Australia revamps hydrogen push to reshape economy

The giant steelworks that overshadows Wollongong’s beachfront relies on the coal and iron ore at the heart of Australia’s resource-rich economy. Now the town south of Sydney is a proving ground for Australia’s hopes of an industrial transformation based around a new resource: hydrogen.

Next to the steelworks, a university spinout called Hysata has converted an 8,000 sq m building to make electrolysers, which separate hydrogen from water, both for export and to support Australia’s need to develop hydrogen fuel for industrial use.

Hysata, whose backers include Danish wind turbine developer Vestas and Britain’s IP Group, a venture capital firm, expects commercial rates of production by 2025. It is a rare example of an Australian manufacturer looking to become a vital part of the energy supply chain in an economy more accustomed to simply shipping its natural resources to other countries.

Chris Bowen, Australia’s energy minister, announced A$20mn (US$13m) of government funds for Hysata at the plant’s opening. “Hysata is a case study of what this region can achieve,” he said.

Australia has talked for years about becoming a leader in the global supply of hydrogen, based on its potential to process it using abundant renewable energy. Exports of “green” hydrogen, made by passing water through a renewable energy-powered electrolyser, could offset expected long-term declines in sales of coal and natural gas.

But the country has made little progress to date in securing investment needed for a hydrogen sector, and is now coming up against determined efforts by other governments to develop cleaner energy. They include America’s Inflation Reduction Act, US president Joe Biden’s clean energy subsidy launched last year, while countries including India and China have announced bold hydrogen plans.

Alison Reeve, the former head of Australia’s hydrogen task force and now at the Grattan Institute think-tank, said the country had missed its window to get a head start. “Australia talked a big game in hydrogen. We’ve got lots of lovely slide decks with 3D renderings but we haven’t built that much,” she said.

Australia’s previous conservative government backed hydrogen production as a policy but maintained its support for the fossil fuel sector, including coal.

The Labor government, which was elected last year, set new climate goals for the country, backed broader investment in renewable energy and gave hydrogen a more central role in the energy transition. One intention is that towns such as Wollongong will be able to bid for funds from a A$2bn “Hydrogen Headstart” programme, included in the 2023 budget, to support hydrogen production.

Hydrogen power would allow places such as Wollongong to “make and export everything from renewable energy to green steel”, Jim Chalmers, Australia’s treasurer, said as he announced the budget. “Seizing these kinds of industrial and economic opportunities will be the biggest driver and determinant of our future prosperity.”

The government also said in August that it was preparing its own version of the US subsidies to stimulate more investment in clean energy projects.

Bowen said that by 2050 Australia’s hydrogen industry could generate A$50bn in additional gross domestic product and create more than 16,000 jobs. Highlighting that 40 per cent of hydrogen projects in the world are in Australia, he said the country needed to capture more value from the energy supply chain.

Still, domestic investment would only be part of the puzzle. While pilot projects to ship liquefied hydrogen to Japan have already taken place, the best way for Australia to export hydrogen remains unclear due to the cost and complexity of the process.

One option is to mix green hydrogen with nitrogen to create “green” ammonia that is easier to export, due to the high cost of shipping liquefied hydrogen. Another view is that it would be more effective to embed the green energy into other exports, for example, by using hydrogen to process minerals such as iron ore before shipping it.

Alan Finkel, formerly Australia’s chief scientist and a Hysata board member, said the country’s proximity to Asia and trading relationships with nations such as Japan meant it was still well positioned to “ship sunshine” in the future as natural gas and coal exports decline.

Andrew Forrest, the mining magnate, has been one of the most vocal proponents of hydrogen’s role in decarbonising the country’s heavy industry while creating a lucrative new export.

Many remain unconvinced. “The rhetoric around hydrogen is ridiculous,” said one senior banker in Sydney, who argued that natural gas remained the country’s export bedrock. Gas exports generated more than A$90bn in revenue in 2022, according to the consultant EnergyQuest.

Still, the incipient investment in the hydrogen supply chain is a welcome sign. Mike Molinari, managing director of IP Group Australia, said the progress of companies such as Hysata showed that Australian technology was being benchmarked against the output of top UK and US universities and was attracting investment. “There is some substance here . . . we only invest if we see a technology that is truly globally differentiated,” he said.

There is also potential for Australia’s push into hydrogen to lure needed skilled workers. One of Hysata’s staff is Scott Abrahamson, who spent decades working in Silicon Valley at Apple and other tech companies. He said he was lured out of retirement in Colorado by Hysata and relocated to Wollongong, enticed by the impact the company could have.

“We’ve got a real opportunity to put Australia on the map,” he said. “It’s about changing the world. How often do you get that opportunity?”

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