Origin Energy exits hydrogen in latest blow to Labor’s net zero targets

The energy major is abandoning its ambitious plans for hydrogen in the latest blow to the Albanese government’s dreams for the energy source to help drive the transition to net zero.

Chris Bowen announcing Australia's first green hydrogen hub in the Hunter Valley.

Origin Energy is abandoning its ambitious plans to develop hydrogen, striking another blow to the Albanese government’s dreams for the energy source to help drive the transition to net zero.

The group said that the decision to exit the proposed $207m Hunter Valley Hydrogen Hub project reflected uncertainty around the “pace and timing of development of the hydrogen market” and the risks associated with developing capital-intensive projects of this nature.

It comes after billionaire Andrew Forrest earlier this year scaled back his own green hydrogen targets in a major business backdown that coincided with the loss of 700 jobs at his flagship company Fortescue.

Minister for Climate Change and Energy Chris Bowen said Origin’s decision was disappointing for the workers and businesses developing the hub, but argued green hydrogen still had a big future.

Origin chief executive Frank Calabria said the company had worked hard to evaluate the investment case for hydrogen, and continued to believe hydrogen could play a role in the future energy mix.

“However, it has become clear that the hydrogen market is developing more slowly than anticipated, and there remain risks and both input cost and technology advancements to overcome,” said Mr Calabria. “The combination of these factors mean we are unable to see a current pathway to take a final investment decision on the project.”

The Hunter Valley Hydrogen Hub project was touted as being able to “deliver a safe, reliable, and commercial-scale hydrogen supply chain” in the Newcastle industrial and port precinct. Located on Kooragang Island, phase one of the project aimed to decarbonise part of Orica’s nearby ammonia manufacturing plant natural gas feedstock with hydrogen.

The Orica plant on Kooragang Island in Newcastle.

Some hydrogen produced would also have been made available as a fuel for buses and trucks, displacing the use of diesel. The decision is the latest blow to Labor’s emissions transition plans, with the government providing $8bn in investment and support for hydrogen production as part of a push for Australia to become a key player in global ­efforts to achieve net zero.

The Hunter Valley project received $70m in funding from the Federal Government as part of its regional hydrogen hubs program. The program is investing more than $500 million in up to seven hydrogen hubs across the country. Hydrogen hubs are locations where producers, users and exporters of hydrogen work side-by-side to share infrastructure and expertise.

Mr Bowen said green hydrogen continued to play to Australia’s unique strengths and remains important to the future of manufacturing and industry.

He said the Albanese government’s hydrogen incentives were estimated to unlock around $50 billion of private investment, with Australia’s announced pipeline for hydrogen already valued at over $200 billion from 100-plus projects, a quarter of which are already operating or under construction.

Origin said it intends to cease work on all hydrogen development opportunities.

Mr Calabria said the decision to exit reflected the prioritisation of capital expenditure towards Origin’s investment strategy focused on renewables and storage.

Origin has made several strategic storage investments, building a portfolio of 1.5 GW of battery systems. It also has acquired three renewable development opportunities, including the advanced Yanco Delta Wind Farm development project.

“This can best support the decarbonisation of energy supply and underpin energy security over the near-term,” he said. “Origin has been closely following the global development of hydrogen technology and markets over the past four years, and we have evaluated a range of options across several jurisdictions. We acknowledge there will be some disappointment at this decision and are grateful for the opportunity to evaluate the feasibility of this project in conjunction with Orica.”

Chris Bowen at the APAC Hydrogen Summit in Brisbane earlier this month.

Orica chief executive Sanjeev Gandhi said that while disappointed, Orica respects Origin’s decision and was grateful for the progress the two companies made in advancing Australia’s hydrogen initiatives.

“We remain committed to exploring new opportunities in this promising sector,” he said.

“We’ve been operating our Kooragang Island site for over 50 years and are committed to ensuring both our manufacturing facility and the Hunter Valley region remain competitive in a low carbon economy, while also strengthening Australia’s domestic manufacturing capability.” “Orica looks forward to continuing the collaboration with ministers and responsible agencies on the transition of Orica’s Kooragang Island manufacturing facility and the Hunter Valley”

Orica remained open to discussions with interested parties “who share our vision for a sustainable energy future and Australia’s hydrogen economy.”

Andrew Forrest launched a sweeping restructure at For­tescue in July in the face of the company’s failure to deliver on its green-energy ­promises.

Up to 700 jobs would go in the massive cutbacks after the iron ore mogul pulled back from the company’s goal of producing 15 million tonnes of green hydrogen a year by 2030.

The billionaire had earlier boasted that the company’s green-energy ambitions would one day make it ­bigger than Saudi energy giant Aramco.

Mr Forrest said at the time that Fortescue remained committed to green hydrogen, but would pivot to building out renewable energy generation to drive power costs down.

MST Marquee analyst Saul Kavonic said the collapse of the Origin deal was likely to add to a long line of cancellations for green hydrogen projects in Australia. “Australia has lost an election cycle worth of good energy and industrial policymaking after Labor fell for the Fortescue fuelled fantasy of green hydrogen,” Mr Kavonic said,

“The announcement is further evidence that green hydrogen economics are unviable, and the Federal Government has been backing a losing horse on this. It is further proof that hydrogen won’t come to save Australia’s manufacturing jobs as many have promised, and Australia needs to urgently invest in gas to keep thousands of workers’ jobs safe.”

Opposition spokesman on climate change and energy Ted O’Brien said the fact major players like Origin and Fortescue were stepping away from green hydrogen confirmed that Labor was picking losers, and leaving Australian taxpayers to pick up the tab.

“The collapse of these projects is not only a blow to Labor’s renewable energy goals but also jeopardises Australia’s energy security,” said Mr O’Brien. “With green hydrogen off the table in the near-term and looming gas shortfalls, Labor’s inability to secure reliable 24/7 baseload energy puts Australia in a vulnerable position.”

He said the Coalition had consistently taken a “sensible, technology-neutral approach to energy” that included hydrogen.

Originally published as Origin Energy exits hydrogen in latest blow to Labor’s net zero targets