most economically viable way.”

What is hydrogen’s fundamental purpose – facilitating carbon neutrality, or stimulating economic activity?

Australia must be clear about hydrogen’s fundamental purpose before it makes decisions on market focus areas and investment strategies.

If the primary goal is a decarbonised economy, hydrogen support should be concentrated in areas with no decarbonisation alternatives, even if they’re not economically viable (chemicals, shipping, aviation), and in areas where it is the lowest-cost alternative.

“No one's investing because the economics don’t stack up. But the economics won’t stack up. That’s not actually what we’re trying to do here. The goal is to drive a better environmental and community outcome … then that's what we need to keep in mind as our ultimate goal, and that's what we should be working towards.”

This means supporting all types of hydrogen, including blue hydrogen, provided that offsetting any embedded carbon is the lowest-cost alternative.

However, if the main goal is to stimulate economic activity, then priority should be given to techno-economically viable projects. The government should then stimulate hydrogen adoption in sectors with highest technological maturity, such as fuel cell electric vehicles and gas blending.

“But the real market right now, which exists for renewable hydrogen, is the gas blending market – that gives you the opportunity to build scale and build capability. The next one, which we’re seeing emerging is the sort of transport market … so, that's the low-hanging fruit.”

Framed against Australia’s ambitious goal of achieving net zero emissions by 2050, developing the hydrogen market is an exciting yet challenging endeavour.

Technological development, market risks and government policy will influence the hydrogen transition in Australia. There are no simple solutions to the different challenges in achieving a net zero economy.

Consensus on the central role of government

Notwithstanding these contrasts, there’s broad consensus among the research participants relating to market, socio-political and techno-economic barriers. These include high upfront investment costs, ambiguity regarding the timing, scale and use case of hydrogen, and the knowledge barriers that exist.

The government plays the central role in the hydrogen transition, and can de-risk projects by underwriting debt and through whole-of-life revenue support mechanisms such as subsidies, tax incentives and contracts-for-difference.

Government should also provide regulatory and strategic support. For example, the government can set production targets for hydrogen, develop critical hydrogen infrastructure, and support knowledge generation and dissemination.

In conclusion, it’s imperative to gain a clear understanding of hydrogen’s role in Australia’s energy transition. This will be crucial to develop appropriate policies and provide financial support to align with Australia’s strategic priorities.

The views expressed in this publication are those of the authors, based on the responses received from individual participants, and are not those of Woodside or Monash University.

This article was co-authored with Daniel Schepis and Sharon Purchase, from the University of Western Australia.