28 Oct 2021

The future is green: NSW Government joins race to become a global hydrogen superpower

By Nick Thomas, Cloe Jolly

The NSW Government has announced the launch of its highly anticipated NSW Hydrogen Strategy, which will support the development of a world-leading renewable, or "green", hydrogen industry in the State.

The NSW Government recently announced the launch of the NSW Hydrogen Strategy, which is intended to make the state one of the most attractive regions to produce renewable hydrogen in the world. The Strategy, a key pillar of the NSW Government's plan to transform the State into a "global hydrogen superpower", includes ambitious targets, intended to motivate companies to establish themselves in NSW and to build a competitive export industry.

In this article we provide a brief review of the Strategy and some comment on other States' hydrogen strategies, in what has become a highly competitive Australian market for investment attraction.

Australia's major trading partners, including Singapore, Japan and South Korea, see hydrogen as a key part of their energy futures, especially to help reduce their carbon footprints. NSW hopes to capitalise on its existing skills, infrastructure and renewable energy resources, to compete globally in this rapidly growing industry. The NSW Government also expects to attract at least $80 billion of private investment, grow the NSW economy by more than $600 million by 2030 and creating up to 10,000 jobs.

Overview of the Strategy

The Strategy pursues twin aims of reducing greenhouse gas (GHG) emissions and driving economic growth. It focuses on integrating green hydrogen into existing industry, developing hydrogen hubs at major ports (the first being Newcastle and Port Kembla) and building a hydrogen refuelling network for heavy vehicles along major highways.

The policies set out in the Strategy support the development and commercialisation of hydrogen supply chains and hydrogen infrastructure projects with the aim to:

  • reduce the cost of green hydrogen by $5.80 per kilogram (to $2.80 per kilogram) within the next decade;
  • provide up to $3 billion of incentives to reduce production costs and support industry development;
  • deliver on the NSW Government's stretch target of 110,000 tonnes of annual green hydrogen production by 2030; and
  • drive decarbonisation in the transport, industrial and energy sectors to help NSW reach net zero emissions by 2050.

The Strategy is built on three strategic "pillars", designed to support development of the full hydrogen value chain. These are:

  1. Enable industry development, by building the critical ecosystems, skills and "hydrogen-ready" regulatory frameworks needed to establish and grow the green hydrogen industry (including developing a State-wide strategic hydrogen infrastructure masterplan).
  2. Lay industry foundations, through industry partnerships designed to financially support the development of foundational infrastructure, supply chains and technology demonstration projects. This will involve developing the State's hydrogen hubs (ie. regions where various users of hydrogen across industrial, transport and energy markets are co-located) and rolling out hydrogen refuelling stations for heavy transport along key strategic freight routes while also integrating hydrogen into existing gas plants.
  3. Drive rapid scale, primarily through market measures, delivering economies of scale and cost reductions across the hydrogen supply chain.

The Strategy makes it clear the NSW Government is backing green hydrogen over other forms of hydrogen creation, such as blue hydrogen (which is produced using fossil fuels and carbon capture and storage (CCS technology). Its arguments for this approach are both environmental (lower GHG) and economic (it believes green hydrogen will become more cost competitive than other forms of hydrogen, especially when the cost of GHG offsets is factored in).

Key aspects of the Strategy

Boosting business

The Strategy indicates that the primary barrier to the uptake of hydrogen is its cost, in comparison to incumbent fuels. To combat this, the NSW Government proposes to:

  • waive government charges for green hydrogen production;
  • provide hydrogen producers who connect to parts of the network with spare capacity a 90% exemption from electricity network charges (a move that, by itself, will reduce production costs by $1.33 per kilogram);
  • invest in hydrogen hubs in Illawarra and Hunter;
  • incentivise green hydrogen production; and
  • establish a network of 100 hydrogen refuelling stations across NSW to support at least 10,000 hydrogen vehicles.

This support, coupled with establishing "hydrogen-ready" regulation, is what the NSW Government hopes will create a favourable ecosystem which will entice businesses to establish themselves in NSW (over other Australian States).

Creating domestic demand

As part of a plan to boost domestic demand, the Strategy proposes to extend the timeframe from 2030 to 2040, for providing financial support and risk sharing for transformative hydrogen projects under the NSW Government's Net Zero Industry and Innovation Program. The NSW Government hopes this will enable the transformation or creation of new industries in NSW, such as green steel, ammonia or cement.

$2.80 by 2030

It currently costs approximately $8.75 per kilogram to produce hydrogen using natural gas (currently the most common fuel source). As part of the Strategy, the NSW Government aims to reduce the cost of green hydrogen by more than half by 2030, producing 110,000 tonnes of green hydrogen annually for less than $2.80 per kilogram.

This is not as ambitious as the Commonwealth Government's stated aim of achieving a price per kilogram of $2, at which point green hydrogen fuel would compete with existing fuels in broad parts of the economy.

Decarbonising and supporting coal regions

The Strategy is intended to assist to diversify the carbon-intensive economies of regional NSW, which are currently heavily reliant on the fossil fuel industry. It also proposes opportunities for regions like Parkes, the Illawarra and the Upper Hunter, referring to their existing supply lines, access to transport links and skilled workforces.

The government expects NSW to attract between $80 billion and $270 billion of private investment in the hydrogen industry, which will largely flow to coal-dependent communities, eclipsing the Government's initial $3 billion investment. The Strategy forecasts that green hydrogen jobs in NSW will outstrip those in the coal industry by 2050.

What other States are doing

There is now a host of hydrogen-related policies, projects and agreements around Australia, with almost every Australian State and Territory having some kind of strategy on hydrogen fuel.

Policies in relation to hydrogen, in particular for hydrogen vehicles and injection into the natural gas distribution network, are being developed in the Australian Capital Territory as part of the ACT Government's Sustainable Energy Policy 2020-2025. Generally, the other State and Territory hydrogen policies or strategies have shorter horizons than the NSW Strategy and provide less fulsome and concrete commitments. For example, none of the other strategies seems to offer the level of incentives (eg. fee exemptions) as the NSW Strategy does.

Queensland

In May 2019, the Queensland Government released the Queensland Hydrogen Industry Strategy 2019-2024. It focuses on five key areas:

  • supporting innovation;
  • facilitating private sector investment;
  • ensuring an effective policy framework;
  • building community awareness and confidence; and
  • facilitating skills and development.

The vision of the Queensland strategy is to be supplying an established domestic market by 2030 in addition to export partners.

The Queensland Government also established in 2019 a $15 million Hydrogen Industry Development Fund, for grants to support hydrogen projects in Queensland. In late 2020, it committed a further $10 million in further grants.

Western Australia

The Western Australian Renewable Hydrogen Strategy was launched in July 2019, and was expanded in September 2021. The Western Australian Renewable Hydrogen Roadmap was launched in November 2020 and identified 26 initiatives which the WA Government is driving and supporting to realise the State's position as a major producer and exporter of renewable hydrogen.

Western Australia's key strategic focus areas are:

  • export;
  • remote applications;
  • hydrogen blending in natural gas networks; and
  • transport.

In 2020 grants focused on renewable hydrogen feasibility studies. Under the September 2021 expansion, the WA Government investments include:

  • a $50 million fund to stimulate local demand for renewable hydrogen in transport ad industrial settings and to drive private investment;
  • $7.5 million to kick-start the development of the Oakajee Strategic Industrial Area and a renewable hydrogen hub;
  • an additional $4 million to bolster the Renewable Hydrogen Unit within the WA Department of Jobs, Tourism, Science and Innovation; and
  • $900,000 committed towards three industry-led feasibility studies.

Victoria

The Victorian Renewable Hydrogen Industry Development Plan sets out a blueprint to capitalise on renewable hydrogen's economic opportunity. The plan focuses on five key areas:

  • create long-term jobs through new career pathways and skills clusters;
  • enable the export of renewable energy;
  • drive innovation;
  • build skills and capacity in renewable hydrogen; and
  • reduce GHG gas emissions across the industrial, energy and transport sectors.

As part of the plan, the Victorian Government has committed $10 million to accelerate Victoria's hydrogen industry.

South Australia

South Australia also released its Hydrogen Action Plan in late September 2019, and committed $1.25 million towards a landmark study to identify optimal locations for renewable hydrogen production and export infrastructure. South Australia has also allocated $4.9 million through its Renewable Technology Fund towards the Australian Gas Network's demonstration project, 'Hydrogen Park South Australia', as well as $10 million to renewable hydrogen through its Renewable Hydrogen Fund to encourage private sector investment.

The Hydrogen Action Plan sets out 20 actions across five key areas to help scale up renewable hydrogen production for export and domestic consumptions. These five key areas are:

  • facilitating investments in hydrogen infrastructure;
  • establishing a world class regulatory framework;
  • deepening trade relationships and supply capabilities;
  • fostering innovation and workforce development;
  • integrating hydrogen into the energy system.

In South Australia's Hydrogen Export Prospectus, published in October 2020, the government promotes South Australia as a world class hydrogen supplier, highlights the advantages of investing in South Australia and lists four potential export supply chains - three for green hydrogen (Port Bonython, Cape Hardy/Port Spencer and Port Adelaide) and one for blue hydrogen (also in Port Bonython).

Tasmania

The Tasmanian Renewable Hydrogen Action Plan, published in March 2020, sets out a vision for Tasmania to become a world-leader in large-scale renewable hydrogen production and supply for export and domestic use from 2030.

The plan includes analysis by Hydro Tasmania that indicates that Tasmania renewable hydrogen production could be up to 15 per cent cheaper than on mainland Australia (from the power grid) and up to 30 per cent lower than from dedicated off-grid variable renewables.

The plan is supported by four key pillars:

  • exploring the opportunities for using locally produced renewable hydrogen in Tasmania and for export;
  • providing financial support for renewable hydrogen projects for export and domestic use, plus investment attraction activities with international trade partners;
  • ensuring a robust and supportive regulatory framework, and the assessment of supporting infrastructure; and
  • building community and industry awareness, developing skills, and supporting research and education.

The Tasmanian Government has proposed a $20 million Tasmanian Renewable Hydrogen Fund, $20 million in concessional loans and $10 million in support services including competitive electricity supply arrangements and payroll tax relief. It also recently announced a $2.6 million investment for the feasibility of three large-scale renewable hydrogen projects in Tasmania. The current focus for production appears to be the Bell Bay Advanced Manufacturing Zone.

Northern Territory

The Northern Territory Renewable Hydrogen Strategy was released in July 2020 and outlines a five-point hydrogen plan for government and industry to work together to capitalise, in particular, on the Territory's proximity to export markets and existing enabling infrastructure:

  • Local industry development — preparing industry capabilities, logistics and supply chains to facilitate the adoption of renewable hydrogen;
  • Resource management — investigate how to optimise the Territory’s resources and infrastructure to facilitate hydrogen industry development;
  • Grow and harness demand — promote the Territory as an attractive export hub and investigate domestic hydrogen applications to build demand;
  • Support innovation — incorporate new ways of researching, trialling and adapting emerging technologies to optimise hydrogen opportunities; and
  • Responsive regulation — establish effective regulatory frameworks for the development of a safe and efficient hydrogen industry.

Takeaways for the growth of hydrogen in Australia

The Strategy is the biggest commitment we have seen in Australia, and one of the biggest globally, to create scale and significant support for business investment to move the hydrogen economy forward. Achieving the stretch targets set out in the Strategy would transform NSW into Australia's largest consumer of green hydrogen and position the State to become a leading hydrogen exporter.

Australia, and the rest of the world, is placing a heavy focus on hydrogen because it has the potential to decarbonise sectors which will be difficult to fully electrify, such as heavy industries and transport. As a growing industry, there is also the opportunity for early movers to take advantage of government incentives and establish themselves in the market.

Interested businesses should submit an expression of interest to participate in the hydrogen hubs by the end of October.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.