By Nick Toscano and Nick O'Malley
Mining magnate Andrew “Twiggy” Forrest and other developers of large-scale renewable hydrogen projects in Australia have thrown support behind the Albanese government’s $2 billion scheme to kickstart the fledgling industry and boost their ambitions to turn water into fuel.
Unveiled in Tuesday’s federal budget, the “hydrogen headstart” program will provide credits per kilogram of green hydrogen production to help bridge the commercial gap between production costs and current market prices, with an aim to support two to three “flagship” projects.
Andrew “Twiggy” Forrest, the chairman and biggest shareholder of iron ore miner Fortescue Metals Group, is embarking on a major push into clean energy.Credit: Dominic Lorrimer.
Hydrogen, which burns cleanly and emits only water, is considered a promising fuel that could eventually substitute coal in a range of manufacturing processes, natural gas in heating and power generation, and oil in heavy transport.
Most of today’s hydrogen is limited to “grey hydrogen”, made from gas through a process that emits carbon dioxide into the atmosphere. Green hydrogen, on the other hand, is produced when a renewable energy-powered electrolyser is used to split water into hydrogen and oxygen, making it emissions-free.
However, significant barriers to green hydrogen’s future as an energy source remain; the biggest being the prohibitively high cost of the technology to produce it compared to hydrogen made from fossil fuels.
Forrest, who is leading a multibillion-dollar push to diversify iron ore giant Fortescue Metals Group into green hydrogen, said the new government scheme was a “wonderful first step”, and a recognition of Australia’s need to remain competitive with the United States, where President Joe Biden’s $US374 billion ($552 billion) Inflation Reduction Act is aiming to stimulate hydrogen production aggressively.
“We have a new government here now and in its first budget it has made a material step to get behind the industry so we are not left behind by Europe, not left behind by North America,” he said.
While details of the scheme’s final design are still being developed, Forrest stressed the importance of the government matching the US government’s tax credits of $US3 ($4.40) a kilogram.
“A $US3 credit to match the US is what I would recommend,” he said.
Climate Change and Energy Minister Chris Bowen said there would a competitive process to determine the level of support for any particular project, to be conducted by the Australian Renewable Energy Agency. He said matching the level of tax credits available in the US was not critical because Australia had other advantages for hydrogen production. “But we do have to stay in the game,” Bowen said.
Eva Hanly, the regional head of Fortescue’s green energy subsidiary, Fortescue Future Industries, said customers across the world were assessing where they would source their hydrogen, and it was crucial to ensure Australian supply projects could compete on price.
“What we are hearing from our customers, particularly in Asia, is that they have extremely strong demand for green hydrogen, very quickly and at very large volumes,” Hanly said.
“If we don’t capture that export market another country will, and we will miss out on billions of dollars we could have in the future.”
British energy giant BP, which is progressing three large hydrogen projects in Western Australia, said the funding signalled Australia’s intention to become a “global leader in renewable hydrogen” and would help make the nation globally competitive in the production of the versatile zero-emissions fuel.
“The Albanese government has provided a much-needed response that gives industry increased confidence to invest,” said Lucy Nation, BP’s vice-president of hydrogen for Australia and the Asia-Pacific.
“This program of competitive production contracts assists producers by helping to de-risk significant investments in an important new industry, as well as attract global capital to Australia.”
So-called “blue hydrogen”, which is produced from coal or gas alongside the use of carbon capture and storage technology to eliminate emissions, will not be included in the Albanese government’s scheme. Coal miners said the budget was a “missed opportunity” to focus on all forms of hydrogen production, including those using coal, gas and biomass.
Low Emissions Technology Australia (LETA), an industry group representing Australian black coal miners, said the government’s approach stood in contrast with that of the US Inflation Reduction Act, which provided technology-neutral tax credits for all forms of low-carbon energy production.
“Hydrogen with carbon capture and storage is an extremely competitive source of clean hydrogen,” LETA chief executive Mark McCallum said. “Given there are clean energy projects already planning to leave the region, or at the very least curtail investment, the importance of remaining technology-agnostic so that we can protect jobs, the economy and our energy security cannot be stressed enough.”
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