Anthony Albanese will announce a major green hydrogen investment in the federal budget

Companies producing green hydrogen are expected to be handed new subsidies under a major investment package in the budget.

Industry expects hydrogen will become a central pillar of the government’s Future Made in Australia policy. Picture: NCA NewsWire / Damian Shaw

Anthony Albanese will make a major investment in green hydrogen in this month’s federal budget, with expectations industry will be handed direct subsidies and the dollar amount will surpass the $2bn “down payment” promised for large-scale hydrogen projects last year.

The Australian understands the government is considering subsidising hydrogen once it is being produced and sold in a bid to make the expensive new energy source more competitive and as major trading partners consider hydrogen as an alternative option to gas.

Labor is understood to be ­deciding whether to legislate flat subsidies through a tax credit model, such as the one adopted by the US, or follow the UK in implementing a reverse auction strategy.

In the reverse auction scenario, energy generators would nominate their own figure for a subsidy – bidding against other companies – that would bridge the gap between the expected sale price and the cost of production.

While there are already government vehicles delivering low-interest loans to prop up green hydrogen projects, such as the Clean Energy Finance Corporation, Labor sources said the ­outstanding issue to be tackled by the Future Made in Australia ­policy was competition.

Green hydrogen could become a central pillar of the Future Made in Australia plan.

Clean Energy Council chief executive Kane Thornton said he expected new money for green ­hydrogen on May 14 and the $2bn Hydrogen Headstart program – announced in last year’s budget to fund large-scale hydrogen projects and accelerate local industry – was the right kind of policy and mechanism for investment.

“The Treasurer, when he announced it, used language that this was a “down payment”. That was a recognition that $2bn was a good start, but there’d need to be more, given the scale of investment required and the competitive landscape with the US and almost every other country in the world,” Mr Thornton said.

“We’re now a year on. Hydrogen Headstart has been designed, they’ve got six short-listed projects, government is really pleased with the shortlist in terms of quality projects and proponents. They’re going through a process to select – my understanding is – two or three of those six (as the final projects).

“All of that leaves me to have an expectation government will push ahead with Hydrogen Headstart. The budget will need to make that allocation and more timing on how that (initial) $2bn will be spent.”

The peak renewables industry body has called for a $100bn transformation package to help Australia become a clean energy superpower, but Mr Thornton said this year’s budget investment in hydrogen “needs to be in the billions and if not single digits then double digits over the coming years”.

Australian Hydrogen Council chief executive Fiona Simon said taxpayer-funded investment “far in excess of $2bn” was required to create a new hydrogen market and ecosystem, with governments allowed to take more risks.

She also anticipated a significant investment in Hydrogen Headstart in the budget.

“If we don’t see something fundamental announced that goes to the heart of what’s required, if we don’t see it in this budget, then Australia being any kind of leader in the hydrogen industry in the near future would seem unlikely,” Dr Simon said.

“It has to be a self-evident Australian response to the Inflation Reduction Act that people in the future hydrogen industry can see themselves in.

“What we need to see from government is a really long-term plan with a serious set of investments, because we know government needs to step in and de-risk new industry development while industry is not commercial. There needs to be a means of closing the commercial gap – that only government can do – and then the private sector can come in and do the heavy lifting.”

Dr Simon said industry was calling out for hydrogen production tax credits … and support for hydrogen technology.

“Serious government support for hydrogen tech, like membranes and components for hydrogen electrolysers, would be ideal. It’s not like the recent solar announcement (Solar Sunshot), where we’ll spend $1bn probably 15 years after we should have. What can we do now before we lose ­competitive advantage?”