Submission

AHC Pre Budget Submission NSW Govt

About the Australian Hydrogen Council

The Australian Hydrogen Council is the peak body for the hydrogen industry, with 47 members from
across the hydrogen value chain.
Our members are at the forefront of Australia’s hydrogen industry, developing the technology, skills
and partnerships necessary to build Australia’s hydrogen economy.

The importance of the hydrogen economy

The hydrogen industry has enormous potential to benefit Australia, through new export markets,
decarbonising the economy and supporting energy security. Hydrogen also enables energy to flow
between the electricity, gas and transport systems. This sector coupling capability makes hydrogen
incredibly valuable.
Work for the National Hydrogen Strategy (NHS) estimated potential benefits to Australia could be as
high as $26 billion a year in additional GDP and 16,900 new jobs by 2050.

Australia is particularly well‐positioned to play a key role in the hydrogen export market with its
abundant renewable resources, existing bilateral trade relationships with Japan, Korea and China
and low sovereign risk.
However, the window of opportunity will not exist forever. Competing hydrogen producers across
the globe seek a share of the export pie and scaling up hydrogen production in their respective
countries to supply the Japan, Korea and China markets as soon as 2025. These competitors include
Brunei, Qatar, UAE and Norway, and in the longer‐term, market entrants such as the United States,
Brazil, Chile and New Zealand.
Many of these countries enjoy the inherent strengths that Australia has for hydrogen production,
including abundant renewable resources, access to low‐cost gas for blue hydrogen production,
underground facilities that can be utilised for carbon capture and storage, large areas of land for
solar installations and proximity to key hydrogen export markets.
A major focus of the NHS is the need for the emerging Australian industry to achieve scale because
projects to produce and deliver hydrogen are not yet commercially viable. Through smart policy
NSW can play a key part in achieving this.
Since the development of the NHS, it has become apparent that the speed of industry development
is accelerating faster than anticipated (particularly for exports). Asian customers are looking for
product as early as mid‐2020s and states like Western Australia have bought forward their hydrogen
plans by years.
Getting to scale is also a focus of the Australian Hydrogen Council. Industry requires governments as
partners to share risk and commercialise projects to scale. We need to bring down the cost of
hydrogen so that it can more effectively compete with existing carbon‐emitting (and often
subsidised) energy/fuel sources.
A real opportunity exists to build on the success of the renewables revolution and channel funding
towards developing a hydrogen industry.
The 57 actions in the NHS have been endorsed by the NSW Government. The challenge is now to
flesh out the detail of the NHS and to take action to implement the actions.

Given the economic downturn associated with the 2019/20 bushfire season and COVID‐19 crisis,
investing in hydrogen infrastructure projects represents a tangible means of stimulating and
rebuilding the economy, especially in regional communities, whilst helping secure our energy future
and positioning Australia – and NSW – as a world leader in hydrogen.

Summary of recommendations

Recommendation 1

The NSW Government applies grant funding to at least one anchor project within a hydrogen hub
that can showcase the state’s capabilities and attract investors to the region, particularly for export.
In order to clearly showcase capabilities, port and infrastructure assessments should be undertaken
for a range of NSW ports.

Recommendation 2

The NSW Government applies other investment incentives such as:

  • Special or Low Carbon Economic Zones
  • Export credits
  • Underwriting demand and common use infrastructure
  • TUOS exemptions.

Recommendation 3

The NSW Government considers a new direct compensation measure to replace diesel standalone
power systems.

Recommendation 4

The NSW Government applies equivalent or better fuel rebates to hydrogen than it does on diesel.

Recommendation 5

The NSW Government develops a grant programme to directly support the installation of hydrogen
refuelling infrastructure for FCEVs.

Recommendation 6

The NSW Government sets a 50% zero emissions vehicle target for fleets of cars, buses and ancillary
vehicles by 2030. This would include privately operated public transport fleets and government
owned logistics providers.

Recommendations in detail

Supporting hydrogen infrastructure and driving demand

Until the industry has reached commercial scale, grant funding is essential; currently a funding gap
exists even with the presence of concessional financing.
The Hydrogen Council’s 2020 Path to hydrogen competitiveness report (supported by McKinsey
analysis) estimates that US$70bn (A$100bn) of investment in hydrogen is required across the globe
by 2030 to meaningfully activate the global hydrogen economy:
Reaching the scale required will call for funding an economic gap until a break‐even point is reached –
an investment to offset the initially higher costs of hydrogen as a fuel and of hydrogen equipment
compared to alternatives. Instead of being perceived as costs, this should be seen as an investment to
shift the energy system and industry to low‐carbon technology.
Although US$70bn (A$100bn) by 2030 seems sizable, the report notes that this accounts for less
than 5% of annual global spending on energy. In comparison, support provided to renewables in
Germany totalled roughly US$30 billion (A$43 billion) in 2019.

BNEF analysis goes further, estimating that US$150 billion (A$214 billion) will be needed globally
until 2030 to bridge the cost gap between hydrogen and the cheapest fossil fuels, not just the
cheapest low‐carbon alternative.

Public investments and policies to fill the gap can then unlock several times their value from the
private sector. For example, the RBA notes that the:
Clean Energy Finance Corporation (CEFC) and the Australian Renewable Energy Agency (ARENA) have
played an important role in helping developers obtain finance by directly financing projects and
encouraging private investment. These agencies have directly invested around $8.5 billion in clean
energy‐related projects since inception. They estimate that this investment has encouraged a further
$25 to $30 billion of additional private sector investment.

These data were from ARENA and CEFC’s 2018‐2019 Annual Reports. On its website, ARENA
currently advises that since 2012, it has:

supported 538 projects with $1.58 billion in grant funding, unlocking a total investment of almost
$5.96 billion in Australia’s renewable energy industry.

Assuming all else is equal, these figures suggest that government funding in hydrogen might be
expected to unlock at least three times as much private investment.
Funding for Australian hydrogen production and use is currently unlikely to unlock private
investment to get the industry to scale. This situation could be improved by individual states and
territories helping draw through investment by co‐investing in the right local projects.
Governments can also implement a range of incentives and rules to drive demand. For example,
electrolysers can act as inertia on the grid, and electrolyser response times are equivalent to
batteries. These characteristics add value to the grid and it can be argued that this value could be
recognised by exempting hydrogen from transmission use of system (TUOS) charges. Early stage
support to encourage common use infrastructure and attractive tax, credit and financing solutions
are also recommended to attract private investment.

Recommendation 1

The NSW Government applies grant funding to at least one anchor project within a hydrogen hub
that can showcase the state’s capabilities and attract investors to the region, particularly for export.
In order to clearly showcase capabilities, port and infrastructure assessments should be undertaken
for a range of NSW ports.

Recommendation 2

The NSW Government applies other investment incentives such as:

  • Special Economic Zones
  • Export credits
  • Underwriting demand and common use infrastructure
  • TUOS exemptions.

Replacing diesel in remote applications

Diesel is currently used extensively in mining and agriculture, and to power remote communities.
Developing hydrogen remote area power systems (RAPS) can reduce Australia’s reliance on
imported diesel and support decarbonisation in these sectors and communities. The development of
hydrogen remote applications would also generate jobs in the design, construction and operation of
hydrogen systems and provide a much‐needed training ground to develop local knowledge and
experience in the industry.
From a cost comparison perspective, hydrogen can replace diesel as a fuel right now. However, the
issue remains how to replace existing infrastructure (including vehicles, which we return to below)
and how to produce the hydrogen at scale in a pre‐commercial environment.

Hydrogen is also competing against a heavily subsidised fossil fuels industry. A 2019 International
Monetary Fund paper calculated Australia’s post‐tax fossil fuel subsidies in 2015 as US$19 billion
(A$28 billion), or US$1,198 per capita (A$1745).9 Post‐tax subsidies were defined as the differences between “actual consumer fuel prices and how much consumers would pay if prices fully reflected
supply costs plus the taxes needed to reflect environmental costs and revenue requirements”.

Recommendation 3

The NSW Government considers a new direct compensation measure to replace diesel standalone
power systems.

Recommendation 4

The NSW Government applies equivalent or better fuel rebates to hydrogen than it does on diesel.

Transport applications

Decarbonisation of Australia’s transport sector is becoming increasingly urgent. Transport is
Australia’s second largest emitter, making up 19% of current greenhouse emissions.
Decarbonising transport in NSW is essential to bringing the state’s carbon footprint down to meet
the anticipated 2030 interim emissions reduction target of 35% fewer emissions than in 2005, and to
be net zero by 2050.
Decarbonising transport will only occur with a mix of batteries and hydrogen fuel cells. While both
can be used for light vehicles, hydrogen has particular value in the heavy transport sector. As noted
in the NHS, hydrogen fuel carries significantly more energy than the equivalent weight of batteries.
This is particularly useful for buses, trucks and ships that carry heavy loads and can travel long
distances. Even with improvements battery efficiency the heavy transport sector remains very hard
to decarbonise without clean molecules like hydrogen.
As with gas blending opportunities, transport also provides significant hydrogen offtake potential.
Transport uses are more piecemeal than gas blending but have the advantage of having a public
profile and can also replace diesel now.
Hydrogen can also bring new design and manufacturing opportunities to Australia in fuel cell
technologies, to be used in the automotive, mining, aviation and marine industries.
Governments can provide the right signals by setting targets and reducing unnecessary barriers to
uptake for vehicles. They can help create the demand that will draw through private investment in
vehicles and infrastructure. This will give certainty to manufacturers and investors in the early
stages.

Recommendation 5

The NSW Government develops a grant programme to directly support the installation of hydrogen
refuelling infrastructure for FCEVs.

Recommendation 6

The NSW Government sets a 50% zero emissions vehicle targets for fleets of cars, buses and ancillary
vehicles by 2030. This would include privately operated public transport fleets and government
owned logistics providers.

Conclusion

Considering the current economic conditions and the opportunity that hydrogen presents, the
2020/21 budget presents an excellent opportunity for the NSW Government to implement the
recommendations outlined in this submission in order to reap the benefits of a local hydrogen
industry.
The Australian Hydrogen Council would welcome the opportunity to provide further detail about any
of the recommendations made in this submission via CEO Dr Fiona Simon who can be contacted by
email on [email protected] or telephone 0474 028 740.

Click here to download the submission PDF.

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