Headstart to Australia's hydrogen industry

Green hydrogen, which is hydrogen produced from wind and solar, has become an important investment theme in Australia recently, and is expected to become a major catalyst in Australia's transition to net zero emissions by 2050.

The growing focus on green hydrogen was highlighted in the 2023-24 Australian Federal Budget released last week.

The Commonwealth has committed A$2 billion to the hydrogen industry in Australia (as part of a A$4 billion package announced for renewable energy spending).

That commitment supports various initiatives that have been occurring at State-level for some time.

In South Australia for example, the State Government's Hydrogen Jobs Plan - 250 MWe of electrolysers, 200 MW of power generation, and associated hydrogen storage, to be built in Whyalla by December 2025 - is currently out for tender, and has attracted considerable national and international interest.  

Hydrogen Headstart

With a priority of kick-starting green hydrogen projects, the Australian Government has announced its commitment to invest A$2 billion in a new Hydrogen Headstart Program, which will provide revenue support for large-scale renewable hydrogen projects via competitive hydrogen contracts, with subsidies to establish Australia's competitive strengths in renewable energy.

Two to three large Australian-based projects producing hydrogen from renewable energy, or derivative products made from green hydrogen, will be selected through a competitive process. These projects will receive funding in the form of a production credit, which will cover the commercial gap between the cost of producing hydrogen from renewables and its market price.

According to the budget, A$4.2 million will be allocated to the Australian Renewable Energy Agency (ARENA) to support the development and operation of the Program.

The funding will also include A$5.6 million to evaluate Australia's intensifying global competition for the clean energy industry and to determine actions to 'further catalyse clean energy industries, ensure Australian manufacturing competitiveness and attract capital investment'.

In addition, A$2 million will be dedicated over two years from 2024-2025 to establish a fund to ensure First Nations communities can engage with hydrogen project proponents and planning processes. This is a significant step for Australia in advancing its hydrogen market.

In addition to the funds allocated to the Hydrogen Headstart Program, various other supportive initiatives were announced in the Budget.

Guarantee of Origin scheme

For example, the Budget announced an investment of A$38 million to establish an internationally consistent Guarantee of Origin scheme for Australia, which will fund the Clean Energy Regulator to track and verify emissions associated with hydrogen and other products made in Australia.

The scheme will provide a stable mechanism for certifying renewable electricity, including hydrogen certification, thereby promoting future trade in clean hydrogen on an international and domestic scale.

Powering Australia Industry Growth Centre

The Australian Government is also providing A$14.8 million to launch the Powering Australia Industry Growth Centre, which will support Australian businesses seeking to manufacture, commercialise and adopt renewable technologies.

Additionally, up to A$3 billion will be allocated to investment in low emissions technologies under the National Reconstruction Fund. This will encourage hydrogen technology innovation and drive the hydrogen market.

The Budget finalised funding previously reported in the 2022-23 Budget, including the A$1.9 billion Powering the Regions Fund, which will support deployment of the Safeguard Mechanism to encourage businesses to invest in the path to net zero.

National Hydrogen Strategy

These recent hydrogen developments are just some of many initiatives endorsed by the Australian Government to achieve its National Hydrogen Strategy, which sets out a path to building a cleaner, innovative, safe and competitive hydrogen industry.

Through the hydrogen strategy, the government plans to remove barriers to industry development, accelerate the commercialisation of hydrogen, build domestic supply chains and production capabilities, and reduce technical uncertainties.

Hydrogen regulatory framework and reform

While Australia is in good stead to developing a hydrogen industry, the absence of a clear national regulatory framework designed specifically for hydrogen production, use or transport, and which is applied consistently across all the states, remains an issue.

For example, the National Gas Regulatory Framework does not currently allow for hydrogen blends and renewable gases.

Having said that, energy ministers have recently agreed to amend the National Gas Law and Regulations to extend to hydrogen blends, biomethane and other renewable gases under the framework.

The agreement comes after a review, public consultation, and collaboration with the Australian Energy Market Commission (AEMC), Australian Energy Market Operator (AEMO), Australian Energy Regulator and the Western Australian Economic Regulation Authority (ERA). The reforms will provide regulatory certainty and boost investment in hydrogen projects.

Future of hydrogen in Australia

Australia is expected to become a major hydrogen exporter by 2030.

The Budget will not be enough, by itself, to stimulate the nation's hydrogen industry.

But Australia's strong natural advantages in the broader renewable energy sector and the considerable level of investment that is currently occurring at both federal and state-level, should provide the hydrogen sector with the strong tailwinds it requires to reach this goal.

Authors

Jae Lemin  I  Partner | +61 3 8080 3588 | jlemin@tglaw.com.au

Kylie Boyd  I  Law Graduate

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