Building the hydrogen ecosystem

The complexity of the task

A mature hydrogen industry will allow for a range of models of production, storage, distribution and use. This should mean greater diversity in infrastructure and a more decentralised energy supply, with hydrogen able to be produced in many more locations than fossil fuel extraction. There is also the possibility of greater efficiencies where supply chains can converge, particularly where use cases are co-located. For example, we can imagine a future industrial precinct where hydrogen is substituted not only for diesel and natural gas, but also provides a feedstock for chemical and e-fuels manufacturing. This is the idea behind the development of hydrogen hubs.

The issue that arises is that almost all the infrastructure required for a future hydrogen industry at scale is new, and it is long-lived with long planning lead times. The future industry requires new solar and wind farms, electricity transmission upgrades, new water pipelines, new desalination plants, new hydrogen pipelines, large-scale storage for each of hydrogen and carbon dioxide, port upgrades and refuelling capabilities.

The US has stated that even after its production tax credit has been accounted for, at this stage US$85-$215 billion in cumulative investment is required to scale the domestic hydrogen economy through to 2030 (10 MMT pa), with as much as half of this funding required to develop the midstream or end-use infrastructure (US Department of Energy, 2023: 42).

And it is not just about physical infrastructure. Significant social and institutional support will be required:? to enable the reallocation of capital within the funding and financial system; to gain the tacit and/or explicit community acceptance for what will be a major infrastructure build into shared environments; to build the RD&D, regulatory framework and business connections to support emerging business models.

Workforce is also increasingly being recognised as a matter of some concern: it is already difficult to find workers in many regions and yet the infrastructure required for the energy transition is not yet built. Hydrogen is also new for many uses and so the future workforce must have the appropriate skills in handling hydrogen in various circumstances.

These are the key elements of the future hydrogen ecosystem, and integrating these elements within the ecosystem remains one of the most challenging parts of risk allocation and project development. As discussed in Chapters 1 and 2 of our position paper , government has a vital role to play in planning and coordination to create the industry, and this includes identifying the minimum physical, social and institutional infrastructure needed to meet Australia’s objectives, and then deploying public funding and targeted policy to unlock private capital.

Chapter 3 of our position paper discusses the various elements of the ecosystem and provides recommendations for government action with areas of strategic interest falling into 15 categories, as shown in teal and aqua below in Figure 1. In this article we will not go into this detail but address a regional approach that can ideally cover all elements of the ecosystem.

Demand centres and regional development

Hydrogen opportunities may be far more spread across Australia than the footprint of the traditional fossil fuel and renewable energy industries, but there are still loci of activity: the demand for hydrogen is concentrated in and around population centres, industrial zones, and export locations. This means hydrogen developments will both support and compete with the needs of other stakeholders (Arup, 2023: 48).

Supporting the transition for workers in carbon-intensive industries?

Where it overlaps with current fossil-based industry locations, the future hydrogen industry can be a means for workers in carbon-intensive industries to be reskilled and employed. We are seeing a new consensus of experts supporting the idea that Australia’s manufacturing capabilities can be improved with using hydrogen here for processing minerals for export. For example, green steel (green iron) is a manufacturing opportunity that could plausibly provide tens of thousands of new jobs. In 2020, the Grattan Institute stated that it makes sense for Australia to export steel to countries with relatively high wages, such as Japan or Korea, and to export direct reduced iron to countries with lower wages, such as Indonesia. The Grattan Institute also modelled a future green steel industry based in central Queensland and the Hunter Valley, where iron ore is transported from WA to the east coast (Wood, Dundas & Ha, 2020: 30). This industry scenario has 40 million tonnes of steel exported per year to our regional trading partners, to a total value of A$65 billion, and capital investment of A$195 billion. Conservatively, this would mean 25,000 ongoing plant jobs in the region (just for steel manufacturing), to supply 6.5 per cent per cent of the world’s steel.

The manufacturing options with hydrogen are longer term but they are some of the most important aspects of future hydrogen planning and regional development.

Hydrogen hubs

The National Hydrogen Strategy (NHS) v1 proposed the concept of regional developments, where hubs co-locate users and producers to allow for a degree of cost-sharing for infrastructure and improvement in the economics of individual business cases. The hubs model was subsequently explicitly supported by the Hydrogen Hubs initiative, which announced A$464 million in federal co-funding for seven projects in early 2022. We are starting to see announcements about individual hub projects proceeding under this initiative.

While the NHS v1 supported the hub model “as a prospective early-stage approach to achieve the scale needed for a competitive industry” (Agreement 8), the approach taken to date has been too slow, too distributed, and too small to see any developments build scale.

General perspectives on this matter have shifted from the initial embracing of hubs. While capital expenditure grants are still welcomed, they do not themselves create markets, and operating cost remains an issue. Hub projects will be extremely useful; however, they will be less about building scale and more about gaining experience, developing the workforce, and creating working relationships.

We also should note that the different uses of the term ‘hubs’ has led to a mixed stakeholder understanding. The hubs that have been granted federal funding are welcome but they do not represent all possible hubs or all models for hubs – we prefer the term Hydrogen Economic Zones, as below.?

Regional planning to manage competing needs

The energy transition will require new and upgraded infrastructure for a range of purposes, not the least for decarbonising the electricity grid and connecting regions. This matter is being addressed by several parties, including AEMO and the state-sponsored renewable energy zones (REZs), but it is still early in the process.

The REZs should be a model for how to address and integrate hydrogen, but they are on different timelines with different approaches, and lack the national coordination required to build a national industry with national export objectives.

While we do have hubs, these are regional projects and are not connected by ‘spokes’. They are also not the result of top-down planning but of consortia bidding for capital funding (and in an extremely truncated period). This is not to say that the projects will not be successful, but we do note that at least one of the projects announced will not proceed.

In Chapter 1 AHC stated that planning and coordination is vital for the energy transition as a whole, and hydrogen has a vital part to play. In Chapter 2 we proposed that collaboration across multiple portfolios and jurisdictions is needed, as well as a comprehensive approach to data collection and analysis.

We realise this is asking a lot of the Net Zero Economy Agency and any secretariat staff. However, we believe there is a way to effectively manage this work.

First, we are not starting from a blank page, and there is perhaps a better argument to streamline and align different work programmes than to consider too much from first principles.

Second, where intensive analysis and masterplanning is required, this can be localised to a degree.

Hydrogen Economic Zones

It is easier to manage and deliver complexity with some boundaries. We suggest the creation of Hydrogen Economic Zones as a means of setting boundaries which foster more intensive engagement between parties with some degree of central coordination.

It is not ideal to create yet another category of project, but so many of the challenges with creating the hydrogen industry at scale have been exacerbated by not having an adequately comprehensive model or framework for hydrogen policy. Hydrogen projects touch everything and are touched by everything but lack any organising principle for decision-making.

While REZs are not a perfect match for hydrogen economic zones because they do not account for non-electricity matters (and it is not clear how they may grapple with the energy workforce and one-stop-shop permitting), the REZ model can be built on and supported to ensure coverage of hydrogen for industrial use and transition matters. The hubs are too small and localised to themselves be hydrogen economic zones, but they provide the starting points for future hydrogen economic zones. The process of awarding hub funding should itself have provided the Australian Government with data to inform this work, even if funding was not granted.

Australia has many regions scoping out how they can leverage the emerging hydrogen industry as a producer, storer and user to maximise economic diversification and decarbonisation targets. Australian governments, industry and not-for-profits must ensure we create a collaborative and connected industry culture that proactively shares non-commercial lessons learned. This will ensure regions and industry make more informed and efficient technical, social and economic decisions.??

The network of regional hydrogen clusters seeded by NERA goes a long way to provide a framework for this to occur and could be further enhanced by renewed regional and national coordination. The benefit of this network is that it not only caters to the regions that have secured government funding for hub activities but includes regions that are scoping opportunities and wish to learn from the regions moving first. Issues that regions can collaborate on include:

• Aggregating and educating potential regional demand
• Delivering better community engagement
• Mapping regional capability
• Developing local training and education capabilities.?

Combined with the industry and regional development work being undertaken by individual state and territory governments, regionally focused organisations and local councils, we have many of the right actors in place.

Educating future demand

Feedback from AHC’s engagement with members and across regions suggests that many Australian large, medium and small companies are interested to understand how hydrogen could support their decarbonisation targets, but they are time poor and don’t know how to proceed. Many government, industry and not-for-profit organisations observed this same phenomenon several years ago when the renewable energy industry was growing.

In 2018, Climate-KIC Australia,?Institute for Sustainable Futures?(UTS) and WWF-Australia launched the Business Renewables Centre Australia. Since its inception it has provided independent training, connection, guidance, and fundamental ‘how to’ resources for companies seeking to decarbonise their business through renewable energy procurement. This model could be adapted to help the time-poor yet information-hungry potential users of hydrogen fast track the decisions they need to make.

Recommendations relating to the overall need for regional planning as follows (there are many more about each part of the ecosystem in the paper).

Recommendation 15: Create Hydrogen Economic Zones to support regional hydrogen initiatives and connect the relevant supply, demand, infrastructure and workforce.

The Net Zero Economy Agency should oversee the development of Hydrogen Economic Zones that link hydrogen production targets to locations via hydrogen economic zones that incorporate REZs and ports, as well as likely requirements for hydrogen storage, CCS, refuelling, pipelines, and workforce.

This work should adopt work already undertaken by the jurisdictions.

Recommendation 16: Support a nationally connected and coordinated regional network facilitated by the Australian Hydrogen Council.

The Australian Government should fund the Australian Hydrogen Council to seed the development of a Regional Collaboration Lead that works across state borders and into regions to maximise the efforts of industry funding to share lessons and best practice.

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Read the full report on our website: https://h2council.com.au/ahc-publications/ . ?

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References

Arup (2023) National Hydrogen Infrastructure Assessment: Final Report, prepared for the Department of Climate Change, Energy, the Environment and Water, April, https://www.dcceew.gov.au/energy/publications/national-hydrogen-infrastructure-assessment .

US Department of Energy (2023) Pathways to Commercial Liftoff: Clean Hydrogen, March, https://liftoff.energy.gov/wp-content/uploads/2023/05/20230523-Pathways-to-Commercial-Liftoff-Clean-Hydrogen.pdf .

Wood, T., Dundas, G., and J. Ha (2020) Start with steel: A practical plan to support carbon workers and cut emissions, Grattan Institute, Report No. 2020-06, May, https://grattan.edu.au/wp-content/uploads/2020/05/2020-06-Start-with-steel.pdf .