Hydrogen Headstart Program Consultation

We are happy that the eligibility criteria are not unduly restrictive. We believe it is important for the development of the Australian hydrogen industry to have a broad range of projects, technologies and end use cases participate in the program as this will help build confidence domestically and globally in the momentum behind the industry.

The 50MW is small in our view. We don't believe that 50MW is of a sufficient size to be competitive in terms of LCOGH especially with the high fixed costs associated with renewable energy and green hydrogen projects in Australia. we also don't believe that 50MW sized projects will help drive the local supply chain and workforce developments objectives set out in the revised National Hydrogen Strategy or accelerate large scale hydrogen hubs. .

We do not believe lower than 50MW should be considered as part of this program. If it is determined to support small projects as part of the headstart program then we would recommend that there is separate pot for such projects.

We agree with this approach, within regional hubs. For instance a project may include the upstream elements (wind, solar and electricity storage), a combination of private transmission and using the existing or upgrade transmission network, electrolyser capacity and downstream production facilities such as hydrogen liquefaction, ammonia, e-methanol and sustainable aviation fuels

Energy Estate is a very strong supporter of the time matched renewable. Australia has the opportunity to be a world leader in decarbonising industries locally and globally using time-matched renewbale electricity. Local companies like Enosi are recognised as being at the forefront of the 24/7 clean energy traceability. Energy Estate has named Enosi as our traceability partner for two of our green hydrogen hubs - HyNQ in Queensland and the Hunter Hydrogen Network in NSW.

We believe opting for what we regard as a lower quality system with limited additionality and time-matching is a missed opportunity. Australia should focus on selling a premium green product to domestic and export customers rather than just trying to compete in a "bulk" market.

We believe that restrictions on end uses are not necessary and run the risk that they end up suppressing potential demand sources.

We very strongly believe that export offtake must be a critical part of the scheme. This enables the industry to develop in a manner which maximises the immediate domestic opportunities and supports the goals and aspirations of our major trading partners such as Japan and Korea. Our view is consistent with the findings in recent reports such as Deloitte's 2023 global green hydrogen outlook "Green hydrogen: Energizing the path to net zero" which highlighted that Australia and North Africa should be the two largest green hydrogen exporters. An additional consideration is that domestic users are not always used to entering into long term contracts for energy supply whilst energy importing countries are very used to do so (as we have seen with long term LNG supply arrangements from Australia to North Asia). Long term offtake arrangements are a fundamental building block for large scale green energy projects and limiting the scheme to domestic demand only would in our view materially limit the number of creditworthy customers who are prepared to write long term offtake arrangements which underpin the billions of dollars of debt and equity capital required to build out the Australian hydrogen industry.
Deloitte’s 2023 global green hydrogen outlook

We are generally comfortable with proposed funding mechanism. We would also be supportive of an extension of the term beyond 10 years and/or the ability to roll forward any unused credits. This would help incentivise the projects to realise the best possible price in the market rather than seek to maximise utilisation of the credit within the 10 year window. We have seen this sort of liquidity mechanisms work well to kickstart projects in other commodity markets globally.

Energy Estate is a passionate advocate of local supply chain and capacity building for green hydrogen and broader clean energy sector. If you do not incorporate this as a design feature we believe that you are less likely to achieve the desired outcomes. This also applies to local community and traditional owner participation and ownership.

We believe that the eligibility criteria for the HeadStart program should not preclude support from other State or Commonwealth funding or support (whether that be regional grant funding, ARENA, CEFC or NAIF or any other relevant schemes).

We agree that the Progam should not discourage participation in the other available programs globally. This could be considered through a net-back mechanism which allows the headstart support to be available for a longer period to the extent that the project had been successful in another programme. The risk sharing elements of the proposed program are also relevant in this regard nd they should be designed to protect the Australian Government from double-dipping.

If you develop a fully integrated project which includes the upstream components (predominantly wind and solar) then the bulk of the costs are capital and opex costs which are subject to inflation will be minimised. The globally recognised approach (for procurement of power and infrastructure) would be to only include on the costs which are subject to inflation, rather than have the whole production credit be subject to inflation. If some bidders are going to propose full indexation of the credit it is critical that the scoring methodology does not penalise bidders who include a lower level of inflation linkage but may have a higher "sticker" price.

We are generally happy with the upside sharing mechanism subject to appropriate checks and balances being in place. It is also important to note that arrangements like this often end up being resource intensive to administer and it is critical that team administering the program is sufficiently resourced to manage this appropriately especially when considering the scale of the amounts involved.

We believe that there is a risk of the Government wanting to "have its cake and eat it". If there is an appropriate upside sharing mechanism then also having a repayment mechanism could make the headstart program significiantly less attractive. If there is a risk that the project will have to repay the credit then the cash received during the ten year period then this cash will not be available to meet operating costs, service or be paid to equity. This will at the very least increase the WACC of projects and adversely affect the financing and capital structure.

Yes we believe that volume risk is an important feature for any such program, especially when the end use markets domestically and globally are still developing and new infrastructure may be required.

A simple fix is to allow the rate of the credit to be increased in any period where the forecast volumes have not been delivered/lifted.

Quarterly in arrears has cashflow implications for projects especially if payment is not made promptly after the end of each quarter.

We believe it is critical to weight the criteria that focus on the deliverability of the project. Projects which are early in the development cycle and/or reliant on third parties (such as where wind, solar and transmission aspects are to be developed separately from the hydrogen production) should be weighted accordingly. We would also stress the importance of assessing community and broader stakeholder engagement and partnerships in the merit criteria.

We believe a high degree of offtake certainty is important, although it is worth noting this could be through a marketing or sales agreement with a leading global or regional trader rather than just one offtaker.

We are passionate advocates of incorporating merit criteria which delivers broader benefits. We have already done this successfully with offtake agreements for renewable energy projects we have developed (such as the PPA with Westpac for the Bomen Solar Farm). The criteria applied by the NSW Government as part of the Electricity Roadmap is another useful example. We also need to build local capacity (quickly) so including criteria around workforce development in the relevant region (and not just Australia generally) and bringing new workers into the industry (including retraining from industries affected by the energy transition) is a priority. A good example is the Queensland Energy Workers Charter.

We are comfortable with the timing but would not want it to be delayed as this could risk the development of the industry in Australia due to the speed at which other markets are moving.

Yes

Yes