Hydrogen: Fortescue provides lesson in high stakes of trying to pick winners

The decision by billionaire miner Andrew Forrest’s company, Fortescue, to pull back on plans to dominate the global hydrogen business is another salutary lesson on the big difference between hope and experience. It is a warning that must be heeded by the Albanese government, which seems determined to wager Australia’s energy future on things it hopes can be invented and delivered, and at a competitive price. Hydrogen is proving extremely difficult to commercialise at scale.

Dr Forrest says he still supports the technology but ambitious plans to build global scale have been abandoned as the company retrenches 700 workers to concentrate on its core business of iron ore. Company decarbonisation efforts will focus on its own operations, a significant producer of greenhouse gases.

The Fortescue decision sends a poor signal on Chris Bowen’s plans for Australia to become a renewable energy superpower through the export of hydrogen as a replacement for liquefied natural gas. Opposition energy spokesman Ted O’Brien said hydrogen was a good example of why governments should avoid trying to pick winners and instead diversify the risk for taxpayers.

The government has a $2bn subsidy scheme for the development of hydrogen with the aim to get the price down to $2 a kg, much lower than what is currently feasible. A progress report this week on a scheme to integrate hydrogen into a micro grid at Denham in Western Australia underscores some of the issues in addition to cost. The report shows how the electrolysers needed to make hydrogen require a constant supply of power and are compromised by the intermittent nature of renewables, including cloudy periods for solar. To function efficiently, hydrogen requires constant electricity. This could mean fossil fuels or battery backup. Also, the amount of fresh water needed to effectively run the hydrogen plant was much higher than expected. Research will continue into hydrogen technology but indications are it will be best suited for use at the point of production for fertiliser or green steel, rather than as an export energy product.

It is instructive to consider that Mr Bowen only mentioned hydrogen once in passing in his address to the National Press Club on Wednesday. Contrast this with Mr Bowen’s comments to an energy conference in October 2023, when he said “renewable hydrogen is at the heart of our vision for Australia as a prosperous, self-reliant nation in a net-zero future – as a renewable energy superpower”. The federal government’s hydrogen road map has spruiked the potential for “up to $300bn of potential hydrogen investments, including projects that are focused on domestic use as well as large export projects. Australia’s pipeline is the largest in the world”.

Research into hydrogen is a good thing that has enjoyed bipartisan support. But it is a lesson that trying to pick winners can be a dangerous strategy. The hydrogen experience must be used to inform the rush to embrace offshore wind, another technology that is at the beginning of its development curve and experiencing unexpected cost pressures. This is particularly so for floating offshore wind, the technology that has been selected for NSW. The responsible thing to do is to safeguard electricity supplies using known technologies while alternatives are properly evaluated. There is an important role for gas to play that must be actively encouraged by all sides of politics.