Hydrogen Headstart Program Consultation

AGL Energy Limited
T 02 9921 2999 Level 24, 200 George St
F 02 9921 2552 Sydney NSW 2000
agl.com.au Locked Bag 1837
ABN: 74 115 061 375 St Leonards NSW 2065

Australian Government

Department of Climate Change, Energy, the Environment and Water

By email: hydrogenheadstart@dcceew.gov.au

3 August 2023

AGL Response to the Hydrogen Headstart Consultation Paper

AGL Energy (AGL) welcomes the opportunity to contribute to the Australian Government’s Hydrogen
Headstart grant program consultation paper.

About AGL

AGL is a leading integrated essential service provider, delivering 4.3 million gas, electricity, and telecommunications services to our residential, small, and large business, and wholesale customers across
Australia. We operate Australia’s largest electricity generation portfolio and have the largest renewables and storage portfolio of any ASX-listed company, having invested $4.8 billion in renewable and firming generation over the past 20 years and added more than 2,350 MW of new generation capacity to the grid since 2003.

AGL understands the importance of supporting a range of technologies with complementary functions in the transition from traditional fossil fuel-based power generation to a fully decarbonised grid.

In our inaugural 2022 Climate Transition Action Plan (CTAP), we clearly state AGL’s updated ambition to become an integrated low-carbon energy leader, including:

• Targeting a full exit from coal-fired generation by the end of FY35 (up to a decade earlier than
previously announced);
• Ambition to meet customer energy demand with around 12 GW new firming and renewable assets
by 2036; and,
• An initial target of 5 GW new firming and renewables by 2030.

AGL has also committed to repurposing its large thermal generation sites into low carbon industrial energy hubs. Our industrial energy hubs at Loy Yang, Torrens Island and in the Hunter will bring together renewable energy production and storage with energy-intensive industries, centred around a shared infrastructure backbone. This existing infrastructure backbone may also play a role in hydrogen industry developments.

For example, AGL is currently undertaking a green hydrogen feasibility study in the Hunter region with
Fortescue Future Industries and other consortium partners across multiple sectors. This study will shed light on critical inputs to such a facility including renewable energy costs, firming requirements, electrolyser capital costs, logistics and utilisation and will add critical detail to our vision for an industrial low carbon energy hub at the site of our Liddell and Bayswater power stations.

In 2022 we undertook a commercial and technical feasibility study for our Torrens Island site to investigate the production of hydrogen-derived products to serve both domestic users in South Australia and interstate, as well as wider export markets.

At this early stage of hydrogen industry development, we are supportive of a broader grant program with built-in flexibility allowing a variety of project partners who can leverage their existing assets and attract a multitude of off-takers with a variety of end uses to underpin a strong project business case.
Our position on these issues is further elaborated in our reposes to the consultation questions included at
Appendix A to this submission.

We look forward to further opportunities to engage on this program. If you would like to discuss this submission further, please contact Aleks Smits (Senior Manager Policy) at asmits@agl.com.au.

Yours sincerely,

Chris Streets

General Manager (a/g), Policy and Market Regulation

AGL Energy

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Appendix A – Response to Questions Raised in Issues Paper

Question 2.1: Please provide any We are supportive of the proposed eligibility requirements, feedback on the proposed eligibility particularly the flexibility of methods for certifying the renewable requirements. Are there any other electricity given that the Renewable Energy Guarantee of Origin eligibility requirements the Program (REGO) scheme is still under development.
should consider?
We also support the proposal that all end uses of hydrogen or
hydrogen-derived products be eligible for the program. Given the
program focus on large-scale production, the ability to include
multiple off-takers could help to derisk projects.
We would welcome further detail on the definition of a single-site
deployment. We don’t foresee any issues with limiting the site of the
electrolyser/s in the project, however, if it were required that multiple
project components be restricted to a particular radius, for example,
the renewable energy generation, the electrolyser, the conversion to
another hydrogen derived product and/or the export of the final
product, this could rule out a number of export-focused projects.
Building in flexibility to the program so that different project partners
can utilise existing sites could help with project economics.

Question 2.2: Is a minimum Given developments in announced projects and in the international deployment size of 50MW appropriate hydrogen space, it seems feasible that we will see 50 MW for the Program? electrolysers deployed by the time this grant program commences in
2027/8. However, the program could be amended to allow for
staged project rollout to build in flexibility in the event that supply
chain constraints limit project timelines.

Question 2.3: Are there benefits to Noting that there will likely be a trade-off between project start time considering a suite of project sizes, and project scale, a portfolio approach could be taken to achieve with both large and smaller scale both expedited hydrogen production and (later) hydrogen production projects (for example less than 50MW) at scale. However, proponents would benefit from government being eligible? indicating how the total funding pool will be allocated towards both
small scale and large scale projects. This will help to determine
which projects to progress for this grant process.

Question 2.4: Are there benefits to In our view, aggregation of multiple assets across different sites considering projects that may only would not be the best use of funding – for example multiple smaller have scale if aggregated across electrolysers in different locations. This would duplicate project costs multiple, but related sites? such as storage costs at each site. A scaled approach would be
more economically efficient.

Question 2.5: Other international With the current supply chain constraints and network connection schemes have sought to implement approval timeframes, it is unlikely sufficient renewable energy additional requirements of the capacity could be developed to meet the scale of ambition indicated renewable energy used in hydrogen in this paper by the 2027/8 operational deadline, if new renewable projects such as new-build or time energy build were a mandatory requirement for funding.
matched renewable energy. Please
We note that proposals relating to time-stamping renewable provide your views on any additional
electricity certificates are currently being considered through the requirements the Government should
development of the government’s Guarantee of Origin (GO) REGO consider for the Program in relation to
scheme, which is likely to be operational by 2027/28.
renewable energy.
In our view, while time-stamping renewable energy certificates
should not be mandatory in the first instance, there is merit in
building this capability into the design of REGO certificates to allow

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certain use cases to be pursued on a voluntary basis; for example,
the certification of electricity consumed by electrolysers for the
production of green hydrogen. Equally, REGOs are likely to include
information as the date of commissioning of source generation,
which will facilitate the certification of renewable electricity from
new-build generation if this is a requirement in the future.
In our, view, time stamping and age of generation are not issues
that should necessarily be linked to the criteria for this grant
program, given that the REGO scheme is still under development.

Question 2.6: Some international We are supportive of broad end use eligibility at this early stage of schemes have limitations on proposed hydrogen industry development. In our view, keeping the end-use end uses of hydrogen such as the UK open gives the best chance of multiple off-takers or gives the scheme which specifically excludes proponents the flexibility to choose the highest value off-takers for gas blending. Should any limitations be their particular consortia or project design.
placed on the end uses eligible for the
Program?

Question 2.7: Other international We see merit in the program considering both export and domestic schemes consider both export and applications. This question can be addressed through the design of domestic use of hydrogen as eligible the merit criteria. The criteria could require a domestic component to while others specifically exclude export the project. This could be through an agreement for future offtake as projects. How should the Program the domestic industry develops, for example when the use case is consider projects with proposed export more strongly demonstrated or the price of hydrogen is more offtake and the extent to which this economic.
offtake may support the development of an Australian hydrogen industry or other additional benefits to Australia?

Question 4.3: How should the Program Securing additional state or commonwealth funding should be treat additional Commonwealth or regarded as high merit. This funding should be declared and
State Government funding or other factored into the project business case and the HPC value support for the same project? requested by proponents.

Question 4.4: How should the Program Our understanding is that securing international investment is one of treat a project that has been able to the objectives of the program and the national hydrogen strategy so attract international government should contribute to project merit. It should also be expected that the investment such as that under scale of the project and the HPC requested reflect the total
H2Global? How can the Program best government investment secured – both Australian and international.
leverage this support?
However, even at this early stage, government should consider how
export-focussed projects where Australian government funding is
awarded, can benefit local communities (to improve social licence)
and benefits to energy consumers where projects may impact on
electricity networks and impact costs passed through to consumers.

Questions 4.5: How should the HPC We would welcome further detail to understand the government’s consider inflation? approach.

Question 6.1: Do you think the Yes, the scale and timing for green hydrogen offtake agreements is
Program should include volume risk currently very uncertain. Therefore, some structured supporting support? If so, why? mechanism would be welcome to manage demand-side risks.

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

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Question 7.1: Please provide any The payment frequency and term seem feasible, noting that this feedback on the proposed payment could lock out smaller participants who are more reliant on a regular frequency and term. financial flow. Given the focus of the program is fairly large scale, it
is reasonable to expect that only major hydrogen industry
participants will apply.

Question 9.3: Should an applicant be We are supportive of an approach whereby a certain proportion of required to have at least a conditional offtake has been agreed on a conditional basis.
offtake arrangement in place before applying to the Program? What standard should be applied to determine the reliability of such an arrangement?

Question 9.5: What other aspects of an Demonstrated tangible benefits to Australians can be addressed in export-oriented proposal should be grant program merit criteria by including a requirement to disclose assessed to ensure the Program funds the direct and indirect benefits a project offers. These benefits demonstrate tangible benefits to should include broad social benefits, for example to local
Australians? communities in areas surrounding projects helping to build social
licence for Australia’s hydrogen industry.

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