Wake-up call on green energy a hydrogen bombshell

The initial cost of producing green hydrogen from Australia’s two largest projects will be more than four times the price of rival energy sources, posing a fresh setback for Labor.

Concern over the cost competitiveness of the green hydrogen industry looms as a challenge for Anthony Albanese. Picture: Mark Stewart / NewsWire

The initial cost of producing green hydrogen from Australia’s two largest projects will be more than four times the price of rival energy sources, posing a fresh setback for Labor’s bid to deliver a major new export ­industry by 2030 and meet net-zero goals.

Singapore-based InterContinental Energy, a co-owner of two mega developments in Western Australia worth a combined $136bn, has conceded initial costs for delivering green energy from the facilities was estimated at ­between $8 and $11 a kilogram.

The energy giant expects green hydrogen costs to eventually fall to about $4 a kilogram but even at those levels experts say it will be too expensive to compete with rival fuel sources.

“At the beginning of these projects, it’s a challenge,” InterContinental Energy midstream director Warner Priest told an online forum. “It’s still very high.”

Green hydrogen costs at that level were uneconomic and ­unlikely to attract any buyers, ­according to MST Marquee analyst Saul Kavonic.

“Hydrogen prices need to be below $2 a kilogram to become close to competitive with other energy sources – $8-11 a kilogram equates to over $60 a gigajoule, which no major energy user can afford,” Mr Kavonic said.

Concern over the cost competitiveness of the green hydrogen industry looms as a challenge for Anthony Albanese, who has staked $8bn of taxpayer funds on kickstarting the industry into a major export earner.

Labor has set a goal of unlocking $50bn in private sector investment by 2030, with Australia’s ­annual domestic production ­capacity to exceed one million tonnes of green hydrogen.

It hopes the industry will ­employ 16,000 people in rural Australia by 2050. As part of its flagship Future Made in Australia plan, the ­Albanese government in 2024 provided a budget allocation of $6.7bn to provide a $2 incentive for every kilogram of green ­hydrogen produced from 2027-28. It also committed $2bn for new projects under the Hydrogen Headstart program.

Solar and wind supplies will underpin ambitions for a major green hydrogen industry in Australia. Picture: Getty Images

However, muted interest from international buyers and difficulty in attracting investment from financiers has stalled the nascent industry, with dozens of developments failing to move ­beyond a concept stage.

InterContinental acknowledged the high start-up costs but said it expected to lower those prices to $4 a kilogram or less once it developed the multi-phase project. “At the start of projects, the levelised cost of hydrogen will be high. This is because you’re building a lot of common-use infrastructure, which you have to amortise across the first stages of the project which might only be two nodes,” Mr Priest said.

“But as the project gets built out to its full extent, we will potentially see levelised cost of hydrogen come down to between that $3-$4 a kilogram level.”

A levelised cost of energy refers to operating and capital costs over the lifetime of energy generation. Mr Priest added it was difficult to estimate future green hydrogen prices due to the level of innovation and technology being developed, which could reduce plant costs.

InterContinental revealed a new modular system in May which it touted as holding the ­potential to revolutionise the green hydrogen industry by ­directly integrating electrolysis plants with wind and solar farms.

The downgrade of hydrogen ambition has also hobbled ­Australia’s resources industry which has pinned a portion of its net-zero ambitions on developing a green hydrogen industry to rival the size of Australia’s LNG export sector.

InterContinental Energy and federal Energy Minister Chris Bowen were approached for comment.

The $100bn Western Green Energy Hub producing green hydrogen and ammonia was first launched in 2021 as a phased project to be built over decades, with the facility in line to be one of the world’s largest clean fuel projects should it win investment sign-off in 2029.

The scheme would cover 15,000sq km across the Goldfields-Esperance region in the state’s southeast and could produce up to 70 gigawatts of wind and solar power, more than the entire capacity of Australia’s national electricity market. InterContinental owns a 46 per cent stake with other owners CWP Global and WA’s Mirning Energy, with the plant to produce five million tonnes annually of hydrogen.

A second mega project, the $36bn Australian Renewable Energy Hub, in WA’s Pilbara region, plans to tap 26GW of renewable sources to deliver 1.6 million tonnes a year of hydrogen under the ownership of operator BP with InterContinental and CWP Global.

Hydrogen is produced by splitting water into core elements, but to be green it would require substantial amounts of renewable energy. Currently the cost of developing renewable energy means the hydrogen is prohibitively expensive, but large-scale developments such as the hub could reduce the costs of production.

Still, for now progress remains patchy among the headline developers pursuing the dream of a major new export industry for Australia. Some 99 per cent of a $100bn supply pipeline has failed to progress ­beyond the concept stage, with less than 30,000 tonnes a year reaching a final investment decision or starting construction, according to Rystad Energy.

In May Andrew Forrest’s Fortescue, Australia’s biggest promoter of green hydrogen, imposed a fresh round of job cuts in a blow to the hyped energy source as other major companies also flag a slower-paced energy transition amid technology hitches and mixed customer demand.

However, hydrogen promoters maintain it is too early to write off the sector given broad government support and point to the role of ­renewable-based hydrogen in developing more lucrative industries such as green steel.

Transforming hydrogen into ammonia may also provide an alternate path for exports with lower transport costs. Recent ACIL Allen modelling provided to AEMO forecasts a huge range of 2.5 million tonnes to 53.2 million tonnes of green ammonia could be produced by 2030 under a green export scenario.

Originally published as Wake-up call on green energy a hydrogen bombshell