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3 August 2023
Submission in response to the Hydrogen Headstart Consultation Paper
The Clean Energy Council (‘the CEC’) welcomes the opportunity to respond to the Australian
Government’s consultation paper on the new Hydrogen Headstart program.
The CEC is the peak body for the renewable energy industry in Australia. We represent and work with more than 1,000 businesses operating in Australia across solar, wind and hydro power, energy storage and renewable hydrogen.
We welcome the Australian Government’s $2 billion funding commitment to Hydrogen Headstart in the Federal Budget. The program is a critical step in scaling up Australia’s green hydrogen sector and signalling our intentions to become a significant producer in this emerging global market over the longer-term. With the real prospect of a number of other regions stealing a march on Australia in activating their domestic green hydrogen sectors, speed will now be key for remaining a credible contender in the clean energy investment race.
We appreciate the recognition by the Government that the program represents a ‘downpayment’ on Australia’s investment in its green hydrogen sector. It will be important for the Government to swiftly follow with details of the longer-term support program/mechanisms which can assist us to bring more projects to market and support the development of green industrial precincts.
The CEC’s overarching comments are that the Department of Climate Change, Energy,
Environment and Water (‘the Department’) and ARENA have put forward a balanced and pragmatic design for the hydrogen production credit within the funding constraints, setting an appropriate framework for the scheme without burdening an emerging sector with unnecessary constraints or obligations.
The main points of our submission are summarised below, and further detailed in the appendix:
1. As a principle, the development of Australia’s green hydrogen sector must be aligned with
establishing a net zero emissions energy mix for the domestic and global economy, and as
such, we are pleased to see the Government focus the funding program on renewable
hydrogen only.
2. We broadly support the current eligibility requirements, and make the following additional
observations:
• While we anticipated a higher minimum threshold for project size (currently 50 MW
electrolyser capacity), we are comfortable that this is a reasonable starting point that
could and should be increased over time through additional government funding
rounds/policies.
• Noting, as mentioned earlier, the need for speed, and the limited number of projects
that Hydrogen Headstart will be able to support from a large field of potential
candidates, we would be supportive of the Australian Government providing more
explicit guidance in relation to its expectations of project readiness/maturity to ensure
that proponents can more easily determine whether they should invest the time to take
part in this resource-intensive process.
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3. We note and welcome the fact that the paper has avoided placing a range of blanket
constraints on projects, for example in requiring time-matching or additionality, which we
believe are matters for projects to assess and determine themselves based on the needs
of their intended end markets/customers.
4. We are pleased to see that the program allows for participation by projects with export
offtakes (as well as domestic use cases), noting that international markets represent a
highly prospective source of demand, which Australia should leverage to accelerate the
development of a domestic green hydrogen production base.
5. An important feature of the scheme is the proposed 10-year funding term. We note that in
the context of long-life infrastructure assets (20+ years), which will be subject to long-term
debt and financing agreements, a 10-year revenue stream is on the low end of workable
timeframes. Payments over a longer timeframe (eg. 15 years) would likely assist projects
to access more favourable lending terms.
6. Regarding the proposed 50/50 upside sharing, while we consider it fair and reasonable that
the government would expect to share in/claw back ‘super’ profits, we note that the
downside risks associated with project costs and offtake prices will rest solely with the
proponent. The Government should therefore accept that proponents will need to account
for this downside risk when nominating their hydrogen production credit values, in order to
enable them to protect the financial sustainability of their projects. The long-term financial
health of projects will be vital to the success of the Headstart projects and the Australia’s
fledgling green hydrogen sector more broadly.
7. Finally, we note that the hydrogen production credit received by proponents should be
treated as a non-tax assessable payment, in order to avoid the need for proponents to
ultimately return a portion of the funds received to Government itself.
Overall, the CEC considers that the Headstart program represents an important first step in getting Australia’s green hydrogen industry moving. We encourage the Government to progress it as efficiently as possible, and quickly provide further detail of the proposed longer-term policy and support mechanisms for those projects which are either not ready to participate in the coming months, or which are unsuccessful in securing Headstart funding in the year ahead.
Please find responses to the consultation paper questions in the appendix that follows.
Yours sincerely,
Anna Freeman
Policy Director – Decarbonisation
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Appendix – Response to Hydrogen Headstart consultation questions
Q Question CEC response
Eligibility requirements
2.1 Please provide any feedback on the The CEC supports the proposed eligibility
proposed eligibility requirements. Are criteria as being broad, balanced and
there any other eligibility pragmatic. We support the Government’s
requirements the Program should exclusion of non-renewable hydrogen
consider? projects.
Noting that there are tens of projects under
development in Australia today, the CEC
would be supportive of the Australian
Government placing more explicit
guidance in relation to its expectations of
project readiness/maturity to ensure that
proponents can more easily determine
whether they are likely to meet the
Government’s preferences in relation to
operating timeframes, and whether they
should therefore invest the time to take part
in this resource-intensive process.
2.2 Is a minimum deployment size of Hydrogen Headstart should be targeted at
50MW appropriate for the Program? supporting large-scale green hydrogen
projects. While the CEC anticipated a higher
minimum threshold for project size than the
proposed 50 MW electrolyser capacity, we
are comfortable that this threshold is a
reasonable starting point that can and should
be increased over time in the delivery of
additional government funding
rounds/mechanisms.
2.3 Are there benefits to considering a The CEC favours the Hydrogen Headstart
suite of project sizes, with both large program remaining focused on the objective
and smaller scale projects (for of moving Australian green hydrogen
example less than 50MW) being production rapidly down the cost curve to
eligible? ensure that we can become globally
competitive. This necessitates scale. If the
Government wishes to provide support to
smaller scale projects, this could be
considered as a distinct and separate
program.
2.4 Are there benefits to considering The commercial model described in this
projects that may only have scale if question is unlikely to achieve the cost
aggregated across multiple, but efficiencies required to compete with single,
related sites? large-scale projects, and therefore are not
just misaligned with the objective of this
program, but are also less likely to be
competitive in the tendering process.
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Q Question CEC response
2.5 Other international schemes have The CEC does not support the Australian
sought to implement additional Government placing additionality and time-
requirements of the renewable energy matching requirements on the green
used in hydrogen projects such as hydrogen sector at this early stage of its
new-build or time-matched renewable development. These requirements can add
energy. Please provide your views on considerable cost and complexity to projects,
any additional requirements the and we consider that it should be a matter for
Government should consider for the proponents to assess whether they need or
Program in relation to renewable wish to adhere to these standards based on
energy. the requirements of their intended customer
markets. For project credibility purposes
however, we do consider it to be important
that the renewable energy generation source
is located on the same grid as that of the
electrolyser.
2.6 Some international schemes have The Headstart program should favour those
limitations on proposed end uses of use cases for which direct electrification or
hydrogen such as the UK scheme other more energy efficient processes aren’t
which specifically excludes gas readily available. This would therefore
blending. Should any limitations be exclude hydrogen blending for residential
placed on the end uses eligible for the and light commercial uses on gas distribution
Program? networks, but would not exclude blending for
high-temperature industrial heat
applications.
2.7 Other international schemes consider In this early stage of industry development in
both export and domestic use of which sources of domestic demand are
hydrogen as eligible while others scarce, and the planning of green industrial
specifically exclude export projects. zones and infrastructure is in its infancy,
How should the Program consider Australia should not exclude green hydrogen
projects with proposed export offtake exports from receiving government support.
and the extent to which this offtake
may support the development of an
Australian hydrogen industry or other
additional benefits to Australia?
2.8 The proposed GO Scheme will be The CEC considers it appropriate that
used to support the verification of projects participating in Headstart are subject
hydrogen production. Are there to requirements for emissions intensity
projects where this would not be reporting.
suitable? Should the Program apply a
maximum emissions intensity We do not deem that an emissions intensity
for hydrogen production on a project threshold is necessary for the program,
lifecycle basis? however, the program should take the
forecast emissions intensity into account as
part of its merit criteria.
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Q Question CEC response
Proposed funding mechanism
4.1 Please provide any Deloitte found in its 2023 analysis1 of a range of policy
feedback on the support mechanisms that production credits were more
proposed funding efficient at incentivising additional hydrogen production
mechanism. than capital grants or investment tax credits.
They also offer the advantage to governments that
proponents are only paid upon delivery of the product.
It must be recognised however that the proposed model
does carry greater commercial risk for proponents in
requiring them to specify a specific credit value per
kilogram before offtake contracts or equipment orders
have been signed, and within an inflationary
environment in which projects are finding it challenging
to obtain firm pricing estimates. In a drawn out tendering
process, these risks are exacerbated.
A strategy for assisting proponents to manage these
financial risks through the EOI process could be to allow
them to put forward a funding range with the indicative
credit value range and production volumes. This could
be further refined in the full application stage, and
ultimately settled on at the financial commitment stage.
An important feature of the scheme is the proposed 10-
year funding term. We note that in the context of long-
life infrastructure assets (20+ years), which will be
subject to long-term debt and financing agreements, a
10-year revenue stream is on the low end of workable
timeframes. Payments over a longer timeframe (eg. 15
years) would likely assist projects to access more
favourable lending terms.
Regarding the proposed 50/50 upside sharing, while we
consider it fair and reasonable that the government
would expect to share in/claw back ‘super’ profits (which
are beyond the requirements for the healthy profitability
of a project), we note that the downside risks associated
with project costs and offtake prices will rest solely with
the proponent. The Government should therefore be
prepared for proponents to account for this downside
risk when nominating their hydrogen production credit
values, in order to enable them to protect the financial
sustainability of their projects.
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Australia's Hydrogen Tipping Point | Deloitte Australia
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Q Question CEC response
4.3 How should the Program treat Renewable hydrogen projects are currently
additional Commonwealth or State uneconomic, and it is therefore highly likely
Government funding or other that some of the projects that would be at a
support for the same project? sufficiently advanced stage to compete in the
Hydrogen Headstart program may have
already received some support (this could be
in the form of funding for Front-end
Engineering and Design studies, ARENA
capital grants, funding commitments through
the Federal Government’s Hydrogen Hubs
program, or state/territory funding). This
upfront support is complementary to the
operational credit that successful Headstart
projects will attract, and those who have
received additional support should not be
penalised for it.
4.4 How should the Program treat a Support from the Hydrogen Headstart
project that has been able to attract program is likely to give Australian projects a
international government greater chance of success in international
investment such as that under programs such as H2Global, and may also
H2Global? How can the Program enable the Australian Government to get
best leverage this support? more bang for its buck through its own
schemes. As such, we would encourage the
Government to allow proponents to stack
funding support from domestic and
international sources.
4.5 How should the HPC consider High inflation presents a significant risk to
inflation? project cost estimates, and for this reason,
the CEC suggests that the Government
considers allowing projects to submit bids
which reflect a credible funding range, which
could be refined over the course of the tender
period.
We also recommend that the hydrogen
production credit reflects real, rather than
nominal monetary values, noting that
electricity power purchase agreements and
debt costs will often be linked to inflation.
Proposed upside sharing
5.1 Other international schemes have On the basis that most projects will need to
varying upside sharing enter into long-term offtake contracts for a
arrangements such as the UK premium, high-priced commodity, it is difficult
scheme which requires projects to to imagine scenarios in which super profits
share 90% of upside back to the may be realised by proponents.
Government.
However, where such circumstances arise, it
Please provide your views on the is appropriate that there is a 50/50 upside
sharing mechanism in place. This equal profit
proposed upside sharing
sharing (as opposed to the unbalanced
arrangements (50/50, above a
strategy by the UK) gives the proponent
materiality threshold) for the equal incentive to negotiate a higher sales
Program, including with reference to
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the methodology for sharing upside price or reduce operating costs where these
(a reduction in the HPC). opportunities exist.
While we consider it reasonable that the
government would expect to share in/claw
back ‘super’ profits (which are beyond the
requirements for the healthy profitability of
a project), we note that the downside risks
associated with project costs and offtake
prices will rest solely with the proponent.
The Government should therefore be
prepared for proponents to account for this
downside risk when nominating their
hydrogen production credit values, in order
to enable them to protect the financial
sustainability of their projects, and the
materiality threshold must be set at a
reasonable level which does not preclude
reasonable upside gains. The long-term
financial health of projects will be vital to
the success of the Headstart projects and
the Australia’s fledgling green hydrogen
sector more broadly.
Volume risk support
6.1 Do you think the Program should The CEC supports the proposal for volume
include volume risk support? If so, risk sharing, noting that the hydrogen
why? production credit payments are tied to
production/offtake volumes.
It would be prudent to develop further detail
regarding the circumstances in which this
support would be triggered (ie. where offtake
customers reduce their demand) and where
it may be excluded.
Payment frequency
7.1 Please provide any feedback on the The CEC supports the proposal for payments
proposed payment frequency and to be made quarterly in arrears, commencing
term. on an agreed start date linked to the
commercial operations date.
Our members have overwhelmingly
indicated however, that a 10-year term is
insufficient to underpin the bankability of
these long-life, capital-intensive production
plants, and the CEC recommends that the
Government extends the term to 15-years.
Were the Government to maintain this 10-
year term, then this would necessitate higher
production credit values over a shorter
timeframe in order to balance the risk.
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Q Question CEC response
Merit criteria
9.1 Please provide any feedback on the The CEC is broadly comfortable with the
proposed merit criteria. proposed merit criteria.
There is likely to be a range of project use
cases and commercial models put forward,
which create benefits in different ways.
It is therefore important that the merit criteria
assess the benefits of the project on a holistic
basis, and we are pleased to see that the
proposed criteria asks proponents to
demonstrate the breadth, depth and quality
of their project plans, while avoiding
stipulating stringent standards/constraints in
any single area.
We do note however that the proponents who
will be in a position to nominate a production
credit/credit range with a degree of
confidence will need to be at an advanced
stage of project planning.
If a primary objective of the scheme is to get
large-scale projects away at speed, then it
should make objectives for project
readiness/maturity explicit in either the merit
or eligibility criteria.
9.2 How should merit criteria be structured The weighting criteria should reflect the
or weighted to ensure the success of Government’s priorities for the program, to
delivery of hydrogen from projects? support at least two large-scale renewable
(For example, by adding weighting to hydrogen projects to get to market as soon
criteria that deal with: the capability as possible, establishing the foundations of a
and capacity of a project proponent to green hydrogen sector in Australia.
deliver its proposal; the credibility and
level of conditionality of the offtake It will be vital that proponents demonstrate
agreement, the extent to which the the necessary technical capability, financial
project has already undergone project capacity and a commitment to the
planning processes including responsible development and operation of
feasibility/FEED studies, the the plant (social, environmental and
identification of sustainable water economic) within their local communities.
sources, other environmental aspects
and community engagement; and/or
the unique attributes of the project.)
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Q Question CEC response
9.3 Should an applicant be required to It is difficult to see how a project will nominate
have at least a conditional offtake a production credit value/range with
arrangement in place before applying confidence without being at an advanced
to the Program? What standard should stage of offtake discussions/negotiations.
be applied to determine the reliability
of such an arrangement? As per our earlier comments, should an
advanced degree of project readiness be
expected, this should be made explicit within
the eligibility or merit criteria, in order to avoid
proponents with longer lead times from
investing substantial time and resources in
participating in this Headstart round.
9.4 What additional outcomes should be The CEC considers that the proposed Merit
incorporated into the formal merit Criterion C is broadly appropriate, and
criteria for the Program in order to enables proponents to demonstrate the
deliver broader benefits? (For breadth, depth and quality of their project
example: level of private investment planning across a range of economic, social
leveraged; number of jobs created; and environmental sustainability criteria.
number of apprentices supported;
level/value of common user Knowledge sharing (Merit Criterion E) is a
infrastructure supported; level/value vital aspect of this program, and the CEC
of social infrastructure supported; would like to see commitments to
level/value of local suppliers; use of knowledge sharing in a timely fashion
hydrogen towards existing or new following major project milestones, so that
manufacturing industries; level of subsequent projects can swiftly benefit from
knowledge shared with the broader the learnings of pioneering projects.
industry.)
9.5 What other aspects of an export- The CEC considers that the current criteria
oriented proposal should be assessed (which include employment opportunities,
to ensure the Program funds use of local supply chains, contribution to
demonstrate tangible benefits to skills and training, contribution to social
Australians? infrastructure and inclusion of First Nations)
are broad enough for export-oriented
programs to demonstrate their local project
benefits.
9.6 How should emissions abatement We note that Merit Criterion A intends to ask
calculations consider the different end proponents to stipulate the implied cost per
uses of hydrogen and greenfield vs tonne of CO2 abated.
brownfield facilities? While we agree that provision of such
information would be useful in demonstrating
the relative emissions reduction benefits of
the project, it may be practically difficult to
implement in some cases.
For example, a proponent who aims to sell
green ammonia as a clean maritime fuel,
would be required to have access to data
regarding the emissions intensity of the
fuel/technology that is being displaced. This
information may not be readily available to
the proponent.
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Q Question CEC response
Proposed timetable
15.1 Does the timing proposed for the The CEC recommends that Hydrogen
Program outlined below appear Headstart should aim to get at least two
appropriate? If not, please note in large-scale green hydrogen projects up and
your view an appropriate alternative. running as soon as possible, as a way of
demonstrating that Australia means
business, and accelerating our learning rate
and cost reductions.
On that basis, we suggest that the
Government is explicit within the eligibility or
merit criteria that projects should be at an
advanced stage of project development, and
that the EOI and Full Application timelines
are accelerated to the extent that is possible.
Such a strategy however, must be matched
with early confirmation by the Government as
to the proposed longer-term policies/support
mechanisms for those projects which are
either not ready to participate in the coming
six months, or which are unsuccessful in
securing Headstart funding in the year
ahead.
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