Hydrogen hype deflates further
The stalled rush to hydrogen is another timely and salutary lesson in the danger of governments trying to pick industry winners. It puts a spotlight of reality on the foolish boasts of Energy Minister Chris Bowen and others that Australia is leading the world and destined to become an energy superpower through what has been shown to be a speculative and high-risk route.
Corporate heavyweights Origin Energy and Fortescue have cut their losses and walked away from what were two of the nation’s biggest and most promising hydrogen ventures. Unlike government, private capital is wary of throwing good money after bad. At some point government, too, must get the message and reset its approach to the net-zero transition.
Mr Bowen told an energy conference in October last year “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 had spruiked the potential for up to $300bn of hydrogen investments, including projects that were focused on domestic use as well as export projects. It said Australia’s pipeline was the largest in the world.
Billionaire miner Andrew Forrest had made himself a global ambassador for green hydrogen, ostentatiously parading at the COP28 UN climate conference in Dubai a brightly painted ocean tug retrofitted to run on ammonia made from hydrogen. But in July, Mr Forrest’s company, Fortescue, pulled back on plans to dominate the global hydrogen business because of the high cost of energy and absence of customers.
On Thursday, Australia’s second-biggest energy retailer, Origin, said it would exit its potential hydrogen development project in the $200m Hunter Valley Hydrogen Hub in NSW. The company said it planned to cease work on all hydrogen development opportunities because of uncertainty over the pace and timing of development of the hydrogen market, and the risks associated with developing capital-intensive projects of this nature. The reality is hydrogen has struggled to find a business case despite billions of dollars of potential government grants and guarantees. These include research and development grants and a $2-a-kilogram Hydrogen Production Tax Incentive included in the federal budget.
At one point the International Energy Agency reported that 20 per cent of all announced hydrogen projects globally were in Australia. This was a pipeline larger than for any other single country and represented about half of all export-oriented projects announced globally. There still are big projects that have been shortlisted under the Albanese government’s $4bn Hydrogen Headstart kick-starter program, including BP’s Kwinana hydrogen project, South Korean energy major Kepco’s project slated for Newcastle, a Japan and Singapore-backed hydrogen export project based in Gladstone, and a Texas-backed clean fuels project in Burnie, Tasmania. But even former chief scientist Alan Finkel has had to curb his enthusiasm following the Fortescue backdown. In 2020, Dr Finkel wrote to Council of Australian Governments energy ministers highlighting the opportunities presented by a hydrogen fuel economy. This year he said green hydrogen could replace coal as a chemical-reducing agent in the production of iron but acknowledged its viability was “highly dependent” on the costs of renewable electricity.
The reckoning for hydrogen is a long way from the inflated hopes of politicians that the chemical element would provide a way to soak up excess renewable energy production to produce a liquid fuel that could be used to back up the grid in times of shortage. The experience has been that, like the grid, hydrogen production would require its own supply of constant electricity, significantly changing the economics. At some point Mr Bowen must grasp the new reality and explain what it means for his vision for Australia to be a renewable energy superpower, as opposed to the fossil fuel superpower we are today.