By Fitch Solutions

  • We see substantial growth opportunities for the green hydrogen sector in Australia over the coming years, given the increasing viability of the technology and mutual complement with renewable energy.
  • Green hydrogen will support Australia’s ongoing renewables growth momentum, particularly as the sector has grown increasingly saturated over the past year.
  • Strong government support and rising investor interests will kickstart the green hydrogen industry and establish the necessary supply chains, amid ongoing support for renewables growth as well.

We see substantial growth opportunities for the green hydrogen sector in Australia over the coming years, given the increasing viability of the technology as a complement to renewable energy. The rapidly-falling costs of renewables will continue to push production costs of hydrogen down and drive adoption of the technology. As a result, Australia has a high potential to scale up the development of green hydrogen and reach cost parity given the growth in its renewables capacity, which has already depressed electricity prices in recent years. In fact, prices fell to a record-low and occasionally dipped into negative ranges in recent months when grid demand fell because of the increase in household consumption from rooftop solar, amid a broad slowdown in economic activity from the Covid-19 pandemic.

Renewables Depressed Wholesale Prices Dramatically in 2019
Australia – Wholesale Spot Electricity Prices, Annual Average by Region, AUD/MWh
Source: Australian Energy Regulator, Fitch Solutions

Green hydrogen will also support Australia’s ongoing renewables growth momentum, particularly as the sector has become increasingly saturated. We have previously highlighted increasing challenges to the renewables sector, as the transmission network in Australia has not been able to keep up with the recent surge of renewables capacity. This poses a downside risk to renewables growth going forward as the existing grid network will be insufficient to incorporate all the new capacity in the pipeline, which may lead to some curtailment and weigh on the progress of some projects as well as investor interest.

Regulators have warned of grid stability problems if renewables capacity continues to increase substantially over the coming years, and are mooting several solutions but these remain contentious. The Australian Energy Market Operator is now looking to batteries and large-scale storage facilities as a long-term solution. Green hydrogen would be a viable alternative as it can act as a form of energy storage for excess renewables generation.

Furthermore, this could also be exported to other markets, which would create additional demand for renewables, unlocking more capacity growth previously bound by domestic market constraints. For example, Japan has imported hydrogen from Brunei in May 2020 for its gas turbine power generators of Toa Oil Co in Kawasaki, using a liquid organic hydrogen carrier technology. While this was produced using steam reforming of LNG in Brunei, it demonstrated the world’s first international hydrogen supply chain and the feasibility for a global market going forward. The same firm has now developed a similar pilot project in Victoria, Australia, to explore the potential of hydrogen trade to Japan.

Robust Renewables Growth To Slow
Australia – Non-Hydro Renewables Capacity (2018-2029)
f = Fitch Solutions forecast. Source: EIA, IRENA, national sources, Fitch Solutions

Our view is also underpinned by strong government support and rising investor interests into the sector. The Australian government announced the National Hydrogen Strategy in November 2019, planning to develop the hydrogen sector into a new revenue stream for the economy, with commercialising hydrogen production as a priority.

The development of clean hydrogen production, an export hub and investments into R&D and demonstration projects is backed by funding and support from the government on both the federal and state levels. As a result, there has already been a significant increase in investor interest, with a rise in the number of hydrogen-specific developer start-ups. At present, Australia has one of the world’s largest electrolyser pipelines, at over 11GW, which continues to expand.

Australia Leads Global Project Pipeline
Selected Markets – Total Green Hydrogen Capacity (Over 10MW) In Project Pipeline
Source: Various sources, Fitch Solutions

While most of these projects remain in the pre-construction/planning stages, our outlook remains bullish given ongoing progress and continued support from the government, particularly as many states remain keen to support renewables growth. Most recently, Infinite Blue Energy has selected Xodus Group to carry out the first phase of the AUD300mn (USD218mn) Arrowsmith Hydrogen Project, which is set to be Australia’s first commercial scale green hydrogen plant. The Australian Renewable Energy Agency (ARENA) has also shortlisted seven developers under the Renewable Hydrogen Deployment Fund to fast-track the development of green hydrogen in Australia. We believe the first batch of projects will establish the necessary supply chains for improved commercial viability and bring down overall production costs going forward. Several ongoing green hydrogen supply deals, such as that between energy infrastructure firm Jemena and vehicle manufacturer Hyundai Australia, also support ongoing development of the industry.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. The original article can be accessed by clicking here