Hydrogen Headstart Program Consultation

3rd August 2023

Department of Climate Change, Energy, the Environment and water

Hydrogen Headstart Program Consultation

Dear Sir/Madam,

Glencore is one of the world’s largest global diversified natural resource companies and a major producer and marketer of more than 60 commodities that advance everyday life. With around 140,000 employees and contractors,
Glencore has and a strong presence in over 35 countries in both established and emerging regions.

As well as providing the metals and minerals for a low carbon future, Glencore is investing in ways to reduce emissions from fossil fuels. Glencore is investing in abatement and technology initiatives that will contribute to decarbonisation and the global transition to a low emission future.

Glencore takes a holistic approach to carbon reduction, recognising that a meaningful contribution to addressing climate change is only possible through our Scope 1, 2 and 3 emissions reductions. Our long-term ambition is to achieve, with a supportive policy environment, net zero CO2e emissions by the end of 2050 and we report annually on our progress.

We therefore welcome the opportunity to comment on the Hydrogen Headstart program.

We believe the Hydrogen Headstart program should take a technology neutral approach to stimulate a broad and diverse range of investment that can contribute meaningfully to decarbonisation. By selectively targeting production methods restricts the potential value the scheme can have in enabling decarbonisation.

Please refer to our attached submissions in response to the Hydrogen Headstart consultation paper.

Yours faithfully,

Scott Elliott
Glencore

Level 22, 300 George Street, Brisbane QLD 4000
T + 61 7 3308 2400 F + 61 7 3833 8555 www.glencore.com
Glencore Coal Assets Australia Pty Limited ABN 48 163 821 298
2.1 Please provide any feedback on the proposed eligibility requirements. Are there any other
eligibility requirements the Program should consider?

Response:
Glencore recommends the eligibility requirements of the Hydrogen Headstart scheme be expanded to take a technology neutral approach and allow for the inclusion of low emissions hydrogen produced from fossil fuels with carbon capture and storage (CCS). Including only hydrogen produced from renewable energy sources is a missed opportunity to stimulate development of the hydrogen economy through methods that can materially contribute to decarbonisation by deploying proven technology that is able to produce industrial scale quantities of truly low emissions hydrogen.

Hydrogen Headstart should also set a required timeframe associated with when hydrogen production is to commence (e.g. production is to commence by 1 January 2027).
Regarding the procurement of renewable energy, the following eligibility requirements should be considered:
 In addition to the proposed market-based approach for Scope 2 reporting, applicants should include
details on the gross emissions intensity (location-based approach) of the hydrogen production where
a grid connected electrolyser will be used.
o E.g., details on hydrogen production with the varying carbon intensity of the grid at the
different points in time over the 10-year period of the production credit, excluding the netting
off any large-scale generation certificates (LGCs).
 This grid intensity should be modelled on a consistent basis with other applications.
 The project proponent should provide verifiable support that any grid connected electricity used will
be supported by the additionality of renewable power generation capacity, and that this additional
capacity has temporal and geographical correlation to the hydrogen project. If additionality, and
temporal and geographical correlation cannot/have not been met, this must also be disclosed on a
compulsory basis.
 This data should be made public to provide transparency and awareness of the true decarbonisation
impacts of the $2 billion in production credits provided through the Hydrogen Headstart program.
Emissions intensity based on the actual grid electricity being utilised in the electrolysis process should be provided by all applicants.
This information should be published for any successful applicant to demonstrate the carbon reductions of any project receiving Government funding. In the International Energy Agency (IEA) publication ‘Towards hydrogen definitions based on their emissions intensity’, a summary comparing the emissions intensity of different hydrogen production pathways is provided. This summary highlights the following range of what the emissions intensity would be for hydrogen produced from electrolysis on the varying global grid electricity intensity in 2021:
 >35kg/CO2-eq/kg H2 based on a grid electricity intensity of 700g CO2-eq/kWh (0.70 tonnes CO2-
eq/MWh)
 2.5kg/CO2-eq/kg H2 based on a grid electricity intensity of 50g CO2-eq/kWh (0.05 tonnes CO2-
eq/MWh)
In the Department of Climate Change, Energy, the Environment and Water (DCCEW) publication ‘Australia’s emissions projections 2022’, DCEEW forecast emissions factors for Australia’s electricity grid from now until
2035.
This publication shows grid connected emissions intensity factors for Australia would lead to hydrogen emissions intensities well above global expectations for low-carbon hydrogen:
 2022 grid electricity intensity of 0.68 tonnes CO2-eq/MWh in 2022
o This would imply a grid connected electrolyser in Australia could produce hydrogen
at approximately 34kg/CO2-eq/kg H2 in 2022

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 2035 grid electricity intensity of 0.18 tonnes CO2-eq/MWh
o This would imply a grid connected electrolyser in Australia could produce hydrogen
at approximately 9kg/CO2-eq/kg H2 in 2035
Regarding the demonstration of a valid commercial case, as well as commercialisation pathway analysis, details on the financial model that is to be submitted (mentioned in Appendix A) for the Expression of Interest and Full Application Rounds should be made publicly available. Information should be provided on:
 Verified supplier pricing to support project capital costs for hydrogen production and renewable
energy generation.
o E.g. electrolysers, balance of plant, solar/wind capacity and associated electrical
infrastructure.
 Production costs.
 Technology performance.
This publicly available information does not need to be project specific; however, it should be considered part of the Knowledge Sharing requirements of the program and be considered in the eligibility requirements for the program.

2.2 Is a minimum deployment size of 50MW appropriate for the Program?

Response:
A minimum deployment size of 50MW is appropriate, provided that the total Hydrogen Headstart scheme has a:
 Maximum threshold on the production credit available to these projects (such as AU$2/kg); and/or
 Combined hydrogen production target for all projects that will be granted funding, such as:
o A minimum of 500MW of total electrolyser capacity for all eligible projects combined.
If these items aren’t specified, there is a risk that subsidies are too generous for only two to three projects receiving funding

2.3 Are there benefits to considering a suite of project sizes, with both large and smaller scale
projects (for example less than 50MW) being eligible?

Response:
Yes, provided the Hydrogen Headstart scheme is designed:
 With a total installed electrolyser capacity target across all large and smaller scale projects (such as
a minimum of 500MW of total electrolyser capacity); and
 A maximum production credit available for project developers (such as AU$2/kg).

2.4 Are there benefits to considering projects that may only have scale if aggregated across multiple,
but related sites?

Response:
Yes, however this will be end-use specific.
An example is targeting the decarbonisation of long-distance haulage, where electrolysers, renewable generation and hydrogen refuelling stations could be installed in various locations across Australia to establish a network for long-distance transport using hydrogen as fuel.

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2.5 Other international schemes have sought to implement additional requirements of the renewable
energy used in hydrogen projects such as new-build or time matched renewable energy. Please
provide your views on any additional requirements the Government should consider for the
Program in relation to renewable energy.

Response:
This should be considered a necessity for all electrolyser derived hydrogen projects and production.
If the principles of additionality, temporal and geographic correlation are ignored, there is a risk that hydrogen production through electrolysis will make decarbonisation targets more difficult to achieve for
Australia through:
 Cannibalising Australian renewable generation capacity and effectively exporting renewable energy
to other regions; or
 The electrolyser derived hydrogen production only results from electricity derived from unabated
fossil fuels.
At the very minimum, there should be compulsory disclosure requirements on whether additionality, and temporal and geographic correlation have been met by the projects, to provide transparency.
Reported emissions intensities need to be independently verified to ensure all contributing electricity sources are matched to production levels and properly accounted over time.
There is a risk non-renewable or electricity that is generated without LGC’s could be used when an electrolyser is not being fully utilised.

2.6 Some international schemes have limitations on proposed end uses of hydrogen such as the UK
scheme which specifically excludes gas blending. Should any limitations be placed on the end
uses eligible for the Program?

Response:
Limitations should not be placed on eligible end-users. Low-carbon hydrogen should be allowed to be sold for any use as it will positively contribute to decarbonisation

2.7 Other international schemes consider both export and domestic use of hydrogen as eligible
while others specifically exclude export projects. How should the Program consider projects with
proposed export offtake and the extent to which this offtake may support the development of an
Australian hydrogen industry or other additional benefits to Australia?

Response:
Hydrogen projects that are grid connected and targeting export should only be allowed access to the scheme if they are implementing additional renewable energy capacity, and the use is geographically, and time matched to the hydrogen production.

2.8 The proposed GO Scheme will be used to support the verification of hydrogen production. Are
there projects where this would not be suitable? Should the Program apply a maximum
emissions intensity for hydrogen production on a project lifecycle basis?

Response:
The program should apply a maximum emissions intensity for hydrogen production on a lifecycle basis.
The maximum emissions intensity should mirror the equivalent thresholds that are being implemented in other potential major hydrogen production regions, such as the United States of America and Europe. This emissions intensity should also capture gross emissions (excluding netting off LGCs) to highlight the carbon accounting impacts and the underlying intensity of any electricity being utilised from the grid.

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4.1 Please provide any feedback on the proposed funding mechanism.

Response:
What is deemed a justifiable return on investment should be specified and reviewed, to ensure that a project developer is not setting a Hydrogen Production Credit that is unreasonably high.
The prices reported by each applicant should be verified and benchmarked against other applicants to consider the underlying merit and economics of each project, for example:
o A project requiring a AU$10/kg hydrogen price to achieve a 10% internal rate of return (IRR)
should not be looked upon as favourably as a project requiring AU$8/kg for the same IRR
target.

4.2 Are there other design features or structures for the proposed Program that you think could be
more impactful or efficient to catalyse large-scale hydrogen production in Australia?

Response:
Capping the Hydrogen Production Credit at a nominal threshold (e.g. AU$2/kg) would be more impactful.
The threshold should consider other hydrogen subsidies available globally, such as those available through the US Inflation Reduction Act.

4.3 How should the Program treat additional Commonwealth or State Government funding
or other support for the same project?

Response:
If a project is receiving other Government funding (such as capital contributions through ARENA or the
CEFC), this should be reflected in the Hydrogen Production Credit that is provided to ensure that select projects aren’t double dipping when it comes to utilising Government funds.
This should be factored into an audited financial model to justify the difference between the expected sales price for each offtake agreement and the applicant’s anticipated cost of production. The other funding arrangements should be netted off against the total unsubsidised project costs and in turn reduce any
Hydrogen Production Credit.

4.4 How should the Program treat a project that has been able to attract international
government investment such as that under H2Global? How can the Program best leverage this
support?

Response:
If a project is receiving other international Government investment funding (such as through H2Global), this should be reflected in the Hydrogen Production Credit that is provided to ensure that select projects aren’t double dipping when it comes to utilising subsidised funding.
This should be factored into an audited financial model to justify the difference between the expected sales price for each offtake agreement and the applicant’s anticipated cost of production. The other funding arrangements should be netted off against the total unsubsidised project costs and in turn reduce any
Hydrogen Production Credit.

4.5 How should the HPC consider inflation?

Response:
An applicant should prepare their estimates on a consistent basis (for example real terms 2024).
The HPC available should then be inflated using an appropriate inflation index.

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5.1 Other international schemes have varying upside sharing arrangements such as the UK scheme
which requires projects to share 90% of upside back to the Government. Please provide your
views on the proposed upside sharing arrangements for the Program, including with reference to
the methodology for sharing upside (a reduction in the HPC).

Response:
Upside sharing on a 50/50 basis is too favourable for project developers.
Audited financial reports should be provided to the managers of the Hydrogen Headstart scheme to allow comparison against the original basis of the determined Hydrogen Production Credit.
If greater returns are being achieved through: increased sales prices; lower capital and operating costs; and/or better than anticipated performance, this should be reflected by the project developer paying back
100% of the surplus (less administrative fees) to the Federal Government.

5.2 Please provide any additional feedback on the proposal for recipients to repay Government
support in the event the sales price increases materially during the 10 year period.

Response:
No additional feedback is required other than these Government funds should be repaid if sale prices increase materially above the price that was utilised to justify the original Hydrogen Production Credit.

6.1 Do you think the Program should include volume risk support? If so, why?

Response:
The project should not include any form of volume risk support. This is a risk that should be carried by the project developer.

6.2 If volume risk support is required, what is the preferred structuring of the mechanism?

Response:
Volume risk support should not be considered.

7.1 Please provide any feedback on the proposed payment frequency and term.

Response:
Development and construction schedule delays due to a project developer delaying their final investment decision unreasonably or by choice should result in funding termination.

9.1 Please provide any feedback on the proposed merit criteria.

Response:
Details on projects selected to participate in the Full Application Stage should be made publicly available for transparency around decision making.
Further details on any projects that successfully obtain funding following the Full Application Stage should also be made public, this should include details in both instances on:
 The carbon intensity of the different projects.
o Including gross emissions (excluding LGCs) for grid connected projects.
 Costs of production, including granularity on the cost competitiveness and efficiency of the projects
listed under Merit Criteria A of the Hydrogen Headstart Consultant Paper (July 2023).

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9.2 How should merit criteria be structured or weighted to ensure the success of delivery of
hydrogen from projects? (For example, by adding weighting to criteria that deal with: the
capability and capacity of a project proponent to deliver its proposal; the credibility and level of
conditionality of the offtake agreement, the extent to which the project has already undergone
project planning processes including feasibility/FEED studies, the identification of sustainable
water sources, other environmental aspects and community engagement; and/or the unique
attributes of the project.)

Response:
Higher weightings should be applied to:
 The cost competitiveness and efficiency of each project.
 The carbon credentials for each project, including factoring in requirements surrounding additionality
of renewable generation capacity and the temporal and geographic correlation in of renewable
generation in relation to the low-carbon hydrogen project.
 The stage of project development, including whether a bankable business case has been developed
and is supported by sufficient technical and commercial information to justify a final investment
decision.
 The financial and technical capability of the applicant.

9.3 Should an applicant be required to have at least a conditional offtake arrangement in place
before applying to the Program?

Response:
No, however the price that they require to reach a final investment decision should be stated and assessed against any offtake agreements that other applicants put forward.

9.4 What additional outcomes should be incorporated into the formal merit criteria for the Program in
order to deliver broader benefits? (For example: level of private investment leveraged; number of
jobs created; number of apprentices supported; level/value of common user infrastructure
supported; level/value of social infrastructure supported; level/value of local suppliers; use of
hydrogen towards existing or new manufacturing industries; level of knowledge shared with the
broader industry.)

Response:
A much greater focus on carbon intensity of production is required.

9.5 What other aspects of an export-oriented proposal should be assessed to ensure the Program
funds demonstrate tangible benefits to Australians?

Response:
Ensuring that applicants projects aren’t resulting in making Australia’s transition to net zero more difficult.
This may occur where renewable power from Australian grids is used to produce export hydrogen to other markets, resulting in more complexity and difficulty for Australian grids to decarbonise.

9.6 How should emissions abatement calculations consider the different end uses of hydrogen and
greenfield vs brownfield facilities?

Response:
Any emissions abatement calculations should be neutral in application when considering greenfield compared to brownfield facilities. The focus should be on decarbonisation, meeting the Federal
Government’s carbon reduction commitments and the best use of Government funds.

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It’s stated that, “Applicants should calculate the estimated Scope 1, Scope 2 and Scope 3 CO2e emissions that would be avoided relative to incumbent fossil-fuel production technologies. Carbon abatement should be calculated using a consistent framework to be specified (for example, the proposed GO Scheme).”
The described approach needs to be detailed further to take into consideration the following aspects:
 Comparison to current fossil-fuel production technologies may not be relevant as the end uses
decarbonise over time and could serve to overstate emissions reduction potential over project life. It
would be more appropriate to compare to reference cases which reflect decarbonisation over time
 Avoided emissions should reflect whether the project has met additionality of renewable generation
capacity, and temporal and geographic correlation. Otherwise, grid connected electrolysers exploit
existing renewable generation capacity which does not reflect new abatement.
 Avoided emissions must be stated on a location-based approach as well as a market-based
approach to transparently disclose the extent of reliance on the grid.

16.1 Does the timing proposed for the Program outlined below appear appropriate? If not, please
note in your view an appropriate alternative.

Response:
The timing appears reasonable.

17.1 Do the above EOI information requirements seem reasonable? Are there any additional items you would add to the EOI information list, or items that may be subject to different interpretations / challenging to provide?

Response:
These appear reasonable.

17.2 Do the above Full Application information requirements seem reasonable? Are there any additional items you would add to the Full Application information list?

Response:
These appear reasonable.

18 Do the above Full Application information requirements seem reasonable? Are there any additional items you would add to the Full Application information list?

We believe the Hydrogen Headstart program should take a technology neutral approach to stimulate a broad and diverse range of investment that can contribute meaningfully to decarbonisation. By selectively targeting production methods restricts the potential value the scheme can have in enabling decarbonisation.

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