National Hydrogen Strategy: issues papers

Before considering what scale is needed to achieve efficiency in the hydrogen industry, there are frameworks that must be considered to give the potential industry the certainty required to invest to the level of scale that will be required. These steps will be integral to signal to the market that Australia is open to the development of hydrogen production at scale and are committed to the cost reduction and economies of scale that will be required.

Policy certainty and government leadership will be integral to scaling up a clean hydrogen industry within Australia. Government can demonstrate leadership in areas of research and development, strategic direction, tangible policy initiatives and a strong commitment to renewable hydrogen through decarbonisation commitments. With the IEA predicting Australia could produce the equivalent to two thirds of Australia’s current national energy usage per year in hydrogen, it represents a significant opportunity worthy of Government support and leadership.

The paper notes that to meet approximately one third of Japanese hydrogen demand by 2030, Australia will need to invest in 3GW of new solar projects and 2GW of new wind generation. National energy policy that provides investment certainty will be critical for this level of investment to occur promptly and efficiently. Japan is only one international market for Australian hydrogen, with several other countries also committed to a hydrogen future. That is in addition to the potential vast domestic Australian markets.

The Australian Energy Market Operator (AEMO) Integrated System Plan (ISP) states 17GW of storage will be required to balance the variability in supply from renewable electricity generation. This level of storage is forecasted to be met through a mix of battery storage and pumped hydropower. There is potential for hydrogen to achieve the scale and cost reductions necessary to provide a service to Australia’s electricity production as a form of storage. There are significant potential efficiency gains that may be had for utility scale electricity generators combining electricity generation with hydrogen production for utility scale storage and hydrogen production for domestic use and export. Such a combination will allow the generator flexibility to manage grid dynamics, (also an additional revenue source), such as constraints, and maximise excess renewable energy production.

Clean hydrogen production must be the priority for Australia to achieve successful domestic decarbonisation of the energy system. It is also integral to achieving a successful hydrogen export industry as importing countries are already beginning to send the market signals that they will only import clean hydrogen. Meaning, that for the long-term success of the industry, clean hydrogen from renewable electricity production is the only opportunity worthy of support at scale.

The CEC suggest there is an opportunity to integrate the rise of the hydrogen industry with the establishment of Renewable Energy Zones (REZ’s) throughout Australia. REZ’s are being established to efficiently build out the transmission network to areas of significant solar and wind resources and integrate new generation in the most cost-effective manner. Integrating hydrogen production will allow efficiency gains in the form utilising excess generation to produce hydrogen for storage and export and will allow the generator more flexibility.

Green hydrogen production zones will need adequate transmission, port infrastructure, sustainable water supply and access to renewable energy to be competitive. The CEC recommends focusing Government funding options towards scalable projects for hydrogen production in REZ’s.

In the CEC’s experience, community engagement is critical for all large-scale utility projects in regional areas. To this effect, the CEC has established the Best Practice Charter for Renewable Energy Developments to guide developers on best practice for engaging with communities in the areas of new developments.

It may be worthwhile for the hydrogen industry to consider a similar approach.

We recommend the establishment of a working group to identify the workforce implications, minimum standards and transitional skills required to meet the scaling up of the green hydrogen industry.

For a number of years, the electricity system has been in transition from large centralised fossil fuel generators to a system of smaller decentralised renewable generators. This transition has presented a number of challenges, including the network expansion and market reforms that have been needed to integrate renewable generators appropriately.

Renewable generators can be constructed in much shorter times than fossil fuel generators, which has led to a market that is struggling to keep up with the reforms needed to efficiently incorporate the new participants. Similarly, with the rapid expansion and dispersion of the generation fleet, transmission networks are not designed to deal with the current level of decentralised generation.

The CEC encourage the hydrogen industry to learn from this rapid growth in clean energy. Appropriate structuring of different growth scenarios will allow for effective planning to occur to ensure infrastructure, markets and industry are well equipped.

The consideration of future market and infrastructure requirements may also provide industry with the signals and lead times required to invest proactively, rather than industry investing and the markets and infrastructure responses happening reactively.

Figure 3 in the paper provides some perspective on the expected cost reductions for various methods of hydrogen production. This provides valuable insight and hints that by 2030 clean hydrogen will be approaching the costs required by international markets, such as Japan. It is worth noting that Figure 3 shows expected cost reductions in production from fossil fuel sources will be limited. This indicates there is value in investing in the cost reductions for clean hydrogen now, for long term benefits to the Australian industry. Again, for this to occur the industry must be shown clear leadership and policy certainty by Government.

Investing in the clean production of Hydrogen will give Australia a significant advantage over other countries who decide to scale up fossil fuel-based hydrogen production in the interim. As noted in the additional issue’s papers, countries are considering the origin of the hydrogen to be important. Producing clean hydrogen at scale will give Australia a unique advantage in markets such as Japan and Korea who have publicly announced their desire for carbon free Hydrogen by certain dates.

The Australian Renewable Energy Agency (ARENA) funding is expected to run out within the next 12 months and completely close by 2022. ARENA has been integral in the growth of the renewable energy industry through its funding agreements and the knowledge sharing requirements associated with funding. The CEC suggest ARENA funding is extended, which will allow their efforts to continue to reduce the cost of producing clean hydrogen in Australia.

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For Australia, export credibility starts with improving and demonstrating domestic readiness, skills and capabilities.

Australia is currently developing a number of Commercial / Demonstration projects around Green Hydrogen. Promotion of these to international partners and investors is important. These initial projects are a steppingstone to what can be done at larger scale in Australia. Creating an international profile of the ongoing developments through collaborating within international government agencies would be essential. Being involved in international conferences and discussions are also excellent means to promote Australia.

One initiative that the CEC would suggest is to create a central database of all ongoing developments / projects / government incentives / government stances which can be easily accessible to international entities. It would not have to be overly onerous and would ‘showcase’ the progress being made in Australia.

There are other important aspects that give Australia an attractive edge such as clean and transparent green energy supply chains when it comes to energy. This would also need to be promoted internationally.

The CEC suggest Australia embrace and commit to Commercial Green Hydrogen as a fuel and energy source. This may be in the form of switching government owned fleets such as city buses to Hydrogen for example. Demonstrate on the global stage we see Green Hydrogen as commercially viable and that we are promoting “green branding”. Green hydrogen provides Australia with green energy independence – we currently import most petrol, all diesel – and tend to want to export most of our gas.

The Government should support research into the mechanisms for exporting such as conversion into ammonia or the use of mediums like gels. These technologies require additional support to reach commercialization but could unlock massive potential.

Building technical, commercial skill sets and expertise by supporting local businesses and projects will also assist. Government should recognise that it will be the smaller, newer entries that will be creative in this space. Large Oil and Gas companies are already partly conflicted with their traditional industry strategies and financial commitments. They will not move fast unless they see a “threat” albeit small and short term. We encourage Government to invest in local people via local projects.

Australia has yet to show willingness to develop its own technology – e.g. we should look at developing Australian made components. Here are an example of where the components of a hydrogen industry are manufactured and Government should look to attract such manufacturing to Australia.
 PEM stacks for fuel cells and electrolyers – currently Canada, British, Norway, Germany – now China pushing to industrialise.
 Storage – carbon fibre, special metals – USA, France, Sweden, Japan, Canada
 Refuelling stations – USA, Sweden, Germany, UK

CSIRO, who should be supported further in this space by Government has significant membrane capability (but focused on Ammonia) that could play a great role in the future hydrogen sector.

Investment should be for smaller players –big companies have a lot of resources and finances and will get there when ready – in the short term they will arguably move slow due to traditional business conflicts

Australia already has strong relationships with traditional offtake countries – e.g. Japan, South Korea. Based on this, bi-lateral agreements should be strengthened.

Many countries with high manufacturing industries will/may be under increasing stakeholder pressure to “green” their supply chains. Hydrogen energy is significant for this, and Government should promote our green hydrogen industry on the international stage whenever possible.

We would encourage Government to open new ‘energy’ relationships with countries which have growing energy requirements. Through these discussions Australian can promote to them the potential of taking on Green Hydrogen, rather than just looking deferring to conventional oil/gas. Emerging international markets Australia should focus on would include India, most Asian counties – Indonesia, China, Taiwan, Singapore, Thailand, Vietnam, also many African countries.

One specific opportunity would be The Philippines. They will soon be off-plateau on their own Malampaya Gas Field and will soon need to commit to importing LNG – there is opportunity here for them also consider Hydrogen.

Government should support and ‘buy-into’ international standards that are already in place and adopt best practices. All too often committees are put in place and end up creating new entire teams and workflows, expending resources, money and time for things that are already fit-for-purpose and in place internationally or parallel industries (e.g. we already transport and use Hydrogen in Australia).

As per the above point, development of a domestic market is essential

As per the above point, development of a domestic market is essential

It is not too ambitious at all. The figures of renewable energy MW’s that have been suggested could quite easily be developed and built in Australia with the right market signals from Government.

The CEC supports the establishment of Guarantee of origin (GO) as early as practicable and suggests the working group consult with industry, and to utilise international learnings.
As the issues paper points out it is almost impossible to tell how hydrogen is produced and consumers and export markets have a clear preference for transparent and easily digestible information around the origin of the hydrogen they purchase.

Timing is important for the implementation of guarantees of origin for hydrogen production to support a regulatory system designed to reduce emissions domestically and provide certainty for developing export industry. Robust governance will be key to its success.

We are of the view a single nationally administered GO would work best to meet the objectives of this paper – traceability and certification to support regulatory systems and customer choices for hydrogen.

Not only does green hydrogen support Australia’s national greenhouse emissions reduction plan as the issues paper points out international markets including Japan’s, whose Basic Hydrogen Strategy states hydrogen imports must be ‘carbon-free’ from 2030 onwards. The Korea Hydrogen Strategy also favors hydrogen from water electrolysis and are striving to be ‘CO2-free between 2030 and 2040.

The CEC agrees with the paper that GO also helps investors assess risk, consider offtake price for hydrogen and future risks of carbon exposure in their investment portfolio.

The CEC supports certification for scope 1 and 2 emissions in agreement with key international trading partners. This will ensure consistency, reduce barriers to entry and be least cost.
The National Greenhouse and Energy Reporting (NGER) framework should be used for an agreed form of certification to accounts for scope 1 and emissions to ensure 100% green hydrogen product.

To drive best practice emissions management an eligibility threshold is desirable to this scheme. Matching this to international models is essential.

The CEC advocates for a federal or state regulator, probably the Clean Energy Regulator (CER) host and administer the guarantee of origin certification. The CER currently regulate the Australian Renewable Energy Target and the National Greenhouse and Energy Reporting (NGER) framework.

Recognising that it will be important to articulate industry’s commitment to robust safety and environmental standards from the outset, the Clean Energy Council supports the proposal to develop a Code of Conduct or industry Charter.

This Charter would need to be developed in consultation with industry, governments, emergency services, environment groups, unions and other stakeholders in order to ensure that the established principles were broadly supported. This would provide an early opportunity to build stakeholder awareness of the key issues, frame the community conversation around shared goals and strengthen community confidence in a clean hydrogen sector and future proposals.

The Clean Energy Council has had recent success with a voluntary Best Practice Charter for Renewable Energy Developments. The Charter, released in 2018, outlines a set of principles which commit signatories to engage respectfully with the communities in which they plan and operate projects, be sensitive to environmental and cultural values, and make a positive contribution to the regions in which they operate.

A Charter for the clean hydrogen industry would be likely to have significant credibility if it were formally supported by governments and agencies, industry peak bodies, environment and safety stakeholders.
The principles of the charter should be developed through a consultation process with these groups, but it could include a commitment to principles including:
o Safety first
o Respectful engagement with local communities, including Traditional Owners
o Minimising the environmental impacts in the production of clean hydrogen
o Supporting local communities, jobs and economies wherever possible in the development and operation of clean hydrogen facilities and infrastructure.

In complement to a Charter/Code of Conduct, the establishment of community engagement guidelines are a helpful resource for industry, communities and governments. These guidelines should provide principles and minimum standards but should not be overly prescriptive in the types of activities required of proponents to achieve a social licence to operate.

In 2018, the Clean Energy Council published a research report on community engagement and benefit sharing practices in the wind industry. The report, entitled Enhancing Positive Social Outcomes from Wind Farm Development, found that it was vital that community engagement and benefit sharing was tailored to a community’s needs and expectations, and ‘built on face-to-face engagement carried out by suitably experienced and/or qualified practitioners able to build strong relationships between local people and the developer’. The report goes on to say that ‘this was found to be more important than using any particular methods, such as community consultative committees, neighbour payments or grant funds. Best practice requires moving away from one-size-fits-all approaches and considering each community as its own context.’

On a separate topic, it is worth noting that employment opportunities associated with a clean hydrogen industry will be an important consideration for many communities in terms of their support for the industry. A long-term hydrogen strategy for Australia should include a Skills and Workforce plan, that considers the types of skills required and how these can be developed over time, in order to maximise the efficiencies for industry and the benefits for local communities. This will require a long-term plan matched by adequate investment.

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The CEC broadly supports the approach proposed in Issues Paper 7. In addition to the actions proposed in Issues Paper 7, there is an important role for government to ensure that its policies and regulations do not tilt the ‘playing field’ against emerging technologies and in favour of familiar, incumbent technologies.

The Issues Paper has identified that hydrogen for renewable energy storage is currently expensive. However, hydrogen stand-alone power systems (SAPS) “are financially competitive with diesel-solar-hybrid and solar-battery systems and could be commercially competitive with diesel equivalents before 2025”.

Rebates to diesel fuel are delaying the transition to hydrogen SAPS. Fuel tax credits are available to households that use diesel and petrol to generate electricity for themselves and others. Businesses are also able to claim fuel tax credits on their business activity statement.

The Government should consider removing the diesel fuel rebate for electricity generation. This would save a significant amount of money on the Government’s Budget bottom line and would help to accelerate the transition to hydrogen.

1. How can hydrogen production best be integrated with current electricity systems (for instance, should large-scale hydrogen production be connected to current electricity systems)? Are there barriers or risks to integration that need be addressed in the Strategy?

There are some attractive aspects for linking large-scale hydrogen production to our existing systems, and this use of hydrogen should be supported. There is a rapidly developing urgent need for storage / firming on our network and hydrogen has the potential to play h a role. This should not however discourage the potential of other forms of firming such as emerging battery chemistries and the hydropower industry.

The barriers for such additions to our networks can be captured within the same hurdles that face large-scale battery technology and pumped hydropower.

Another area where Hydrogen has the potential to play a beneficial role is in the emergence of microgrids. If these microgrids are dependent on hybrid solutions, due possibly to remoteness, the need for diesel can be replaced with the creation of cheap green hydrogen on-site.
To support this evolution, Government may look to address the existing high diesel rebate.

The CEC would encourage Government to keep any possible reforms to a minimum and to align it with the ongoing and upcoming reforms to allow widespread uptake of battery storage onto our networks.

There will obviously be additional considerations such as safety of installation and maintenance, but we would encourage leveraging off existing international standards around aspects such as these, which are already in place.

Hydrogen, in market frameworks, in this scenario could be treated as per energy storage. This would be a quick method to allow hydrogen to be considered an option within markets. A separate comment on the transportation sector - it can benefit greatly from the introduction of a hydrogen industry. Manufacturers are already committed to extensive roll-out of fuel cell vehicles, along with electric vehicles.

Government can look to support the creation of a domestic hydrogen industry by looking to transition fleets of vehicles over to fuel cell. This may be in their own car fleet, but more likely in government owned heavy vehicles such as garbage trucks, buses, ferries, etc.

Government should be supporting the emergence of commercial / demonstration domestic projects that are looking to be developed. Today, many of these projects are not commercially viable and would need the assistance of ARENA / CEFC potentially – but would also benefit for a domestic hydrogen market, as outlined in other sections of our response

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